Annual Report
2020
McMillanShakespeare Limited b
The McMillan Shakespeare Group is a trusted,
market-leading provider of salary packaging, novated
leasing, disability plan management, 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 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.
Annual General Meeting
The Annual General Meeting of the members of McMillan
Shakespeare Limited A.B.N. 74 107 233 983 will be held
online via https://web.lumiagm.com (Meeting ID 362-903-017)
on 20 October 2020 at 10.00am
mmsg.com.au
MMS ANNUAL REPORT 2020 1
Contents
Joint Chairman’s and CEO’s Report
Our Vision, Purpose and Values
Key Metrics
Directors’ Report
Directors
Directors’ meetings
Principal activities
Results
Dividends
Review of operations
State of affairs
Risks
Outlook and likely developments
Events subsequent to balance date
Directors’ experience and
special responsibilities
Company Secretary
Remuneration Report
Unissued shares
Directors’ interests
Environmental regulations
Indemnification and insurance
Non-audit services
Corporate governance practices
Auditor’s independence declaration
Directors’ declaration
Five year summary
Financial Report
Directors’ Declaration
Independent Audit Report
Auditors’ Independence Declaration
Shareholder Information
Corporate Directory
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MMS ANNUAL REPO R T 20 20
Joint Chairman’s
and Chief Executive
Officer’s Report
3
The McMillan Shakespeare (MMS) Group delivered
revenue of $494.0 million and underlying net profit
after tax and amortisation (UNPATA) of $69.0 million
in FY20. We are pleased to present the Group’s full
year results for FY20.
Our People and Our Customers –
Managing a Global Pandemic
The COVID-19 pandemic presented a public health and
economic crisis the likes of which the modern world had
not before seen. The resilience of our people, and the
sacrifices they made throughout this period of disruption,
deserve particular recognition.
We are particularly proud of how our teams conducted
themselves as they adapted to the challenges of working
remotely while continuing to maintain a high level of service
to our customers.
A COVID-19 online hub was established, in order to
ensure our people were not only healthy and safe, but also
connected and empowered during the pandemic. This online
hub remains an important central resource, helping teams
stay informed as the situation develops, through news from
the business, the latest Government health advice and regular
updates from senior MMS leaders.
In order to protect our financial health for the longer term,
we partially or fully stood down our workforce in parts of the
business where there was a material change in workload.
We also reduced all non-essential operating and capital
expenditure, including reducing the remuneration of our
Board, Managing Director and all Group Executives by 35%
collectively. We also qualified for the Federal Government’s
JobKeeper Program, which allowed us to retain all staff that
had been stood down.
Future Group operating practices, both short and long-term,
have and will continue to be shaped by the learnings and
successes of the period and our response to COVID-19. A
key objective will be embedding sustainable, flexible working
arrangements without degradation of service delivery and
profitability, while also looking at avenues for cost reduction.
Operating Market
Although underlying profitability was below what the
Group achieved in FY19, the period’s performance reflected
a highly challenging operating environment, including the
continued decline in the Australian new car market, a
changing and uncertain regulatory environment, and the
economic impacts from both the summer’s catastrophic
bushfires and the COVID-19 pandemic.
Group revenue for FY20 of $494.0 million was down
compared with $549.7 million in FY19, whilst UNPATA
declined by 22.2% to $69.0 million.
The Company recorded a statutory after-tax profit of $1.3
million for the period as a result of write-downs within the
Group’s UK Asset Management (AM) business and Retail
Financial Services (RFS) segment.
The public health measures that were implemented in
response to the COVID-19 pandemic impacted, to varying
degrees, consumer confidence and the markets that the
Group operates in both domestically and in New Zealand
and the UK.
The Company’s salary packaging business continued to be
largely unaffected by the COVID-19 containment measures,
as did our Plan Partners business, which continued to add
new clients and provide an uninterrupted level of service.
Notwithstanding the Company’s large customer base in
the health, public and emergency service sectors, inquiry
levels for new novated leases contracted during the period,
as consumer confidence fell in the face of the pandemic.
Similarly, COVID-19’s impact on activity and revenue for our
AM clients in Australia, New Zealand and the UK drove a
significant decline in new asset financing, whilst we focussed
on extending maturing lease contracts and working with
impacted customers. The RFS segment was significantly
impacted by lower volume of finance originations and the
decline in the number of car sales.
All affected businesses responded by managing labour
costs and non-essential expenditure in response to the
COVID-19 pandemic.
During the period we continued to make sound progress
in our strategic initiative to enhance our value proposition
through digital innovation. As in previous periods, this
progress is most notably reflected in the performance of
our Group Remuneration Services (GRS) business and
provides an encouraging indication that the Group is well
positioned for future growth.
4
MMS ANNUAL REPOR T 202 0
During the period, we commenced the restructuring of our UK
AM business to concentrate on off-balance sheet originations
and fleet management in response to a competitive market
and the significant impact of COVID-19, with our existing
funding book to be run down and residual equity repatriated.
The Group’s statutory profit after tax for the period was
adversely impacted by approximately $15.9 million due to a
write down of intangibles and restructuring costs.
Our RFS segment faced a challenging environment during
FY20, with an uncertain regulatory landscape impacting
sales of insurance products. This was further compounded
by the soft car market and the effects of COVID-19. In
response, we undertook a range of measures to reduce
the cost of service and increase customer value through
enhancements to our warranty products, systems, processes
and procedures.
These changes necessitated a revision in the timing of
recognising sales revenue and associated acquisition costs
in respect of warranty product sales. The revised approach
will see revenue earned and costs incurred more evenly
recognised and over a longer period. In transitioning to these
revised estimates, MMS incurred a $10 million charge to
the Group’s FY20 statutory profit.
The challenging market conditions for the RFS Aggregation
business, including shifts in the mix of funders and changing
credit assessment criteria, also led to an intangible impairment
of $34 million to FY20 statutory profit. The business also
experienced a reduction in finance originations and yields
during the period. Our relationship with lenders remain central
to our value proposition and we successfully diversified
our lender panel, with the addition of new commercial and
personal loan lenders.
Segment Review
While Group revenue and UNPATA were more modest
compared to the previous period as noted, our largest
business (GRS) performed soundly. Our continued
focus on improving our service offering through digital
enhancements and targeted customer engagement led
to a 5.2% increase in salary packages on FY19, while
novated leases grew 5.6%. Although both outperformed
the decline in the broader Australian new car sales market,
yields were down due to a range of factors attributable to
the COVID-19 pandemic and other pressures, including
changes in our mix of funders, the tightening of credit
assessment criteria and lower insurance penetration.
Despite that, the performance of both salary packaging and
novated leasing reinforces that the business platform set in
place in recent periods is resilient and we are positioned for
longer term growth despite the ongoing broader economic
and yield challenges.
Client retention and acquisition in the GRS segment was
a highlight for the period and again reflected the ongoing
commitment to broadening the value proposition and
improving the customer experience. During FY20 we recorded
more than 70 new business wins, encompassing a mix of
corporate, charitable and not for profit health clients.
Plan Partners continued its strong performance,
recording another profitable period in FY20 with funds
under administration increasing by more than 100% on
FY19. Investments in technology improved our customer
offering and created a more attractive proposition for service
providers during the period. This capability was particularly
important in delivering a range of customer support
initiatives during the COVID-19 pandemic. Given this strong
performance, we were pleased to move to 100% ownership
of the business, having reached an agreement to acquire
Disability Services Australia’s 25% shareholding, which
completed on 30 June 2020.
Our AM segment has operated during the period in a
competitive and challenging market. While new asset
financing remained subdued, we continued our transition to
a more ‘capital light’ business model, an initiative first
launched in FY17, with the intent of holding a third of assets
off-balance sheet. More than $100 million is now written
through principal and agency funding arrangements.
5
Beyond 2020 Program Update
The Regulatory Environment
As the financial services regulatory environment evolves,
we remain committed to meeting changing expectations and
fulfilling our responsibilities. Amongst other considerations,
the Australian Securities and Investments Commission (ASIC)
review of finance and add-on insurance products continued
through the period, with industry consultations underway and
findings likely in FY21. Delays due to COVID-19 also led to the
Federal Government announcing a six-month deferral to the
implementation of commitments associated with the Royal
Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry.
Beyond 2020, our business transformation program
launched in FY18, continued to focus on improving the
customer experience while also reducing the cost to serve,
with a notable impact on the performance of the GRS
business during FY20. With an ever increasing focus on
digital transformation across our business, the team are
now looking to FY21 and Beyond.
Funding warehouse
In the second half of FY20 we focused on the creation of
a securitisation and funding warehouse, expected to be in
place for the beginning of the 2021 calendar year, in order to
provide increased optionality in our novated leasing funding
arrangements. The intent is to provide solutions that are
better aligned with our customers’ needs amidst a changing
credit market.
Our Commitment to Sustainability
Now in its second year, our Environmental, Social
and Governance (ESG) Steering Committee continued to
provide strategic direction and oversight to our commitments
to the long-term sustainability of the Group’s operations.
The introduction of a new Environmental Sustainability
Policy for the Group aims to minimise the impact our
business activities have on the environment. This year’s
accompanying Sustainability Report provides an update
on our progress.
6
MMS ANNUAL REPO R T 20 20
Capital Management and Governance
Outlook
Despite the significant challenges encountered throughout
the year, we are currently well positioned as a result of
prudent decision making and active capital management
during the onset of the COVID-19 pandemic.
While the impacts of COVID-19 on the economic environment
and consumer confidence will continue into the next period
and possibly beyond, we must remain agile and adapt our
operations to meet the challenges.
Our priorities in FY21 include ensuring we have flexibility in
relation to our funding arrangements, the introduction of
new products and services in response to changing
consumer mobility needs and market dynamics, our
continued investment in the Group’s digital and information
technology roadmap to reduce the cost to serve whilst
enhancing service, and protecting the health and welfare of
our people whilst ensuring they have the ability and tools to
undertake their work where and when required.
We again extend the sincerest thanks to all MMS people
for their willingness to go above and beyond in FY20, and
additionally we thank our customers and our shareholders
for their ongoing support.
Tim Poole
Chairman
Mike Salisbury
Managing Director
During the year, approximately two-thirds of Australia and
New Zealand debt facilities were extended to March 2022,
while debt facilities in the UK have been extended by
12 months.
Due to the impacts of COVID-19 and the uncertain economic
environment the Board determined that no final dividend
would be paid in respect of FY20. This resulted in a total
dividend of 34 cents per share for FY20 (paid in March 2020).
In October 2019, we announced the successful completion
of an off-market Share Buy-Back. We were pleased that the
Buy-Back was well supported with approximately 7% of total
shares on issue acquired.
In terms of changes to our Board of Directors, we were
pleased to welcome Kathy Parsons as an Independent
Non-Executive Director during the period. Kathy is a former
Audit Partner at Ernst & Young, with experience spanning
Australia, the US and the UK. She brings a wealth of valuable
experience and insight to the Group and from September
2020 will Chair our Audit, Risk and Compliance Committee.
In January 2020, long-serving Chief Financial Officer and
Company Secretary Mark Blackburn announced he would
be stepping down toward the end of the 2020 calendar year.
Mark has served the Company for more than nine years and
made a significant contribution to our growth over that
period of time. We thank him for his contribution and wish
him well for the future.
We were also pleased during the period to welcome back
to Australia from our UK business, Geoff Kruyt. Geoff was
appointed Managing Director of our UK business in 2018,
and prior to that held the role of Chief Operating Officer (COO)
for the Group. On returning to Australia Geoff has resumed
his role as COO with direct responsibility for the GRS,
AM and RFS segments, whilst also retaining accountability
for our UK operations.
7
Our Vision,
Purpose and Values
MMS’ vision, our values and our WHY guide the Group’s activities,
in both a business sense and in our commitment to our communities
and stakeholders, providing a framework to guide us in our day-to-day
actions and long-term decision making.
They are a guarantee to our people, our customers and our
broader stakeholders that they are always at the centre of
what we do and that there is a considered and deliberate
approach to delivering value through all our activities.
Vision
Values
To build a sustainable business that creates long term
value for our people, customers and shareholders.
For our people we create value through long term job
security, career opportunities and through being a
values-based business.
For our customers we create value through the quality
services and products we deliver.
For our shareholders we deliver value through dividends
and share value growth.
Purpose
To create new ways to make people’s lives easier.
Above and beyond – always going the extra mile.
Better together – always supporting and challenging one
another to learn, grow and develop – it’s OK to disagree.
Make it count – Big or small, we make the most of each
and every opportunity and always follow through and do
what we say we will.
Own it – always taking responsibility for our decisions,
actions and interactions.
Our ‘WHY’ – Driving What’s Possible
We do this by:
– Being a leader, not a follower
– Being a smart, creative driven business
–
Investing in/sharing the thrill of BIG ideas
– Seeing things differently
– Challenging ideas and conventions
– Shaping what’s to come
8
MMS ANNUAL REPO R T 20 20
Key Metrics
Our Customers
361,000
Salary packages
Up 5.2%
71,800
Novated leases
Up 5.6%
39,600
Assets pool – units
Down 12.0%
$444m
Assets managed – WDV 1
Down 10.8%
90%
Online claims take up rate
(as at 30 June)
52 Net Promoter Score (NPS) Retained strong monthly customer satisfaction for FY20 $2,617m Net amount financed Down 11.6%$669m Plan partners client funds under administration Up more than 100% $444m Assets managed – WDV 1 Down 10.8% 9
Our People
1,295
Employees (FTE)
MMS Group
as at 30 June
Our Environment2
79
Employee Sustainable
Engagement Score
56,751
Staff training and
development hours
High performance work environment
ranking. 2019 result (survey biennial)
31.8% increase
Carbon emissions
from MMS car fleet
100% of CO2 emissions offset
through Greenfleet
17%
reduction in carbon
emissions from MMS
electricity usage
Carbon neutral printing
(net zero carbon footprint)
achieved from the offset of 100%
of CO2 emissions caused by the
production of printed material.
1 Written Down Value (WDV) inclusive of on and off balance sheet funding
2 Australian operations
Note: Movements compared to prior corresponding period
10
MMS ANNUAL REPO R T 20 20
Director’s Report
The Directors of McMillan Shakespeare Limited (Company or
MMS) present this report on the consolidated entity, consisting of
the Company and the entities that it controlled at the end of, and
during, the financial year ended 30 June 2020 (Group or MMS).
Directors
The Directors during the whole of the financial year and
up to the date of this report (Directors) are as follows:
Mr Tim Poole (Independent Non-Executive Director)
Mr John Bennetts (Non-Executive Director)
Mr Ross Chessari (Non-Executive Director)
Mr Ian Elliot (Independent Non-Executive Director)
Ms Helen Kurincic (Independent Non-Executive Director)
Mr Mike Salisbury (Managing Director and CEO)
Ms Kathy Parsons was appointed to the position of
Independent Non-Executive Director effective 22 May 2020.
Details of the qualifications, experience and special
responsibilities of the Directors at the date of this Annual
Report are set out on pages 18 and 19.
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 2020.
11
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 2020 were as indicated in the table below.
Board Meetings
Audit, Risk & Compliance
Committee Meetings
Remuneration & Nomination
Committee Meetings
Director
Eligible to
Attend
Attended
Eligible to
Attend
Attended
Eligible to
Attend
Attended
Mr T Poole (Chairman)
Mr M. Salisbury
(Managing Director and CEO)
Mr J. Bennetts
Mr R. Chessari
Mr I. Elliot
Ms H. Kurincic
Ms K. Parsons
28
28
28
28
28
28
3
28
28
28
28
23
28
3
8
8
8
1
8
8
8
1
6
6
6
6
2
6
6
6
6
2
Principal activities
The principal activities of the Company and its controlled entities during the course of the financial year
ended 30 June 2020 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 2020.
12
MMS ANNUAL REPO R T 20 20
Director’s Report
Results
Details of the results for the financial year ended 30 June 2020 are as follows:
Results
2020
2019
Net profit after income tax (NPAT) attributable
to owners of the Company
$1,269,264
$63,672,478
Underlying Net profit after income tax (UNPATA) 1
$69,027,191
$88,696,719
Basic earnings per share (EPS)
Underlying earnings per share
Earnings per share on a diluted basis (DPS)
1.6 cents
87.4 cents
1.6 cents
77.0 cents
107.3 cents
76.4 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. FY20 UNPATA excludes one-off adjustments for Deferred
Income and Deferred Acquisition Costs (DAC) of $9.8m (post tax), class action provision for possible settlement and legal costs of $5.1m (post tax) and share
buy back costs of $0.4m (post tax). 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 2020 are as follows:
Dividends
2020
2019
Final dividend for the financial year ended
30 June 2019 of 40.0 cents (2018: 40.0 cents)
per ordinary share paid on 11 September 2019
fully franked at the tax rate of 30% (2018: 30%).
Interim dividend for the financial year ended
30 June 2020 of 34.0 cents (2019: 34.0 cents)
per ordinary share paid on 20 March 2020 fully
franked at the tax rate of 30% (2019: 30%).
$33,281,888
$33,066,636
$26,309,576
$28,106,641
Total
$59,591,464
$61,173,277
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Review of operations
The MMS Group delivered a sound performance in FY20,
in a highly challenging operating environment punctuated by
the ongoing decline in Australian new car sales, an evolving
regulatory environment following the Royal Commission into
Misconduct in the Banking and Financial Services Sector,
the summer’s catastrophic bushfires and the onset of the
COVID-19 pandemic.
Across the Group, we focussed on enhancing productivity
and reducing costs via investment in our digital service
capability, leveraging scale, and in response to COVID-19
reducing all non-essential operating and capital expenditure
to ensure the sustainability and financial health of the Group
for the longer term.
Return on Equity (ROE) was 21.2% and Return on Capital
Employed (ROCE) was 19.8% as a percentage of underlying
net profit after tax.
Earnings before interest, tax, depreciation and amortisation
(EBITDA) was $99.5 million, down 25.1% on last period.
The result was impacted by a marked decline in activity
levels in April 2020, followed by commencement of a recovery
in Australia and New Zealand over May and June 2020.
Earnings in the GRS business included an improved
contribution from Plan Partners and an increase in salary
packaging and novated leasing activities. However, the result
was impacted by reduced margins on insurance products
and lower interest rates in particular. The AM ANZ business
was impacted by increases in residual value and credit loss
provisions. Earnings in the AM UK business included the
write off of a subordinated loan to support the Joint Venture
business and a longer COVID-19 impacted period. The RFS
business was impacted by an adjustment to deferred income
and deferred acquisition costs of $13.9 million and costs
relating to the provision for possible settlement of the class
action and associated legal fees.
Statutory net profit after tax (NPAT) was $1.3 million, down
98% and included impairments to RFS Aggregation of $34
million and our AM UK business of $15.9 million, and a write
down of obsolete assets in the GRS business.
Initial impacts of COVID-19 on activity levels across the
MMS business were significant, with declines in activity
levels in April 2020 across all MMS businesses. Eligibility for
the Australian Government JobKeeper Program required a
decline in GST turnover of greater than 30% against the prior
corresponding period. In April, Maxxia satisfied the turnover
decline test and qualified for JobKeeper for approximately
1,070 Australian employees, enabling us to retain our people.
The financial impact of the JobKeeper payments included in
the FY20 result is approximately $7 million after tax.
In the GRS business, segment UNPATA was $60.9 million,
a 7.8% decrease on the previous period.
Despite a fall in earnings the business achieved growth in
both salary packages up 5.2% and novated leasing up 5.6%
on FY19, an outperformance of the broader Australian car
sales market which declined. A commitment to improve
customer engagement, and the Beyond 2020 program’s
impact on improving digital conversions, were important in
the performance of the business. While units themselves
increased, margins were impacted in particular by influences
attributable to the pandemic, increased refinancing of existing
leases, lower insurance penetration, reduced volumes and
changes in the mix of funders.
Despite these challenges, the performance of the GRS
business was encouraging and reflects our commitment to
refining and enhancing the customer experience and our
value proposition.
Importantly, we recorded more than 70 new client wins,
representing a mix of corporate, charitable and not for profit
health clients. These new clients provided us access to an
additional 42,000 eligible employees. To date more than
17,300 salary packages and 2,100 novated leases have been
transitioned from these new clients. The renewal of several tier
1 client contracts was a highlight for our Maxxia business.
14
MMS ANNUAL REPO R T 20 20
Director’s Report
Both Maxxia and RemServ customers were successfully
migrated from Visa to MasterCard for account management
services, including digital wallet functionality, during the
period. The new card platform delivers a range of benefits
to customers, including personalised PIN functionality,
smartphone “tap-and-pay” capability, and faster delivery
times for new cards, while also reducing the cost base for
the business.
A further digital service enhancement during the year was the
introduction of an online sign-up process for eligible RemServ
customers. This process offers customers the flexibility to
establish their salary packaging arrangements at their own
convenience and will be made available to Maxxia customers
in the next period.
Digital customer engagement initiatives and online distribution
capacity were enhanced, particularly during the second half
when the COVID-19 pandemic warranted a cessation of
on-site activity. This included an increase in online education
sessions and webinars.
These customer-centred marketing initiatives and digital
enhancements were central to keeping our monthly average
Net Promoter Score (NPS) well above the sector benchmark,
at 52.4, in line with that achieved in FY19.
In response to the COVID-19 pandemic, we transitioned
our customer service team to a remote working model. Our
ongoing investment in technology assisted the transition to
take place quickly and without an impact on service delivery.
The Beyond 2020 program – a strategic initiative designed
to reduce costs and improve sales conversions through digital
enhancements - continued to increase operational efficiency
and build digital capability to improve productivity, reduce
costs and drive sales over the period.
Enhancements to online self-service functions were
introduced during FY20, resulting in 90% of combined
Maxxia and RemServ claims being submitted online by the
end of the period, a 4% increase on FY19.
The Beyond 2020 program also continued to integrate robotic
processes, which drove a reduction of more than 21,700
hours of manual processes across the business during the
period. A further focus during the year was the adoption
and integration of further data driven capability, allowing us
to track and measure customer data across digital sales
channels, enabling more informed customer engagement.
Consistent with a strategy of optimising and diversifying
funding channels to support our breadth of clients and
products, the Group progressed the development of a
securitisation funding platform with an initial focus on
supporting our high-performing novated lease originations.
The addition of this funding platform, expected to be
operational in the second half of FY21, will provide a further
competitive source of finance for our customers, enhancing
the Group’s liquidity options and ability to tailor products to
best meet the needs of our customers.
Plan Partners delivered a strong performance for the period,
with MMS’ share of UNPATA increasing by more than 100%
to $2.7 million. Funds Under Administration increased by
more than 100% to $669 million. Our continued focus on
building a scalable business has seen profitability increase,
stemming from our investment in improving our digital self-
service tools. This includes offering next-day reimbursements
through our online Dashboards, which has created a more
attractive offering for service providers. Over the course of
the year the number of National Disability Insurance Scheme
(NDIS) participants receiving funding for Plan Management
increased by 8.0%, which creates further opportunity to
capitalise on the scale we have built. The successful growth
of the Plan Partners business led to our decision to acquire
Disability Services Australia’s minority shareholding for $8
million, effective 30 June 2020. We are well positioned to
continue to grow the business in FY21.
The AM ANZ business operated in a competitive marketplace.
Segment UNPATA was $10.8 million, a reduction of 22.7%
from the previous period reflecting the soft retail car market
and subdued customer activity exacerbated by the impacts
of COVID-19.
Our commitment over several periods to increase principal and
agency funding continued, with more than $100 million worth
of assets now held off-balance sheet, an increase of 54.2%.
This reflected a pleasing completion of this three-year objective.
Our overall fleet size by units reduced by 7.6% during the
period, with a majority of these reductions being pre-paid
maintenance contracts stemming from Holden’s withdrawal
from the Australian market. In response to COVID-19, we
focused on extending and restructuring customers’ lease
arrangements with minimal impact on receivables.
15
The RFS Retail business undertook a range of measures
to reduce the cost of service delivery during the period and
implemented enhancements to its suite of insurance products
with a view to adding additional consumer value. These
included improving communications with a focus on customer
education and transparency, and the introduction of a 30
day ‘cooling off’ period for insurance and warranty products.
Additionally, the Presidian brand was introduced into the
new vehicle market, with the intent of driving increased sales
penetration through franchised dealerships.
Transitioning to the upgraded suite of products and
introduction of the new customer-focused initiatives led
to a revision of timing for recognising sales revenue
and incurring of acquisition costs with respect to warranty
product sales. This review highlighted a shift in the portfolio
from lower value products to those with more comprehensive
coverage that incur claims over a longer period of time. This
approach will see revenue and costs incurred over a longer
period and resulted in a $9.8 million charge to the Group’s
FY20 statutory profit.
Our RFS Aggregation business experienced a reduction in
finance originations and yield, with NAF declining 7.5%
from the previous period, the result primarily of soft trading
conditions in the Australian new car sales market, increased
competition and the impact of COVID-19 on consumer
confidence. Our relationships with lenders remained a core
strength of our value proposition and over the period we
successfully grew and diversified our lender panel, with the
addition of new commercial and personal loan lenders.
A brand refresh for the Interleasing business was also
undertaken which included an update of our digital assets,
with the intent of establishing stronger market positioning
following the withdrawal of alternate brands. We also
implemented new customer facing technology and interfaces,
including the Interleasing smartphone app and Dashboard –
digital self-service tools designed to enhance the product
and improve the customer experience, while reducing
cost to serve.
Our Just Honk business provided further integrated benefits
to the group in FY20. The dealerships were particularly
beneficial during the months of April and May in adding
additional revenue through the sale of end of lease vehicles
when other sales channels were unavailable due to
COVID-19. While resale values declined in April and May, they
rebounded in June 2020.
In the UK, the underlying loss after-tax for FY20 was $4.8
million, a reduction of over 100% on the previous period,
reflecting a challenging economic and political environment,
a declining domestic new car market and the broader
detrimental impacts of COVID-19.
The pandemic compounded an already challenging operating
environment, with business confidence and consumer
appetite gradually declining over recent periods.
Following a strategic review of the UK operation, it was
determined to commence a program of restructure and cost
reductions which will be completed in the first half of FY21.
Despite the economic uncertainty, Net Amount Financed (NAF)
only decreased by 11.6%, to $873 million and overall assets
under management decreased by 15.8% to 20,653 units.
During the year, the business concentrated on growing off-
balance sheet originations and fleet management in response
to challenging business conditions caused by COVID-19,
with the existing funding book ultimately to be run down
and residual equity repatriated.
The RFS segment faced a challenging environment during
FY20, with ongoing changes to the regulatory landscape
impacting penetration of insurance products and an already
soft new car sales market further compounded by the effects
of COVID-19. UNPATA for FY20 was $3.0 million, a 53%
decrease from FY19.
16
16
MMS ANNUAL REPO R T 20 20
Director’s Report
State of affairs
Risks
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 2020 that are not otherwise
disclosed in this Annual Report.
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 the financial and non-financial
risks to the Group.
The Board monitors these risks through monthly board
meetings, regular reports from the Audit, Risk and
Compliance Committee and discussions with senior
management.
In the short to medium term key identifiable risks include:
– The COVID-19 pandemic and its potential ongoing
adverse impact on consumer movement and confidence,
business investment, the health and safety of our people,
asset values and access to client and MMS premises;
– Deteriorating global economic conditions and related
conditions in the markets we operate in and their influence
on business and consumer sentiment;
– Further economic instability in the UK;
– Recommendations arising out of the Royal Commission
into Misconduct in the Banking, Superannuation and
Financial Services Industry – most notably ASIC and the
Federal Treasury’s intention to introduce a deferred sales
model across add-on financial products sold in connection
with a motor vehicle;
– Adverse change in the regulatory conditions relating
to consumer lending products and similar change to
the policy settings relating to products and services
administrated or offered by the Group;
– The tightening of credit criteria from lenders in the
automotive sector;
– Further weakening in the health of the new and used
vehicle sales markets in Australia, including changes to
the available supply of vehicles and fluctuations in used
vehicle values;
– The loss of a material client or clients to the business;
– The threat of a cyber security attack, including during
a period where the overwhelming majority of MMS
employees are working remotely;
– The non-performance or failure of key technology
and operating systems;
– The occurrence of a significant breach of MMS’s
privacy obligations.
MMS ANNUAL REPORT 2020 17
In the finance aggregation business, we will aim to further
grow and diversify our lender panel while strengthening our
relationships with existing lenders and broker partners.
The focus for Plan Partners is to continue to make a positive
difference in the lives of people living with disability, and to
develop scale and profit through enhancements to our digital
offering for both customers and service providers. Through
strategic marketing initiatives and further engagement with the
National Disability Insurance Agency and other stakeholder
groups we will seek to improve the awareness and uptake of
external plan management, given the demonstrable benefits
for participants.
Events subsequent to balance date
Other than the matters disclosed at Note 34 of the
Financial Report there were no material events subsequent
to reporting date.
Outlook and likely developments
At the date of this report, significant uncertainties remain in
the economic environment and the impact of COVID-19 on
the business sectors affecting the Group’s businesses. Travel
restrictions are still extensively administered and a lockdown
now operates in Victoria and in Auckland in New Zealand.
A second COVID-19 wave may cause the re-imposition of
a lockdown in the UK and other locations that the Group’s
businesses operate in.
Notwithstanding, the focus for the GRS segment in FY21
will be to continue to improve the customer experience
through digital enhancements, while reducing risks and
operating costs.
A commitment to digital capacity enhancements has proven
effective in recent periods in terms of increasing efficiency,
lowering costs and improving customer engagement. We
will continue to pursue this approach, including further
enhancements to self service capability, increased utilisation
of robotics and increased digital distribution of customer
engagement initiatives.
During FY21, we intend to invest in conducting further
customer research at both corporate and consumer levels,
with a view to trialling new products and services geared
toward customer preferences. This activity will include a focus
on further leveraging our strong customer relationships and
trusted brand goodwill.
In the AM ANZ business, we will explore growth opportunities
in various fleet segments through our Interleasing business.
Execution of the outcomes of the strategic review in the
UK business remains a priority. Having restructured the
business, we will concentrate on growing our off-balance
sheet originations, fleet management, and the winding down
of the Maxxia Finance book and the repatriation of capital.
In particular, recent finance originations have been robust as
COVID-19 restrictions ease in the UK.
In the RFS segment, we will consolidate the changes
introduced in FY20 as we look to reduce the cost of sales
and improve the customer experience. We will also continue
to focus on delivering superior value through our enhanced
product suite, which sees our warranty business lead the
market in terms of consumer value. Regulatory uncertainty
concerning warranty and insurance products remains a key
risk for the RFS segment.
18
MMS ANNUAL REPO R T 20 20
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 and
Compliance Committee, Member of the Remuneration and Nomination 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 the Non-Executive Chairman
of Lifestyle Communities Limited. Mr Poole is considered an independent Director under
the Company’s definition of independence.
Mike Salisbury MBA
Appointed: 1 October 2014 (as Chief Executive Officer), 5 February 2015
(as Managing Director)
Positions: Managing Director and Chief Executive Officer
Mr Salisbury joined MMS as Managing Director of RemServ in April 2008 and was appointed
to the position of Chief Executive Officer in October 2014. Before joining the Company in April
2008, Mr Salisbury was a member of the senior management team at AAMI. Mr Salisbury
held a variety of management positions within the organisation, including a number of state
management roles and the position of Product Manager for Compulsory Third Party Insurance.
Mr Salisbury is a member of the Australian Institute of Company Directors, and is
a Director of the National Automotive Leasing & Salary Packaging Association. Mr Salisbury
is a graduate of the Advanced Management Program at Harvard Business School.
John Bennetts B Ec, LLB
Appointed: 1 December 2003
Positions: Non-Executive Director, Member of the Audit, Risk and Compliance Committee
Mr Bennetts is an experienced investor and has been the founder and Director of many
successful Australian companies with businesses in technology, finance and manufacturing.
Mr Bennetts is a Non-Executive Director of Sacred Heart Mission. He was a founder of
Cellestis Limited and private equity investment firm, Mooroolbark Investments Pty Limited
(M-Group). He has also previously provided corporate 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.
Helen Kurincic MBA, FAICD
Appointed: 15 September 2018
Positions: Non-Executive Director, Member of the Audit, Risk and Compliance Committee,
Member of the Remuneration and Nomination Committee
Ms Kurincic is Non-Executive Chair of Integral Diagnostics Limited, Non-Executive Director of Estia Health
Limited, HBF Health Limited and the Victorian Clinical Genetics Service. 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.
19
Ian Elliot
Appointed: 27 May 2014
Positions: Non-Executive Director, Chairman of the Remuneration and 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.
Ross Chessari LLB, M Tax
Appointed: 1 December 2003
Positions: Non-Executive Director, Member of the Remuneration and Nomination Committee
Mr Chessari is a founder and Director of the investment manager, SciVentures Investments
Pty Limited (SciVentures). Prior to founding SciVentures, Mr Chessari was the Managing
Director of ANZ Asset Management and the General Manager of ANZ Trustees.
Kathy Parsons B Comm
Appointed: 22 May 2020
Positions: Non-Executive Director, Member of the Audit, Risk and Compliance Committee,
Member of the Remuneration and Nomination Committee
Ms Parsons is a former audit partner at Ernst & Young where she spent time as a partner
in the firm’s US, UK and Australian practices. In addition to her audit client responsibilities
she was part of the firm’s Oceania Assurance Leadership team as the Professional
Practice Director with responsibility for assurance quality and risk management in the
region. Ms Parsons 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 and Company Secretary
Mr Blackburn is also a Non-Executive Director of Lifestyle Communities Limited and has over
30 years’ experience in finance, working across a broad range of industries for companies such
as WMC, Ausdoc, Laminex Industries, Westpac, AAMI/Promia 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.
20
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
Letter from the Chairman of the
Remuneration and Nomination Committee
The Company qualified for JobKeeper in April and this
subsidy enabled the retention of all staff.
Dear Shareholders,
On behalf of the Remuneration and Nomination Committee
(RNC) and Board of McMillan Shakespeare Limited
(the Company), I am pleased to present the Financial
Year 2020 (FY20) Remuneration Report (Report).
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 in a rapidly changing landscape.
Overview of Company performance
In FY20 the Company delivered a sound operating performance
in a very challenging environment. The GRS business
experienced reduced margins but managed to increase salary
packages and novated fleet units. Other than Plan Partners all
other segments experienced very difficult trading conditions.
Operationally the Company made strategic advances through
its investments in the Beyond 2020 program, enhanced
productivity and scalability and digital service capability.
The re-balancing of principal and agency funding
arrangements ensures that the fleet business reduces its
use of capital. The Share Buy-Back returned capital and
franking credits to shareholders.
MMS further responded to the COVID-19 environment by
reducing all non-essential operating and capital expenditure.
As part of these cost reduction measures, the Board,
Managing Director and all Group Executives elected to
reduce their remuneration by approximately 35% collectively.
In addition, it has been determined that there will be no
increases in fixed remuneration in FY21 given the current
environment.
Remuneration framework changes for FY21
To maintain the alignment to the long-term strategy of MMS,
changes to the LTI scheme are proposed. These changes are
further detailed in section 4(e), and at a high level include:
– The transition from fair to face value for LTI allocation
methodology, aligning with investor preference and
market practice;
– The use of indeterminate rights provides the Company with
the flexibility to settle LTI grants in either shares or cash
payments depending on the Company’s circumstances or
preference at the time of exercise or escrow lifting; and
–
Introduce a clearly defined Good Leaver and Bad Leaver
concept where good leavers may be able to retain their
pro-rata awards whilst bad leavers forfeit all unvested
awards at the time they cease employment.
FY20 remuneration outcomes
Changes in KMP/MMS leadership
Group earnings under-performed against plan and PCP and
consequently Earnings per Share and Return on Capital
Employed targets were not achieved. FY18 Long Term
Incentive Plan (LTIP) did not vest and it is considered unlikely
that the targets for FY19 and FY20 will be met.
Mark Blackburn, CFO and Company Secretary, will be
stepping down from his position on 1 December 2020 after
nine years in the role and with the Company. Mr Ashley Conn
will assume the role of Chief Financial Officer and Company
Secretary on 5 October 2020.
Strategic targets accounted for 30% of FY20 LTIP, 20% of
the plan has qualified for vesting. Further details are provided
in section 5(b).
Impact to remuneration as a result of COVID-19
The Board and management are focused on the sustainability
and financial health of the Company for the longer term. As
a result of COVID-19, measures were put in place to protect
its long term future and to put affected business units in
a position to stand back up as quickly as possible when
circumstances permit, by retaining our workforce.
Effective from 13 April 2020 to 6 July 2020, the Company
moved into a partial or full stand down of the workforce
in most parts of the business where there had been
material change in workload. We matched our workforce
to the activity in each of our business units and to support
our customers.
Kathy Parsons was announced as an independent
Non-Executive Director of the Company effective from
22 May 2020, joining the Company’s Audit, Risk and
Compliance Committee and Remuneration and
Nomination Committee immediately.
Following stakeholder feedback, we have continued to
simplify how we explain our remuneration framework
and practices in this year’s Report.
We thank you for your support and welcome your feedback.
Ian Elliot
Non-Executive Chairman of the Remuneration
and Nomination Committee
1. Contents
Section
Key management personnel
FY20 Remuneration snapshot
Executive remuneration framework
and policy – overview
FY20 Outcomes and the link to
performance
Remuneration governance
Executive Remuneration tables
Non-Executive Director
remuneration
Reference
Section 2
Page 21
Section 3
Page 22
Section 4
Page 23
Section 5
Page 29
Section 6
Page 32
Section 7
Page 35
Section 8
Page 40
21
2. Key Management Personnel
This Report has been prepared in accordance with
Section 300A of the Corporations Act 2001 and
outlines the remuneration arrangements in place for
the Key Management Personnel (KMP) of the Company.
This 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 2020 Financial Year.
Executive KMP
Name
Position
Mr M. Salisbury
Chief Executive Officer (CEO)
and Managing Director
Term as
KMP in
2020
Full year
Mr M. Blackburn Group Chief Financial
Full year
Officer (CFO) and
Company Secretary
Mr G. Kruyt
Managing Director UK
(part year)
Chief Operating Officer (COO)
(part year)
Full year
Non-Executive Directors
Name
Position
Term as
NED in
2020
Mr T. Poole
Non-Executive Chairman
Full year
Mr J. Bennetts
Non-Executive Director
Full year
Mr R. Chessari
Non-Executive Director
Full year
Ms H. Kurincic
Non-Executive Director
Full year
Mr I. Elliot
Non-Executive Director
Full year
Ms K. Parsons 1
Non-Executive Director
Part year 1
1 Appointed 22 May 2020
22
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
3. FY20 Remuneration Snapshot
Company Performance
KMP Remuneration
The FY20 year was a challenging year for the Company
for a range of reasons including the COVID-19 pandemic.
MMS demonstrated a sound operating performance.
GRS experienced reduced margins but managed to
increase salary packages and novated fleet units. Other
than Plan Partners all other businesses experienced very
difficult trading conditions.
A shift to a digital strategy and changes to the working
environment has contributed to a focus on the digital
engagement of our customers and teams. This strategy
has allowed the Company to continue to promote and sell
products in a challenging economic environment.
The Board set strategic goals as part of the FY20 LTIP. The
completion of the $80 million Share Buy-Back, the increase
of off-balance sheet fleet funding to at least $100 million,
exceeding Beyond 2020 productivity goals and exceeding
Plan Partners profitability through cloud based scalable
technology, were all achieved.
Fixed pay
Long-term incentive
Fixed pay adjustments are
made to reflect general market
conditions and remuneration
offered to comparable roles
within related industries.
With COVID-19 and the current
economic environment, the
Managing Director and Group
Executives reduced their
remuneration by approximately
24% from 13 April 2020 to
6 July 2020.
No fixed remuneration increases
were applied in respect of FY21.
The Company does not pay
short-term incentives to its KMP.
Reflecting the link between
organisation performance
and executive reward, MMS
performance hurdles have
not been satisfied and no
performance options or rights
will vest in respect of the FY18
three year LTIP.
Furthermore earnings per
share and return on capital
employed performance targets
are considered unlikely to be
achieved in the FY19 and FY20
LTIPs.
In relation to the strategic targets
in the FY20 LTIP, 20% of the
plan has qualified for vesting.
Following a Board review,
several changes have been
proposed for the LTIP for FY21
to further align the Company
with market practice and
stakeholder expectations.
Further details are provided in
section 4(e) of this report.
Non-Executive Director Fees
Non-Executive Director fees were reduced by 67% during
the June 2020 quarter due to COVID-19. Fees payable to
Non-Executive Directors were reinstated during July but will
not be increased during FY21.
23
4. Executive remuneration framework and policy – overview
(a) Strategic Pillars and Design Principles
Our Strategic Pillars
Winning in the Core
Brave New World
One Business
Telling Our Story
– New business wins
and retention
– Industry leading product
and 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 and 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) 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.
24
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
(b) Remuneration framework cycle
During FY20, we undertook a review of our executive long term incentive framework to ensure that it delivers
on our Company objectives and is fit for purpose.
In relation to the FY20 framework, fixed remuneration was provided in addition to a long-term incentive granted 100%
as Performance Rights, captured as 70% financial measures and 30% as strategic objectives. This is an adjustment
from previous years which was provided as 50% Performance Rights and 50% Performance Options for the long-
term incentive.
Our Executive Remuneration
Framework (Snapshot)
35% EPS & ROCE
35% EPS & ROCE
Performance qualified rights
but not settled for 1 year
30% Strategic Measures
Performance qualified rights
but not settled for 2 years
Fixed remuneration
(Cash salary +
Superannuation)
n
o
i
t
r
o
p
d
r
a
w
a
d
n
a
t
n
e
m
e
E
l
e
v
i
t
n
e
c
n
i
m
r
e
t
-
g
n
o
L
y
r
a
a
S
l
Years
1
2
3
25
(c) Executive remuneration framework
The RNC and Board of the Company are committed to ensuring our executive remuneration framework
remains fit-for-purpose going forward.
The below table describes each element of pay within the framework and the strategic link.
Our Executive Remuneration Framework
Element
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 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.
Long-term incentive
Incentives are delivered wholly in an all-equity LTIP, with
Performance Rights measured over a 3 year period and
subject to performance measures.
By delivering variable reward wholly as a long-term incentive,
our framework encourages sustainable decision making and
a focus on the long-term health of the business (including the
interests of customers), to drive long term value for shareholders.
Vesting of the LTIP is subject to the achievement of
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.
Non-financial measures align to shorter term business objectives,
measured through a combination of better capital management,
increased productivity and growth.
Short-term incentive
MMS does not offer short-term incentives and only provides
fixed remuneration and long-term incentives.
Each element of remuneration is outlined in more detail below:
Fixed annual remuneration in FY20
Fixed remuneration of the Executive KMP is reviewed by the RNC annually (or on promotion) to determine
whether changes are appropriate in order to maintain market competitiveness and attract and retain the talent
required to drive outcomes for the Company’s shareholders. 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.
In considering fixed remuneration changes, the RNC has regard to external benchmarking and generally positions the
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 respect of FY20 for the Executive KMP. Due to the economic
environment and impact of COVID-19, no increases were made to the Executive KMP in respect of FY21.
26
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
LTIP awarded in FY20
In FY20, the Executive KMP were granted Performance Rights in four equal parts of 17.5% each
aggregating to 70.0% where each part was measured against financial targets and the remaining 30.0%
measured against strategic targets.
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 granted to Executive KMP during FY20 are provided in section
7(b) of the report, and the table below outlines the terms of the grants:
Detailed summary – FY20 LTIP grant
Element
Strategic link
Opportunity levels
(% of fixed remuneration)
The opportunity levels offered to the Executive KMP in FY20 were:
− 75% of fixed remuneration for the CEO;
− 75% of fixed remuneration for the CFO; and
− 75% of fixed remuneration for the COO.
Opportunity levels in FY20 increased from 45% to 75% as the Board assessed that the
amount of opportunity was below market comparatives.
Allocation methodology
Performance Rights: Rights are allocated on a fair value basis, however as discussed
in section 4(e), this will be transitioning to a face value allocation in FY21.
Performance period
Two and three years in respect of meeting financial targets. One year in relation to strategic targets.
The vesting of any LTIP is subject to continued employment with the Company on the date
that the Company’s financial report is lodged with ASX for the year ending 30 June 2022.
Performance hurdles
Subject to the Executive remaining employed for the performance period, vesting of the
Performance Rights is subject to the achievement of two performance hurdles:
a) Financial targets
− The Company’s CAGR in underlying EPS which applies to 35.0% of the
Performance Rights; and
− Absolute average ROCE over the performance period which applies to 35.0% of the
Performance Rights.
The following vesting schedules apply to Performance Rights (with vesting on a straight-line basis
between each level of performance).
Underlying EPS CAGR
Average ROCE
Performance
Period
Level of
performance
(%)
Percentage
of awards
vesting
Allocation
of total
grant
Level of
performance
(%)
Percentage
of awards
vesting
Allocation
of total
grant
FY20 and
FY21
FY20, FY
21 and FY22
<6%
-
-
<21.5%
-
-
6% –10.5% 50%-100% 17.5% 21.5%-23% 50%-100% 17.5%
<6%
-
-
<21.5%
-
-
6% –10.5% 50%-100% 17.5% 21.5%-24% 50%-100% 17.5%
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 FY19 as the base year.
The ROCE performance condition is based on the Company’s average ROCE over
the performance period.
27
Element
Strategic link
Performance hurdles
(continued)
b) Strategic objectives
Strategic objectives are set at the discretion of the Board across three strategic areas as
follows:
− Capital management (including, amongst other things, a focus on achieving target levels of
principal and agency funding);
− Productivity (including, amongst other things, a focus on achieving Beyond 2020 targets);
and
− Growth (including, amongst other things, a focus on accelerating value creation
from Plan Partners).
Process for assessing
performance conditions
To determine the full extent to which the performance hurdles are satisfied, the RNC relies on
the 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
FY20, FY21 or FY22, 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.
Voting and dividend entitlements
No voting rights or dividend entitlements attach to the Performance Rights.
Malus (i.e. forfeiture of awards)
If the Board determines that an act of fraud, defalcation or gross misconduct has occurred in
relation to the affairs of the Group, the Participant will forfeit any right or interest in the Shares,
Rights or Options or other entitlements under the Plan.
Treatment upon cessation
of employment
If the Executive leaves employment with the Company prior to the date specified in the Invitation
Letter, the Rights will lapse without any payment to the employee (subject to the discretion of
the Board).
Change of control
On a change of control, the Board has discretion to waive the performance conditions attached
to the Performance Rights.
Hedging
No Executive can enter 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.
28
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
(d) Pay Mix
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).
Key
Fixed remuneration
Long-term incentive
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
57.1%
42.9%
57.1%
42.9%
57.1%
42.9%
(e) Looking ahead to FY21
As part of the LTI review, we have made the following changes in the LTIP effective FY21:
LTIP FY21 changes
Transition from fair value to face
value allocation methodology
To align with market practice among other ASX listed organisations, the Board has
decided to issue Rights under the LTIP on a face value (market value of a share) basis
from FY21.
The move from a fair value methodology to a face value methodology also aligns with
shareholders and advisors’ preference for LTIP awards to be calculated using the face
value of the underlying shares, rather than the fair value of the Right.
The move from a fair value to face value methodology requires a one-off conversion
of the stated ‘Target’ LTIP opportunity. It is noted that there is no change to the overall
remuneration package.
Move to an indeterminate right’
as the LTI instrument
The shift to indeterminate rights provides the Company with flexibility to settle LTIP
grants in either shares or cash payment depending on the Company’s circumstance
and preference at the time of exercise/escrow lifting.
Awards to generally remain
on-foot for ‘good’ leavers
Good Leavers are generally able to retain their awards on a pro rata basis whilst Bad
Leavers forfeit all unvested awards at the time they cease employment. The Board
retains discretion to determine a different treatment taking into consideration the
circumstances of the departure, which may include an appropriate deferral period.
29
5. FY20 Outcomes and the Link to Performance
(a) MMS financial performance FY16 to FY20
The table below sets out the Company’s performance over the past five years in respect of key
financial indicators.
Indices
FY20
FY19
FY18
FY17
FY16
Net profit attributable to
Company members
Underlying net profit after
income tax (UNPATA) 1
$1,269,264
$63,672,478
$50,302,815
$67,901,770
$82,469,341
$69,028,191
$88,696,719
$93,518,774
$87,166,863
$87,172,942
NPAT growth
(98.0%)
26.6%
(25.9%)
(17.7%)
UNPATA growth
(22.2%)
(5.1%)
7.2%
-
22.2%
25.3%
Dividends paid
$59,591,464
$61,173,277
$56,216,997
$54,076,388
$46,588,889
Dividend payout ratio 2
38.9%
69.0%
64.5%
63.0%
60.1%
Share price as at 30 June
$9.08
$12.21
$16.00
$13.40
$13.68
Market capitalisation (A$m)
$702.6
$1,016.0
1,331.3
1,210.0
1,138.1
Earnings per share (cents)
Underlying earnings
per share (cents) 3
1.6
87.4
77.0
107.3
60.9
113.2
81.6
104.8
99.4
105.1
ROCE 4
20%
21%
20%
20%
21%
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. FY20 UNPATA excludes one-off
adjustments for Deferred Income and DAC of $9.8m (post tax), class action provision for possible settlement and legal costs of $5.1m (post tax) and
share buy back costs $0.4m (post tax). 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 included in the acquisitions, amortisation of acquisition intangibles, one-off adjustments for Deferred
Income and DAC, class action provision for possible settlement and associated legal costs, share buy-back costs and impairment of acquired
intangible assets.
30
MMS ANNUAL REPO R T 20 20
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Report (Audited)
(b) Company performance outcomes linked to the LTIP
The following table outlines the performance against the LTIP financial performance measures that have been used
across the KMP in FY20.
Alignment between Performance and Remuneration
FY18 Grants – 3 Year
Performance LTIP Metric
Minimum
Vesting
Target
FY17 1
FY18
FY19
FY20
Metric
Achieved
Vesting
Target
Met
ROCE 2,3
20.6%
N/A
13.6% 17.7% 10.5%
13.9%
Underlying EPS growth (cps)2
6.0%
86.3
61.6
80.8
24.8
(26.1%)
FY19 Grants – 3 Year
Performance LTIP Metric
Minimum
Vesting
Target
FY18 1
FY19
FY20
Metric
Achieved
ROCE 2,3
22.25%
N/A
17.7%
10.5%
14.1%
Underlying EPS growth (cps)2
6.0%
61.6
80.8
24.8
(36.5%)
No
No
Vesting
Target
Met
Not
expected
Not
expected
FY20 Grant – Tranches for
financial performance targets
Minimum
Vesting
Target
FY19 1
FY20
Metric
Achieved
Vesting
Target Met
ROCE 2,3
21.5%
-
10.5%
10.5%
Underlying EPS cps 2
6.0%
80.8
24.8
(69.3%)
Not
expected
Not
expected
FY20 Grant –
Tranches for strategic targets
Successful completion of share buy-back
Completing off-balance sheet funding of $100 million
Over-achieving productivity in salary packaging services
at new scalable level from Beyond 2020 investment
Exceeding novated leasing conversion rates from using
Beyond 2020 project
Execute UK strategic review and deliver EPS improvement targets
Exceeding EBTIDA margin for Plan Partners from cloud-based
scalable technology
Total
Allocation
of grant
Vesting
Target Met
Vesting
Allocation
5%
5%
5%
5%
5%
5%
30%
Yes
Yes
Yes
No
No
Yes
-
5%
5%
5%
-
-
5%
20%
31
(c)
Incentive outcomes
The table below outlines the LTI that qualified for vesting based on the performance against the metrics in FY20.
The vesting entitlement is subject to KMP’s meeting the employment condition.
Mr M. Salisbury 4
Mr G. Kruyt 4
Mr M. Blackburn 5
Proportion vesting
FY18 Grant
FY19 Grant
FY20 Grant
-
-
-
Not expected
Not expected
-
20%
20%
100%
1 Base year for underlying EPS.
2 ROCE and EPS metrics include impairment charges and the one-off UK contract loss in the UK in FY19.
3 ROCE is based on the average in the performance period.
4 The achievement of the FY20 grants by Mr M. Salisbury and Mr G. Kruyt was based on having met a portion of the strategic objectives in tranche 5
which makes up 30% of the total grant.
5 Mr M. Blackburn had a one year grant of Performance Rights with strategic targets and condition for continuity of employment with the Company
until 31 October 2020. The strategic targets included the completion of the share buy-back and completing the off balance sheet funding of a targeted
amount in FY20. All strategic targets were met and the employment condition is expected to be met.
The Rights that have qualified and are subject to meeting the relevant employment conditions in the table above
will result in 40,824 ordinary MMS shares being provided to the Executives detailed above and will be issued by
the MMS Employee Share Trust.
32
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
6. Remuneration Governance
(a) Responsibility for setting remuneration
Responsibility for setting a remuneration policy and determining Executive KMP and Non-Executive
Director remuneration rests with the Board.
The Board has established the RNC and its 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 Executive KMP. For further details on the composition and responsibilities of
the RNC, please refer to the Corporate Governance Statement on our website
www.mmsg.com.au/overview/#governance.
The following chart outlines key stakeholders in the governance of remuneration at MMS.
Remuneration
Consultants
Board
Provide independent advice
information and recommendations
relevant to remuneration decisions.
Responsibility for setting
a remuneration policy and
determining Executive and Non-
Executive Director remuneration
rests with the Board.
Shareholder
and Advisory Bodies
Remuneration and
Nomination Committee
Audit, Risk and
Compliance Committee
Includes consultation, investor
meetings and engagement at the
Annual General Meeting.
Assist the Board to achieve
its objective by making
recommendations to the Board
in relation to its composition and
recruitment, retention, remuneration
and succession planning for
Directors and Senior Executives.
Support the Remuneration
and Nomination Committee by
providing relevant information as
required for incentive awards.
33
(b) Use of independent remuneration consultant
The RNC obtains external independent advice from remuneration consultants when required, and will use it
to guide and inform their decision-making. During FY20, no remuneration recommendations (as defined in
the Corporations Act 2001 (Cth)) were received.
(c) Board discretion
The Board has adopted a set of guiding principles when it considers adjustments to performance outcomes
under the LTIP. The process for adjustments and principles applied are:
1. Transparency: for any adjustments made, MMS will provide clear disclosure and rationale. Where possible,
disclosures will be made in advance that may result in necessary adjustments ensuring early communication
to shareholders.
2. Timing of adjustments: adjustments will be made only to reward outcomes at the time of vesting,
applying to both positive and negative adjustments.
3. Shareholders and management alignment: adjustments will be made in the interests of balancing
the shareholder and management alignment ensuring consistency in Company objectives.
(d) 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
Notice period 1
Description
Ongoing
− 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
A restraint period of up to 6 months.
1
It is noted that Mr M. Blackburn, CFO and Company Secretary, who in January 2020 announced that he would be standing down from his
position on 1 December 2020.
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MMS ANNUAL REPO R T 20 20
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Report (Audited)
(e) 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 7(f) 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 Directors1
100% of one year’s
base director fees
The later of:
− 5 years from September 2017; or
− 5 years from date of commencement as
Non-Executive Director
1 Share Ownership and Retention Policy reviewed and updated 26 June 2020
35
7. Executive remuneration tables
(a) Executive remuneration
The following table sets out the executive remuneration for FY20 in accordance with the requirements of
the Accounting Standards and Corporations Act 2001 (Cth).
Annual
Leave
Entitle-
ments
Other
Benefits 1
Super-
annuation
Long
Service
Leave
Options
and
Rights 2,3,4
Total
remuneration
Percentage of
remuneration
as options
and rights
Value of
remuneration
received 4,5
Value of
options
exercised
and sold 8
Cash
salary/
fees 9
$
Executive KMP
Mr M. Salisbury
(CEO and
Managing Director)
Mr G. Kruyt
(COO)
Mr M. Blackburn 7
(Group CFO and
Company Secretary)
Mr A. Tomas 6
(Managing Director,
Fleet and Financial
Products)
Total
Remuneration
$
$
$
$
$
$
FY20
844,502
(14,395)
33,530
25,479
19,456
(81,110)
827,462
FY19
861,426
14,660
29,448
25,018
18,925
(161,603)
787,874
FY20
647,743
(10,688)
311,130
47,705
36,802
(74,202)
958,490
FY19
680,617
(25,488)
261,601
93,272
(4,937)
(93,099)
911,966
FY20
633,220
28,552
6,382
22,747
13,203
25,937
730,041
FY19
638,101
52,727
8,095
25,000
12,807
(93,311)
643,419
FY20
-
FY19
11,712
-
-
-
-
6,062
1,528
-
-
-
-
-
19,302
FY20 2,125,465
3,469
351,041
95,931
69,461
(129,375) 2,515,992
FY19 2,191,856
41,899
305,206
144,818
26,795
(348,013) 2,362,561
%
n/a
n/a
n/a
n/a
4%
n/a
n/a
n/a
-
-
$
$
903,511
930,331
915,892
-
1,006,577
664,522
1,035,490
-
662,349
788,973
671,196
-
19,302
-
-
-
2,572,437
2,383,826
2,641,880
-
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 2019 and 30 June 2020. 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 2019 and 30 June 2020 (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 FY20 comprises the fair value expense of Performance Rights granted in FY20 and the reversal of Performance Options
and Rights granted in FY18 and FY19 with vesting periods in FY20, FY21 and FY22 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 (exludes value of Options exercised and sold).
6 Mr A. Tomas resigned and ended service on 13 July 2018.
7 The value of Options and Rights of Mr M. Blackburn is based on vesting entitlement of Rights granted in FY20 that is measured against strategic
targets less the reversal of Performance Options and Rights granted in FY18 and FY19.
8 The value of options relate to Performance Options granted in FY15 and were exercised and sold in FY20. These options were subject to a
12 month holding lock from vesting date in August 2017 that was effectively extended to April 2019 when the Company terminated its proposed
merger with Eclipx Ltd. The value is based on the amount realised on disposal less the exercise price (exludes value of remuneration received).
9 Cash salary/fees are lower in FY20 due to KMP taking pay reductions during the period 13 April 2020 to 6 July 2020.
36
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
(b) Detail of LTIP securities
The terms and conditions of each grant of Performance Options and Performance Rights to Executive KMP
affecting their remuneration in FY20 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 date 1
Date Exercisable
02/07/18
3 Year Performance
Options
12 months following the
3 Year Lodgement Date
$16.14
$16.64
$2.54
3 Year Lodgement Date
(expected to be September 2021)
02/07/18
3 Year Performance
Rights
Date that the
FY21 financial statements
are lodged
$16.14
-
$14.12
3 Year Lodgement Date
(expected to be September 2021)
23/10/18 2
3 Year Performance
Options
12 months following the
3 Year Lodgement Date
$15.90
$16.64
$2.25
3 Year Lodgement Date
(expected to be September 2021)
23/10/18 2
3 Year Performance
Rights
01/07/19
3 Year Performance
Rights
22/10/19 3
3 Year Performance
Rights
Date that the
FY21 financial statements
are lodged
Date that the
FY22 financial statements
are lodged
Date that the
FY22 financial statements
are lodged
$15.90
$12.37
$14.85
18/12/19
1 Year Performance
Rights
31 October 2020
$12.90
-
-
-
-
$13.95
3 Year Lodgement Date
(expected to be September 2021)
$10.18
3 Year Lodgement Date
(expected to be September 2022)
$12.83
3 Year Lodgement Date
(expected to be September 2022)
$12.27
31 October 2020
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 The issue to Mr M. Salisbury occurred on 23 October 2018, after shareholder approval at the Company’s AGM.
3 The issue to Mr M. Salisbury occurred on 22 October 2019, after shareholder approval at the Company’s AGM.
37
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 %
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
2
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
23/10/18
3 Year Performance Rights
18,937
-
-
-
-
-
-
22/10/19
3 Year Performance Rights
69,178
12.83
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
02/07/18
3 Year Performance Rights
14,067
-
-
-
-
-
-
01/07/19
3 Year Performance Rights
50,491
10.18
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
02/07/18
3 Year Performance Rights
14,100
-
-
-
-
-
-
01/07/19
3 Year Performance Rights
50,697
10.18
18/12/19
1 Year Performance Rights
16,899
12.27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Number of
securities
forfeited/
lapsed
during the
year
(71,140)
(17,860)
(66,027)
(18,814)
-
-
-
(52,846)
(13,266)
(49,047)
(13,975)
-
-
-
(52,965)
(13,297)
(49,159)
(14,007)
(78,377)
(14,100)
(50,697)
Forfeited
or lapsed
%
Year in
which
securities
may vest
Maximum
value of
securities
yet to vest 1
$
100
100
100
100
-
-
-
100
100
100
100
-
-
-
100
100
100
100
100
100
100
FY20
FY20
FY21
FY21
-
-
-
-
FY22
236,757
FY22
264,133
FY23
840,971
FY20
FY20
FY21
FY21
-
-
-
-
FY22
198,631
FY22
198,612
FY23
487,352
FY20
FY20
FY21
FY21
FY22
FY22
FY23
-
-
-
-
-
-
-
-
FY21
80,215
1 There is no minimum value attached to the securities at the vesting date. Maximum value is defined as the fair value at grant less amount expensed.
2. With the exception of the grant on 18 December 2019, all the grants to Mr M. Blackburn will be forfeited when he stands down on 1 December 2020.
38
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
(c) 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 FY20.
Name
LTI Securities
Balance at
the start of
the year
Number
Granted
during
year 1
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
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Performance Options
408,626
-
Performance Rights
55,611
69,178
Performance Options
298,799
-
Performance Rights
41,308
50,491
Performance Options
321,437
-
Performance Rights
41,404
67,596
-
-
-
-
-
-
(166,187)
(137,167)
-
(36,674)
(118,705)
(101,893)
-
(27,241)
(140,936)
(180,501)
-
(92,101)
-
-
-
-
-
-
-
-
-
-
-
-
Unvested
at the end
of the year
105,272
88,115
78,201
64,558
-
16,899
1 Granted pursuant the Company’s LTIP
(d) Shares issued on Performance Options
No ordinary shares in the Company were issued following the exercise of Performance Options by Executive
KMP during FY20. Any shares issued on exercise of options were acquired on market under the terms of the
Company’s Share Trust Plan.
(e) Other transactions and balances with KMP
There were no loans made during the year, or remaining unsettled at 30 June 2020, between the Company
and its KMP and/or their related parties.
39
(f) 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).
Non-Executive Directors
Mr T. Poole
Mr J. Bennetts
Mr R. Chessari
Mr I. Elliot
Ms H. Kurincic
Ms K. Parsons
Executive KMP
Mr M. Salisbury
Mr G. Kruyt
Mr M. Blackburn
Balance at the
start of the year
Shares acquired
through option
exercise
Other changes
during the year
Balance at the
end of the year
30,000
3,343,025
6,050,941
-
11,000
-
10,276
-
3,000
-
-
-
-
-
-
-
-
-
-
-
-
1,254
9,000
1,400
6,250
7,000
-
30,000
3,343,025
6,050,941
1,254
20,000
1,400
16,526
7,000
3,000
40
MMS ANNUAL REPO R T 20 20
Remuneration
Report (Audited)
8. 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 matter 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
The Board reviewed its approach to its Non-Executive Director fees (particularly Committee fees) in FY20 and
determined that it was appropriate to pay separate fees in respect 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 2019). The fee schedule has been determined having regard to fees paid to comparable roles
within MMS’ peers.
Fees are inclusive of superannuation, contributions required under legislation are made by the Company on behalf
of Non-Executive Directors. There is no scheme for the payment of retirement benefits or termination payments
(other than payments relating to accrued superannuation entitlements).
Role
Chairman
Non-Executive Directors
Audit, Risk and
Compliance Committee
Remuneration and
Nomination Committee
FY20 Fee
(Effective 1 October 2019)
$210,125
$115,000
$25,000
$12,500
$20,000
$10,000
Chair
Membership
Chair
Membership
41
(c) Non-Executive Director remuneration – statutory disclosure
The fees paid or payable to the directors of the Company in respect of the 2020 financial year are set out below.
Cash
salary/fees 1
Other
Benefits 2
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. Kurincic 5
(Non-Executive Director)
Ms K. Parsons 3
(Non-Executive Director)
Ms S. Dahn 4
(Non-Executive Director)
Total Remuneration
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
$
143,921
190,725
87,329
113,585
84,471
94,142
117,123
122,146
119,292
99,410
10,763
-
-
34,247
562,899
654,255
$
-
-
-
-
1,146
17,730
-
-
-
-
-
-
-
-
1,146
17,730
$
13,673
18,119
8,296
10,790
8,134
10,628
11,127
11,604
11,333
9,444
1,023
-
-
3,253
53,586
63,838
$
$
157,594
157,594
208,844
208,844
95,625
95,625
124,375
124,375
93,751
122,500
128,250
133,750
130,625
108,854
11,786
-
-
37,500
617,631
735,823
93,751
122,500
128,250
133,750
130,625
108,854
11,786
-
-
37,500
617,631
735,823
1 Cash salary/fees are lower in FY20 due to Directors taking pay reductions during the period 13 April 2020 to 6 July 2020.
2 Other benefits comprise salary packaging.
3 Ms K. Parsons was appointed as a Non-Executive Director of the Company with effect from 22 May 2020.
4 Ms S. Dahn retired as a Non-Executive Director of the Company with effect from 30 September 2018.
5 Ms H. Kurincic was appointed as a Non-Executive Director of the Company with effect from 15 September 2018.
Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors.
Ian Elliot
Non-Executive Chairman of the RNC
Tim Poole
Non-Executive Chairman of the Board
End of the audited Remuneration Report
42
MMS ANNUAL REPO R T 20 20
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
Voluntary Options
Voluntary Options
541,843
8,979
12,500
$16.64
$13.45
$13.45
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
Ms K. Parsons
Rights
-
88,115
-
-
-
-
-
Options
-
105,272
-
-
-
-
-
Ordinary shares
30,000
16,526
3,343,025
6,050,941
1,254
20,000
6,000
No Director during FY20, 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 $27,468
for the provision of IT services on arms’ length terms by Mailguard Pty Ltd, of which John Bennetts has an economic interest.
43
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 FY20,
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 have reviewed the services other than the statutory
audit provided by Grant Thornton Audit Pty Ltd during the
financial year ended 30 June 2020. The other services
relate to non statutory audit services and other assurance
services which are 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 119 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
7 September 2020
Melbourne, Australia
44
MMS ANNUAL REPO R T 20 20
Directors’ Report
Five-Year Summary 2016 – 2020
2020
2019
2018
2017
2016
Financial Performance
Group
Revenue ($m)
NPAT ($m)
UNPATA ($m) 1
Group Remuneration Services segment
Segment revenue ($m)
Segment NPAT ($m)
Segment UNPATA ($m) 3
Asset Management segment
Segment revenue ($m) 2
Segment NPAT ($m)
Segment UNPATA ($m) 3
Retail Financial Services segment
Segment revenue ($m)
Segment NPAT ($m)
Segment UNPATA ($m) 3
Shareholder value
Dividends per share (cps)
Dividend payout ratio (%) 4
Basic earnings per share (cps)
Return on Equity (%) 5
Underlying earnings per share (cps) 6
Return on capital employed (%) 5
Other
Employees (FTE) 7
494.0
1.3
69.0
214.8
60.9
60.9
229.3
(9.9)
6.0
49.5
(47.3)
3.0
34.0
39
1.6
21
87.4
20
1295
Employee engagement score (%) 8
No survey
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
1334
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
1,124
No survey
1 UNPATA is calculated as NPAT before the after-tax impact of acquisition related items (including impairment charge for intangible assets, acquisition expenses,
amortisation of acquired intangible assets and deferred consideration items) and disposal of business. FY20 UNPATA excludes one-off adjustments for Deferred
Income and DAC of $9.8m (post tax), class action provision for possible settlement and legal costs of $5.1m (post tax) and share buy back costs $0.4m (post tax).
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 Segment UNPATA does not include unallocated public company costs and interest from Group treasury funds.
4 Dividend payout ratio is calculated as total dividend for the financial year divided by UNPATA for the financial year.
5 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.
6 Underlying earnings per share is based on UNPATA.
7 As at 30 June.
8 Employee engagement survey conducted biennially.
45
Financial Report
2020
McMillanShakespeare Limited 46
Statements of Profit or Loss
and Other Comprehensive Income
For the year ended 30 June 2020
Consolidated Group
Parent Entity
Revenue from contracts with customers
Interest income
Other
Dividends received
Note
7
8
8
2020
$’000
493,116
846
-
-
2019
$’000
547,894
1,781
-
-
Revenue from continuing operations
493,962
549,675
2020
$’000
-
154
-
59,591
59,745
2019
$’000
-
776
265
189,173
190,214
(905)
(1,093)
-
-
-
-
(2,048)
(512)
(3,465)
(74,348)
(3,621)
-
(77,969)
(81,434)
(21,689)
643
-
-
-
-
(539)
(817)
(2,449)
-
-
-
-
(2,449)
187,765
424
(21,046)
188,189
(21,046)
188,189
-
-
(21,046)
188,189
(89)
-
27
(62)
157
-
(47)
110
63,938
(21,108)
188,299
(21,108)
188,299
-
-
(21,108)
188,299
63,793
145
63,938
77.0
76.4
Expenses
Employee benefit expense
Leasing and vehicle management expenses
Brokerage commissions and incentives
Depreciation and amortisation expenses
Net claims incurred
Other operating expenses
Finance costs
Operational expenses excluding impairment items
Other impairment charges
Impairment of financial assets
Contingent consideration fair valuation
Impairment items
Total expenses
Profit / (loss) before income tax
Income tax (expense) / benefit
Net profit / (loss) 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
Total comprehensive income / (loss) for the year
Total comprehensive income / (loss) 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)
(128,879)
(103,312)
(30,892)
(83,290)
(13,591)
(47,794)
(8,786)
(416,544)
(50,139)
(3,822)
1,459
(52,502)
(469,046)
24,916
(22,585)
2,331
1,269
1,062
2,331
(524)
3
111
(410)
1,921
859
1,062
1,921
1.6
1.6
9(d)
9(c)
9(a)
23(a)
10(a)
11
11
(138,774)
(100,355)
(36,478)
(81,108)
(13,097)
(46,802)
(10,514)
(427,128)
(18,254)
(5,765)
1,168
(22,851)
(449,979)
99,696
(35,879)
63,817
63,672
145
63,817
(1,194)
1,036
279
121
The above statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
MMS ANNUAL REPORT 2020
Statements of
Financial Position
As at 30 June 2020
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
Assets under operating lease
Property, plant and equipment
Right-of-use assets
Finance lease receivables
Intangible assets
Deferred tax assets
Deferred acquisition costs
Other financial assets
Total non current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Unearned premium liability
Current tax liability
Other liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Total current liabilities
Non current liabilities
Borrowings
Lease liabilities
Unearned premium liability
Provisions
Deferred tax liabilities
Contingent consideration
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
47
Note
13
14
15
18(a)
9(f)
18(a)
18(a)
18(f)
15
6
10(c)
9(f)
16(b),16(a)
19
20
21
9(f)
20
4,22
18(f)
4, 22
18(f)
9(f)
21
10(c)
23
24(a)
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
91,408
69,384
43,936
62,272
7,715
3,299
5,206
-
283,220
153,670
5,269
15,953
69,150
140,413
10,122
6,641
-
401,218
684,438
94,462
8,098
13,800
18,083
5,274
2,341
11,706
6,523
1,678
161,965
251,914
17,913
20,483
1,608
1,669
-
293,587
455,552
228,886
76,419
(12,078)
164,545
228,886
137,762
61,028
57,412
74,030
12,310
6,076
2,859
-
351,477
206,675
7,427
-
80,654
191,328
13,008
2,929
-
502,021
853,498
94,588
6,051
11,088
9,075
2,490
8,847
8,779
-
1,157
142,075
319,520
-
8,116
1,365
9,677
1,374
340,052
482,127
371,371
135,868
(4,760)
240,263
371,371
220
12,863
-
-
-
20
-
-
13,103
-
-
-
-
-
-
-
211,123
211,123
224,226
128,324
-
-
-
3,433
-
5,761
-
-
137,518
9,115
-
-
-
814
-
9,929
147,447
76,779
76,419
360
-
76,779
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
The above statements of financial position should be read in conjunction with the accompanying notes.
48
Statements of Changes in Equity
For the year ended 30 June 2020
2020
Issued
capital
$’000
Retained
Earnings
$’000
Note
24
135,868
240,263
Equity as at beginning of year
as originally reported
Change in accounting policies
2(c)
-
(2,307)
Re-stated equity as at the
beginning of period
Net profit after-tax
Other comprehensive
income after tax
Total comprehensive income
for the period
Transactions with owners in
their capacity as owners:
Share buyback
Share-based expense
Dividends paid
Equity contribution
Acquisition of
Outside Equity Interest
Capital reduction
135,868
237,956
-
-
-
1,269
-
1,269
24(d)
(10,366)
(69,650)
-
-
5,478
-
12
24(b)
25(d)
(59,591)
-
-
24(c)
(54,561)
54,561
-
-
-
-
-
-
-
-
-
(512)
Consolidated Group
Share-
based
Payment
reserve
$’000
Cash
flow Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Outside
Equity
Interest
$’000
Acquisition
Reserve
$’000
872
-
872
(878)
(4,560)
(194)
-
-
-
(878)
(4,560)
(194)
-
(410)
(410)
-
542
542
1,062
-
1,062
Total
$’000
371,371
(2,307)
369,064
2,331
132
2,463
(80,016)
(512)
(59,591)
5,478
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(868)
(7,132)
(8,000)
-
-
-
-
(7,132)
228,886
Equity as at 30 June 2020
76,419
164,545
360
(1,288)
(4,018)
The above statements of changes in equity should be read in conjunction with the accompanying notes.
MMS ANNUAL REPORT 2020
49
Statements of Changes in Equity
For the year ended 30 June 2020
2019
Issued
capital
$’000
Retained
Earnings
$’000
Note
Consolidated Group
Share-
based
Payment
Reserve
$’000
Cash Flow
Hedge
Reserve
$’000
Foreign
Currency
Translation
Reserve
$’000
Outside
Equity
Interest
$’000
Total
$’000
Equity as at beginning of year
24
135,868
227,795
11,591
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)
-
-
-
-
-
-
-
63,672
-
63,672
-
-
-
37
-
(5,596)
(464)
369,231
-
145
63,817
(915)
1,036
-
121
(915)
1,036
145
63,938
-
(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
The above statements of changes in equity should be read in conjunction with the accompanying notes.
50
Statements of Changes in Equity
For the year ended 30 June 2020
2020
Equity as at beginning of year
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
Share buyback
Equity contribution
Dividends paid
Capital reduction
Parent Entity
Share-
based
Payment
Reserve
$’000
872
-
-
-
Retained
Earnings
$’000
95,726
(21,046)
-
(21,046)
-
(512)
Issued
Capital
$’000
Note
24
135,868
-
-
-
-
24(d)
24(b)
12
24(c)
(10,366)
(69,650)
5,478
-
-
(59,591)
(54,561)
54,561
-
-
-
-
Equity as at 30 June 2020
76,419
-
360
Cash Flow
Hedge
Reserve
$’000
62
-
(62)
(62)
-
-
-
-
-
-
2019
Equity as at beginning of year
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
Parent Entity
Share-
based
Payment
Reserve
$’000
11,591
-
-
-
(750)
-
Retained
Earnings
$’000
(41,259)
188,189
-
188,189
-
(61,173)
9,969
(9,969)
Cash Flow
Hedge
Reserve
$’000
(48)
-
110
110
-
-
-
Issued
Capital
$’000
Note
24
135,868
-
-
-
-
-
-
12
25(a)
135,868
95,726
872
62
232,528
Total
$’000
232,528
(21,046)
(62)
(21,108)
(512)
(80,016)
5,478
(59,591)
-
76,779
Total
$’000
106,152
188,189
110
188,299
(750)
(61,173)
-
The above statements of changes in equity should be read in conjunction with the accompanying notes.
MMS ANNUAL REPORT 2020
51
Statements of Cash Flows
For the year ended 30 June 2020
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
Government subsidies
Interest received
Interest paid
Dividends received
Income taxes paid
Consolidated Group
Parent Entity
Note
2020
$’000
2019
$’000
2020
$’000
2019
$’000
27(c)
554,699
(293,697)
67,878
111,474
(232,357)
7,696
846
(9,168)
-
(18,911)
574,529
(338,662)
90,239
182,000
(318,756)
-
1,781
(9,541)
-
(48,702)
-
(4,556)
-
-
-
-
154
(501)
59,591
-
-
-
-
-
-
-
776
(791)
189,173
-
Net cash from operating activities
27(a)
188,460
132,888
54,688
189,158
Cash flows from investing activities
Payments for capitalised software
Payments for plant and equipment
Payment to acquire Outside Equity Interest
Payments for joint venture subordinated loans
Net reimbursement for acquisition costs
Payments for contingent consideration
Payments for subsidiary investments (net of cash acquired)
6(c)
25(d)
(13,494)
(1,212)
(8,000)
(4,596)
-
-
-
(15,197)
(4,184)
-
(812)
1,113
(3,741)
-
Net cash used in investing activities
(27,302)
(22,821)
Cash flows from financing activities
Dividends paid by parent entity
Proceeds from borrowings
Repayment of borrowings
Payments for lease liabilities
Payments for borrowing costs
Payments for share buyback
Payments for share expenses
Proceeds from exercise of share options
Proceeds from controlled entities
Other
12
27(d)
27(d)
24(d)
24(b)
(59,591)
107,949
(171,086)
(7,923)
(1,828)
(80,016)
(548)
5,478
-
-
(61,173)
148,278
(159,244)
-
-
-
-
-
-
125
-
-
-
-
-
-
-
-
(59,591)
-
(4,481)
-
-
(80,016)
(548)
5,478
75,646
-
-
-
-
-
-
-
(4,641)
(4,641)
(61,173)
-
(10,762)
-
-
-
-
-
(107,529)
-
Net cash used in financing activities
(207,565)
(72,014)
(63,512)
(179,464)
Effect of exchange changes on cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
53
(46,354)
137,762
42
38,095
99,667
Cash and cash equivalents at end of year
13
91,408
137,762
-
(8,824)
9,044
220
-
5,053
3,991
9,044
The above statements of cash flows should be read in conjunction with the accompanying notes.
52
Notes to the Financial Statements
For the year ended 30 June 2020
1 General information
The financial report of McMillan Shakespeare Limited and its
subsidiaries for the year ended 30 June 2020 was authorised
for issue in accordance with a resolution of the directors on
7 September 2020 and covers McMillan Shakespeare Limited
(‘the Company’ or the ‘parent entity’) as an individual entity as
well as ‘the Group’, consisting of McMillan Shakespeare Limited
and its subsidiaries (‘the Group’) as required by the Corporations
Act 2001 (Cth).
The financial report is presented in Australian dollars, which is the
Group’s functional and presentation currency.
McMillan Shakespeare Limited is a company limited by shares
and domiciled in Australia, whose shares are publicly traded on
the Australian Stock Exchange.
2 Significant accounting policies
(a) Basis of preparation
The financial report is a general purpose financial report which has
been prepared in accordance with Australian Accounting Standards
and Interpretations of the Australian Accounting Standards Board
(AASB), and Corporations Act 2001 (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 or
in the notes to the financial statements 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
A new accounting standard was adopted at the beginning of
the financial year in AASB 16: Leases that affected the Group’s
accounting policies. These are discussed below together with the
impact on the financial statements.
The new Standard introduces a single comprehensive on-
balance sheet accounting model for lease arrangements that
apply to lessors and lessees. The new Standard has no impact
on the Group’s accounting for leases as lessor. Where the Group
previously accounted for its operating lease arrangements as a
lessee and disclosed in off-balance sheet commitments, these
have now been recognised on the balance sheet from 1 July
2019. This has resulted in the recognition of a right-of-use asset
(ROU) being the asset that is leased and a corresponding amount
in liabilities that is used to finance the leased asset. Committed
payments that were previously recognised as rental expense have
been replaced by the depreciation of the ROU and finance expense
for the interest incurred on the lease liability.
On transition, for operating leases with a remaining term of less
than 12 months and for leases of low-value assets, the Group has
applied the optional exemptions to not recognise the right-of-use
asset but to account for the lease expense on a straight-line basis
over the remaining term of the lease.
The following is a reconciliation of total operating lease commitments
at 30 June 2019 to the lease liabilities recognised on 1 July 2019.
Total operating lease commitments disclosed
at 30 June 2019 (note 28 to the Financial
Statements for the year ended 30 June 2019)
Change to the estimate at 30 June 2019
which included the option to extend existing
lease terms which will not be extended
Recognition exemption for leases with
remaining lease term of less than 12 months
Other minor lease arrangements not included
in commitment disclosures
Operating lease liabilities before discounting
Effect of discounting using the incremental
borrowing rate at 1 July 2019
Total lease liabilities recognized under
AASB 16 at 1 July 2019
$’000
56,927
(23,986)
(502)
3,015
35,454
(3,586)
31,868
MMS ANNUAL REPORT 2020
53
Notes to the Financial Statements
For the year ended 30 June 2020
The new Standard has been applied using the modified
retrospective approach, with the cumulative effect on transition
being recognised in equity as an adjustment to the opening
balance of retained earnings for the current period. Prior period
comparative information has not been restated. Under the
modified retrospective approach, an incremental borrowing rate
of 3.6% has been applied at the date of transition as a practical
expedient. The Group has benefitted from the use of hindsight for
determining lease term and when considering options to extend
and terminate leases.
The following is a summary of the amounts recognised in the
financial statements on transition at 1 July 2019.
(d) Summary of Other Accounting Policies
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:
$’000
− 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 a decision needs 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.
Assets
Right-of-use asset
Liabilities
Lease liabilities
Unearned property incentives reduced
Retained earnings
20,990
31,868
(8,571)
(2,307)
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
From the adoption of AASB 16, the Group’s financial statements
will change for the following.
− Rental expense previously 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.
− Rental payments in the period that used to be included in the
payments to suppliers as an operating activity in the Statements
of Cash Flows will be replaced by the interest charge on the lease
liability as a finance charges paid in operating activities and the
principal that is applied against the lease liability as payments to
lease liabilities in financing cash flows.
54
Notes to the Financial Statements
For the year ended 30 June 2020
Business combinations
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)). 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 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 no 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.
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 for which the Group has applied the practical
expedient, are measured at the transaction price determined
under AASB 15.
MMS ANNUAL REPORT 2020
55
(i) Financial assets at amortised cost
Other employee benefits
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 transaction 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 that 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.
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.
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.
Leasing
A new accounting policy for leases was adopted on 1 July 2019
as disclosed in note 2 (c). Until 30 June 2019, the accounting
policy for leases where the Group is the lessee is set out below.
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 leases – the Group as lessee
Until 30 June 2019, leases of property where the risks and
rewards of ownership were not transferred to the Group as lessee
were classified as operating leases. Operating lease payments
were recognised as an expense less any landlord incentives
received 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 was consumed.
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
56
Notes to the Financial Statements
For the year ended 30 June 2020
Deferred acquisition costs (DAC)
Derivative financial instruments
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.
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.
Outstanding claims incurred
An outstanding claims liability is recognised for claims authorised
but unpaid at reporting date and claims reported which are not
authorised for payment but are assessed a probability for payment.
Net claims incurred is the expense recognised in the settlement
of extended warranty claims net of amounts recovered from third
parties.
As at reporting date, $1,870,000 (2019: $646,000) is included
in the unearned premium liability balance.
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.
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.
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.
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 2020
57
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.
Issued capital
Ordinary shares and premium received on issue of options are
classified as issued capital within equity.
Costs attributable to the issue of new shares or options are shown
as a deduction from the equity proceeds, net of any income tax
benefit. Costs directly attributable to the issue of new shares or
options associated with the acquisition of a business are included
as part of the business combination.
Shares purchased by the Company or any entity in the Group are
classified as treasury shares and the incremental cost of acquiring
those shares are deducted from share capital.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event and when it is
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 arrangements with financiers.
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
58
Notes to the Financial Statements
For the year ended 30 June 2020
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. Significant judgement was required to derive
reasonable estimates of the significant uncertainties including
COVID-19 on future business plans, operating capability and cash
flow projections. Included below are the matters that required
judgement to make reasonable 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 annually and more frequently if there are indications
of impairment. The recoverable amounts of cash generating units
have been determined using the value-in-use methodology. The
variables used in the calculation requires the use of assumptions
that affect earnings projections and the estimation of a discount
rate that uses a cost of capital and risk premium specific to the
cash generating unit amongst other factors.
Cash projections used in the financial models to assess the
carrying value of goodwill and indefinite life intangible assets
required significant estimates in very uncertain economic and
business environments. These are discussed in more detail in
note 6.
Lease assets residual value
The Group’s operating leases 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
forecasts 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 arrangements
with external financiers, 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.
Tyre and maintenance services
The Group holds the residual risk for the provision of tyre and
maintenance services and ultimately affects profit or loss on
the contract. 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 to assess unearned premium and
requires the use of judgement to estimate the pattern of incidence
of risk.
During the year, the Group engaged external actuarial services
to assess the deferred income and acquisition costs of active
contracts that may give rise to future claims. Whilst the underlying
methodology had not changed, the critical variables in the claims
profile were refreshed to assume the pattern and timing of claims
affected by more recent history of claims as well as the impact of
recent regulatory changes and product changes by the Group.
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. COVID-19 affected the credit quality of many
customers at varying levels. The continuing impact of COVID-19
on the future credit quality of finance lease customers was
indeterminable and ECL was adjusted to include a downgrade
to the credit rating of all customers where their industry is more
exposed to the effects of COVID-19.
No other judgements, estimates or assumptions are considered
significant.
MMS ANNUAL REPORT 2020 59
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 Audit,
Risk and Compliance Committee and ad hoc discussions with senior management, should the need arise. A risk report is presented to the
Audit, Risk and Compliance Committee at least four times per year. The Credit and Treasury reports are provided to the Credit Committee and
Interest Committee respectively, by the Group Treasurer/Head of Credit, including sensitivity analysis in the case of interest rate risk and aging
/ exposure reports for credit risk. These committee reports are discussed at Board meetings monthly, along with management accounts.
All exposures to risk and management strategies are consistent with prior year, other than as noted below.
(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:
Asset Management revolving borrowing
facilities in local currency
30 June 2020
30 June 2019
Facility
Used
Unused
Facility
Used
Unused
Revolving borrowing facilities (AUD ‘000)
322,115
240,648
81,467
384,342
296,880
87,462
Secured bank borrowings
(excluding borrowing costs)
Maturity
dates
Facility
Used
Unused
Facility
Used
Unused
AUD’000
AUD’000
AUD’000
AUD’000
AUD’000
AUD’000
NZD’000
NZD’000
NZD’000
NZD’000
GBP’000
GBP’000
GBP’000
GBP’000
31/03/2022
31/03/2023
31/03/2024
31/03/2021
31/03/2021
31/03/2021
31/03/2022
31/03/2023
31/03/2021
31/03/2021
31/10/2021
31/01/2021
31/03/2021
31/03/2021
130,670
112,800
45,000
20,000
25,000
4,000
-
-
-
30,000
15,000
-
-
-
-
-
27,200
7,100
-
-
17,870
20,000
16,000
-
-
-
2,800
7,900
-
-
47,000
37,200
9,800
-
-
-
-
-
-
-
-
-
-
-
-
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
Notes to the Financial StatementsFor the year ended 30 June 2020
60
Notes to the Financial Statements
For the year ended 30 June 2020
The revolving borrowing facilities above have been provided by a financing club of three major Australian banks operating under common
terms and conditions. The bank loans are denominated in local currency of the principal geographical markets to remove associated foreign
currency cash flow exposure.
The revolving facilities are further augmented by uncommitted P&A facilities of $211 million and a residual value facility of $123 million. At
reporting date, $106 million of the P&A facilities were used and $70 million of the residual value facility was utilised. The residual value is
subject to a put and call option that reverts the lease asset to the Group at the termination of the lease. The carrying value of the residual
value of these assets was assessed at the lower of book value and estimated disposal value resulting in the recognition of a provision for loss
in value of $0.8 million for those assets identified to be possibly below book value. The potential profit from disposal of these assets are not
included in the carrying value assessment.
The Group believes that the balanced arrangement of internal funded fleet assets and the use of P&A facilities improves liquidity, provides
funding diversification and helps to optimise capital management.
Total borrowing facilities at reporting date decreased by approximately $62.2 million as the Group re-balanced its funding requirements to
achieve the Company’s desired mix of on and off balance sheet financing using P&A arrangements. Loan maturities were extended for some
facilities with the Club of financiers during the year. The revolving facilities for Australian operations of $210 million that were due to mature
on 31 March 2021 were reduced to $196 million and extended for another 1 to 3 years. Committed bank facilities for UK operations reduced
by GBP32 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 that were due to mature in January 2021 has been extended to October 2021 pending the restructure of UK operations. Total
unused committed facilities available at reporting date was $82 million. This will provide funding to meet immediate funding requirements
together with the headroom from the $211 million of uncommitted P&A facilities and residual value facility of $123 million, a GBP 6 million
committed working capital facility for the Company’s UK joint venture supported by an unsecured guarantee 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.
Other amortising borrowing
facilities in local currency
2020
2019
Facility
Used
Unused
Facility
Used
Unused
Amortising borrowing facilities (AUD ‘000)
24,726
24,726
-
31,565
31,565
-
Total Borrowings (AUD ‘000)1
346,841
265,374
81,467
415,907
328,445
87,462
1 Borrowings do not include capitalised borrowing costs of $1,754,000.
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
GBP’000
GBP’000
31/12/2022
29/09/2022
31/01/2021
31/03/2022
7,650
7,224
1,540
3,950
7,650
7,224
1,540
3,950
-
-
-
-
8,927
10,435
2,520
4,307
8,927
10,435
2,520
4,307
-
-
-
-
Maturities of financial liabilities
The table on the following page summarises the maturity profile of the Group and the parent entity’s financial liabilities based on contractual
undiscounted payments at the expected settlement dates. Contracted payments are based on amounts brought to account on the balance
sheet and property lease commitments not brought to account.
MMS ANNUAL REPORT 2020 61
Over 5
years
$’000
-
-
52,573
-
52,573
Total
contractual
cash flows
$’000
24,577
83,686
85,415
270,480
464,158
Over 5
years
$’000
Total
contractual
cash flows
$’000
-
-
-
-
27,150
89,914
360,523
477,587
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount /
liabilities
$’000
24,577
71,886
24,436
265,374
386,273
Carrying
Amount /
liabilities
$’000
27,150
89,859
328,445
445,454
Carrying
Amount
(assets)/
liabilities
$’000
Consolidated Group –
at 30 June 2020:
Contractual maturities
of financial liabilities
Trade payables
Other creditors and liabilities
Lease liabilities
Borrowings
Less than 6
months
$’000
24,577
77,786
4,341
8,197
6–12
months
$’000
-
5,900
3,344
8,923
114,901
18,167
1–2 years
$’000
2–5 years
$’000
-
-
4,315
219,242
223,557
-
-
20,842
34,118
54,960
Consolidated Group –
at 30 June 2019:
Contractual maturities
of financial liabilities
Trade payables
Other creditors and liabilities
Borrowings
Less than 6
months
$’000
27,150
80,137
11,988
119,275
6–12
months
$’000
-
6,983
11,599
18,582
1–2 years
$’000
2–5 years
$’000
-
2,112
317,462
319,574
-
682
19,474
20,156
Parent –
at 30 June 2020:
Contractual maturities
of financial liabilities
Amounts payable to
wholly owned entities
and other payables
Borrowings
Financial guarantee contracts
Parent –
at 30 June 2019:
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
128,324
4,267
3,930
136,521
-
2,955
5,968
8,923
-
-
5,837
213,405
219,242
2,086
32,032
34,118
-
-
-
-
128,324
128,324
15,145
255,335
14,876
-
398,804
143,200
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
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
-
431,841
106,496
Notes to the Financial StatementsFor the year ended 30 June 2020
62
Notes to the Financial Statements
For the year ended 30 June 2020
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counter-party to a financial instrument fails to meet its contractual obligations.
The Company and Group have exposure to credit risk through the receivables’ balances, customer leasing commitments and deposits with
banks. The following carrying amount of financial assets represent the maximum credit exposure at reporting date.
Trade and other receivables
Deposits with banks
Finance lease & hire purchase receivables
Operating lease assets
Consolidated Group
Parent Entity
2020
$’000
69,384
91,408
113,086
215,942
489,820
2019
$’000
55,002
137,762
138,066
280,705
611,535
2020
$’000
-
220
-
-
220
2019
$’000
-
9,044
-
-
9,044
Lease assets of the Asset Management business represents future lease rentals that have yet to be invoiced. Such assets are secured
against underlying assets.
Credit risk management strategy
Credit risk arises from cash and cash equivalents and deposits with banks as well as exposure from outstanding receivables and unbilled
future rentals for leased vehicles and counterparty risks associated with interest and currency swaps. For deposits with banks, only
independently rated institutions with upper investment-grade ratings are used, in accordance with the Board approved Investment Policy.
Credit risk relating to the leasing of assets is managed pursuant to the Board approved Credit Policy by the Group CFO and the Group
Treasurer/Head of Credit. The policy is reviewed annually and prescribes minimum criteria in the credit assessment process that includes
credit risk rating of the customer, concentration risk parameters, type and intended use of the asset under lease and the value of the exposure.
A two tiered Credit Committee structure is in place to stratify credit applications for assessment; a Local Credit Committee and an Executive
Credit Committee reviewing applications based on volume, nature and value of the application. The Board receives a monthly report from the
Credit Committee and periodically reviews concentration limits that effectively spread the risks as widely as possible across asset classes,
client base, industries, regions and asset manufacturer. There is a broad spread of credit risk concentration through the Group’s exposure to
individual customers, industry sectors, asset types, asset manufacturers or regions.
Where customers are independently rated, these ratings are taken into account. If there is no independent official rating, management
assesses the credit quality of the customer using the Group’s internal risk rating tool, taking into account information from an independent
national credit bureau, its financial position, business segment, past experience and other factors using an application scorecard or other risk-
assessment tools. Collateral is also obtained where appropriate, as a means of mitigating risk of financial loss from defaults. The overall debtor
aging position is reviewed monthly by the Board, as is the provision for any impairment in the trade receivables balance.
c) Market risk
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 2020
63
AUD’000
GBP’000
Total AUD‘000
2020
2019
Borrowings
‘000
Weighted average
interest rate %
Borrowings
‘000
Weighted average
interest rate %
190,976
42,693
265,381
1.64%
1.88%
1.69%
227,051
56,727
328,445
2.72%
1.91%
2.56%
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 2020, the Group’s borrowings for the Asset Management business of
$168,479,000 (2019: $256,591,000) were covered by interest rate swaps at a fixed rate of interest of 2.72% (2019: 2.94%).
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
2020
Balance
$’000
91,408
(250,499)
168,479
(14,874)
2019
Balance
$’000
137,762
(309,083)
256,591
(19,362)
(5,486)
65,908
1. Excluding capitalised borrowing costs of $1,761,000 (2019: $146,000) for Asset Management and $26,000 in 2019 for the bank loan for Presidian.
Sensitivity analysis – floating interest rates:
At 30 June 2020, 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 $721,000 (2019: $780,408) higher or lower and the parent entity $26,000 (2019:
$18,056) higher or lower, depending on which way the interest rates moved based on the cash and cash equivalents and borrowings balances
at reporting date.
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.
Other market price risk
The Consolidated Group does not engage in any transactions that give rise to any other market risks.
Notes to the Financial StatementsFor the year ended 30 June 2020
64
Notes to the Financial Statements
For the year ended 30 June 2020
(d) Asset risk
The Group’s exposure to asset risk is mainly from the residual
value of assets under lease and the maintenance and tyre
obligations to meet claims for these services sold to customers.
Residual value is an estimate of the value of an asset at the end
of the lease. This estimate, which is formed at the inception of
the lease and any subsequent impairment, exposes the Group
to potential loss from resale if the market price is lower than the
value as recorded in the books. The risk relating to maintenance
and tyre services arises where the costs to meet customer claims
over the contracted period exceed estimates made at inception.
The Group continuously reviews the portfolio’s residual values via
a Residual Value Committee comprising experienced senior staff
with a balance of disciplines and responsibilities, who measure and
report all matters of risk that could potentially affect residual values
and maintenance costs and matters that can mitigate the Group
from these exposures. The asset risk policy sets out a framework
to measure and factor into their assessment such critical variables
as used car market dynamics, economic conditions, government
policies, the credit market and the condition of assets under lease.
At reporting date, the portfolio of motor vehicles under operating
lease and the residual value of leases under P&A facilities of
$285,942,000 (2019: $280,744,000) included a residual value
provision of $4,548,000 (2019: $4,182,000).
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, 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 admin-
istrative services in respect of salary packaging and facilitates
the settlement of motor vehicle novated leases for customers but
does not provide financing. The segment also provides ancillary
services associated with motor vehicle novated lease products.
The provision of administrative services include plan management
and support coordination services to participants in the National
Disability Insurance Scheme (NDIS).
Asset Management - This segment provides financing and
ancillary management services associated with motor vehicles,
commercial vehicles and equipment.
Retail Financial Services - This segment provides retail broker-
age services, aggregation of finance originations and extended
warranty cover, but does not provide financing.
MMS ANNUAL REPORT 2020 65
(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.
2020
Group
Remuneration
Services
$’000
Asset
Management
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
Revenue from contracts with customers
214,822
228,755
49,539
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
Impairment of goodwill and other intangible assets
Amortisation of intangible assets acquired on
business combination
Other, including class action legal costs and
settlement provision (refer to note 29(b))
Deferred revenue and acquisition costs valuation
Share buyback expenses
Other, including due diligence and
restructuring expenses
Fair valuation of deferred consideration
and finance charge
Total adjustments pre-tax
Income tax
UNPATA adjustments
Statutory net profit / (loss) after-tax
attributable to members of the parent entity
-
533
-
214,822
229,288
49,539
121,589
93,233
214,822
130,815
97,940
228,755
41,238
8,301
49,539
-
313
313
-
-
-
493,116
846
493,962
293,642
199,474
493,116
60,946
6,038
3,005
(961)
69,028
-
-
-
-
-
-
-
-
-
-
(16,174)
(33,965)
(1,753)
(2,141)
-
-
-
(123)
1,459
(16,591)
673
(15,918)
(7,255)
(13,930)
-
-
-
(57,291)
6,998
(50,293)
-
-
-
-
(548)
(50,139)
(3,894)
(7,255)
(13,930)
(548)
(1,165)
(1,288)
-
(1,713)
165
(1,548)
1,459
(75,595)
7,836
(67,759)
60,946
(9,880)
(47,288)
(2,509)
1,269
Notes to the Financial StatementsFor the year ended 30 June 2020
66
2019
Group
Remuneration
Services
$’000
Asset
Management
$’000
Retail
Financial
Services
$’000
Unallocated
$’000
Consolidated
$’000
Revenue from contracts with customers
221,851
245,089
80,689
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
Impairment of goodwill and intangible assets
Total UNPATA adjustments
Income tax
UNPATA adjustments after-tax
Statutory net profit / (loss) after-tax
attributable to members of the parent entity
-
704
-
221,851
245,793
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
549,675
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
(c) Other segment information
Segment revenue
Segment revenue is reconciled to the Statement of Profit of Loss as follows:
Total segment revenue
2020
$’000
2019
$’000
493,116
547,894
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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
67
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 $57,026,000 (2019: $60,498,000) from the Group’s
largest contract. This is the only customer representing greater than 10% of total segment revenue.
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:
2020
Segment assets
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation2
2019
Segment assets
Segment liabilities
Additions to segment non-current assets
Segment depreciation and amortisation2
Group
Remuneration
Services
$’000
Asset
Management
$’000
199,491
79,978
13,217
15,872
465,918
308,169
69,164
80,183
Group
Remuneration
Services
$’000
Asset
Management
$’000
175,394
66,380
14,848
7,530
540,400
362,466
95,078
69,675
Retail
Financial
Services
$’000
76,669
48,147
5
37,374
Retail
Financial
Services
$’000
103,374
27,543
840
22,157
Unallocated1
$’000
Consolidated
$’000
(57,640)
19,258
-
-
684,438
455,552
82,386
133,429
Unallocated1
$’000
Consolidated
$’000
34,330
25,738
-
-
853,498
482,127
110,766
99,362
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. Depreciation and amortisation includes impairment of goodwill and other intangibles of $50.1 million (2019: 18.2 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.
Revenue from external customers
Non-current assets1
2020
$’000
425,343
55,861
12,445
493,649
2019
$’000
472,711
65,073
10,814
548,598
2020
$’000
259,669
92,638
38,789
391,096
2019
$’000
335,882
117,238
35,892
489,012
Notes to the Financial StatementsFor the year ended 30 June 2020
68
6 Intangible Assets
(a) Carrying values
Goodwill
Cost
Impairment loss
Net carrying value
Brands
Brands at cost – indefinite life
Impairment loss
Sub-total
Brands at cost – finite life
Impairment loss and disposal
Net carrying value
Dealer relationships
Cost
Accumulated amortisation
Impairment 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.
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
198,122
(108,796)
89,326
22,443
(13,171)
9,272
6,598
(6,598)
9,272
28,637
(14,299)
(6,990)
197,748
(60,321)
137,427
22,443
(13,171)
9,272
6,598
(5,720)
10,150
28,602
(12,216)
(5,298)
7,348
11,088
65,842
(32,948)
32,894
13,269
(13,269)
-
6,679
(5,106)
1,573
60,673
(30,286)
30,387
13,070
(13,070)
-
6,657
(4,381)
2,276
140,413
191,328
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
(b) Recognition and measurement
Intangible assets acquired in a business combination are
recognised at their fair value at the date of acquisition. Following
initial recognition, intangible assets are carried at their initial value
less any accumulated amortisation and accumulated impairment
losses. Specific criteria for various classes of intangible assets are
stated below.
Intangible assets in software development costs and contract
costs, which are not acquired from business combination, are
initially measured at cost and subsequently re-measured at cost
less amortisation and impairment.
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.
69
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 expected from them.
Brand names that have an indefinite life is pursuant to the Group’s
plan for its continued use into the foreseeable future and there
is no reasonable basis to establish a useful life and consequently
any amortisation would be random and may not align with the
economic benefit it generates.
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.
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
70
(c) Reconciliation of written down values
Consolidated Group
2020
Net book amount
Goodwill
$’000
Brands
$’000
Dealer
relationships
$’000
Customer
lists and
relationships
$’000
Software
development
costs
$’000
Contract
rights
$’000
Balance beginning of year
137,427
10,150
11,088
2,276
Additions
Impairment
Amortisation
Other
Changes in foreign currency
-
(48,475)
-
-
374
-
-
(878)
-
-
-
(1,664)
(2,270)
-
194
30,387
13,494
-
-
-
(746)
(11,700)
-
43
713
-
Closing balance
89,326
9,272
7,348
1,573
32,894
Total
$’000
191,328
13,494
(50,139)
(15,594)
713
611
140,413
-
-
-
-
-
-
-
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
Impairment
Amortisation
Changes in foreign currency
-
-
(17,985)
-
-
-
-
132
(1,401)
-
-
-
(269)
(2,705)
165
-
-
-
(725)
17
Closing balance
137,427
10,150
11,088
2,276
30,387
22,142
15,197
(518)
-
85
205,939
-
-
-
15,197
(518)
(18,254)
(6,434)
(85)
(11,350)
-
-
-
314
191,328
(d) Impairment test of goodwill and other intangible assets
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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
71
The carrying amount of goodwill is allocated to the Group’s cash-generating units (CGUs) below based on the organisation and management
of its businesses.
Maxxia Pty Limited (Maxxia)
Remuneration Services (Qld)
Pty Limited (RemServ)
CLM Fleet Management plc (CLM)
Anglo Scottish Finance Limited (ASF)
Retail Financial Services Segment
Aggregation Business (RFS Aggregation)
Capex Asset Finance Limited (CAPEX)
Other
Goodwill
Intangibles
2020
$’000
2020
$’000
24,190
23,820
9,102
7,799
13,139
31,894
3,202
-
6,288
311
2,710
12,828
2,791
2,339
Consolidated Group
Total
2020
$’000
48,010
15,390
8,110
15,849
44,722
5,993
2,339
Goodwill
Intangibles
2019
$’000
2019
$’000
24,190
20,235
9,102
12,955
16,753
65,859
5,081
3,487
7,058
682
3,192
14,811
3,208
4,715
Total
2019
$’000
44,425
16,160
13,637
19,945
80,670
8,289
8,202
89,326
51,087
140,413
137,427
53,901
191,328
(e) Key assumptions used for value-in-use calculations
Cash flow projections
The cash flow projections are based off the FY2021 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 in changes to the trading,
market and regulatory environments.
The impact of COVID-19 has resulted in significant uncertainty in
the economic environment affecting the Group’s businesses. The
imposition of lockdown restrictions reduced the effectiveness of
operations and reduced motor vehicle originations. The scale of
the restrictions, changing economic and social environment and
pace of recovery has created inherent uncertainty to the projection
of cash flows assumed in the financial models. The value-in-use
assessment models have adopted a probability weighted outcome
of various scenarios in the cash flow projections.
The after-tax discounted cash flow models were based on after-tax
cash flows discounted by an after-tax discount rate. The equivalent
pre-tax discount rates are provided below.
Cash flows beyond the five year period are extrapolated using
conservative growth rates of 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. The equivalent pre-tax discount rate of
15% (2019: 15.8%) was applied in the value-in-use calculation.
The salary packaging service was not severely impacted by
COVID-19. The novated leasing service was however, significantly
affected by COVID-19 given the exposure to the motor vehicle
industry that was affected by the economic uncertainty.
The cash flow projections for GRS in FY2021 are substantially
higher than the carrying value of goodwill in these CGUs and
consequently, any reasonable changes to the key assumptions
would not cause an impairment and hence, no sensitivity
assessments have been presented. One of the key assumptions
in the GRS segment is that there is no significant change to
Australian tax legislation that could affect the salary packaging
and novated lease businesses. 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 to April 2021
and November 2021 respectively.
Notes to the Financial StatementsFor the year ended 30 June 2020
72
Asset Management CGUs
Impairment assessment model for Asset Management CGUs
The Asset Management CGUs used a probability weighted model
for the impairment assessments that included scenarios and an
annual probability weighting for each scenario. One scenario,
the base case, used the business plans that formed the FY2021
budget and the growth assumptions for the subsequent years as
disclosed for each CGU below. An at-risk scenario that assumed the
base case plus the impact of a second COVID-19 wave imposing
a lockdown as well as a projection risk for the possibility of under-
performing the FY2021 budget.
CAPEX and ASF
CAPEX and ASF operate largely in the same business sector and
are exposed to relatively similar types of risks.
COVID-19 in the UK curtailed the corporate broker business of
CAPEX and ASF with volumes falling sharply during the initial
period of the lockdown. April and May 2020 experienced business
volumes dropping by approximately 50% but has since reported
signs of recovery. The following are growth rates assumed in the
cash flow projections for each scenario.
Probability weighting assumptions were applied to each year in
the scenarios between 40% and 60%. If the probability weightings
were changed by 10% the impact to the assessed carrying value
of CAPEX and ASF are $0.3m and $0.5m respectively.
From other sensitivity tests applied to CAPEX and ASF, a 0.25%
change to the discount rate indicated an impact of $0.2m and
$0.5m respectively and a 5% change to revenue indicated an
impact of $0.9m and $3.4m respectively.
An impairment of $1,972,000 and $3,711,000 has been
estimated from the weighted probability of the cash flow scenarios
modelled for Capex and ASF respectively. The equivalent pre-tax
discount rate of 12.2% (2019: 15.8%) was applied in the value-
in-use calculation.
Revenue growth
rate assumptions
Base scenario
CAPEX
ASF
At-risk scenario
CAPEX
ASF
FY2021
FY2022
(30%)
(19%)
(46%)
(37%)
34%
11%
35%
28%
FY2023
–FY2025
0-1%
0-3%
The severe impact of COVID-19 to the corporate brokering
industry was relieved by a Government support programme
which terminates in September 2020. Business activities
are assumed to remain subdued for most of FY2021
followed by a gradual recovery in the latter months and
reaching pre-COVID-19 run rates in FY2022.
0-1%
2-3%
The impact of a second COVID-19 wave is included in
FY2021 as is a projection risk for under-performing against
planned targets.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
73
CLM
As CLM’s business is driven by transactional activities related to
the delivery, service, maintenance, repair and disposal of motor
vehicles, the COVID-19 lockdown period had an immediate impact
on these sectors causing a substantial loss to CLM’s maintenance
management and outsourced fleet management services. A
recovery is anticipated on the back of pent-up demand for required
services but inherent uncertainty remains affecting the level and
pace of recovery.
Probability weighting assumptions were applied to each year in
the scenarios between 40% and 60%. If the probability weightings
were changed by 10% the impact to the assessed carrying value
of CLM is $0.2m.
From other sensitivity tests applied, a 0.25% change to the
discount rate indicated an impact of $0.2m and a 5% change to
revenue indicated an impact of $1.3m.
An impairment of $5,283,000 has been estimated from the
weighted probability of the cash flow scenarios modelled for CLM.
The equivalent pre-tax discount rate of 12.2% (2019: 15.8%) was
applied in the value-in-use calculation.
Revenue growth
rate assumptions
CLM
Base scenario
FY2021
FY2022
FY2023
–FY2025
7%
2%
1%
At-risk scenario
(60%)
149%
1%
The easing of lockdown restrictions allows a quicker recovery
in CLM’s business activities as withheld required services are
re-instated. Beyond this short surge, FY2021 is assumed a
relatively modest recovery that continues for the next 4 years.
As CLM’s business is severely impacted by COVID-19, the
assumption of a second wave will probably
have a severe impact to its business in FY2021.
An upturn in business is assumed in the subsequent period
for the pent-up demand for required motor vehicle services
on the recovery. A projection risk
for under-performing planned targets based on prior year
experience is also factored in.
Notes to the Financial StatementsFor the year ended 30 June 2020
74
RFS Aggregation CGU
In the later part of FY2020 the RFS Aggregation business operated
at reduced finance originations and yields due to increased
competition and the general decline in the volume of motor vehicle
sales. COVID-19 restrictions and the general economic conditions
in the fourth quarter exacerbated business conditions affecting
volumes. Volume originations have been recovering but yields have
remained lower due to competition.
Given that significant uncertainty remains with the economic
environment and impact of COVID-19, the sustainability and level
of recovery from COVID-19 and as RFS Aggregation seeks to hold
and recover its market position, the impairment assessment has
been modelled on the weighted probability of three outcomes. The
base case uses the plan for FY2021, a second scenario factors a
projection risk for COVID-19 and other factors and a third scenario
as a growth model that seeks to recover market share and yields
(“alternative growth”). An equivalent pre-tax discount rate of
15.0% (2019: 14.1%) has been used for the pre-tax value-in-use
calculations.
Probability weighting assumptions were applied to each year in the
scenarios of 50% / 40% / 10% for the base, at-risk and alternate
growth scenarios in FY2021 respectively. The base scenario
probability assumption of 50% is unchanged in all the years in the
model. If the probability weightings of the at-risk and alternative
growth scenarios changed by 10% with no change to the base
scenario, the impact to the assessed carrying value is $2.5m.
From other sensitivity tests applied, a 0.25% change to the
discount rate indicated an impact of $1.0m and a 5% change to
revenue indicated an impact of $5.2m.
From the weighted probability of the three outcomes, an
impairment of $33,965,000 has been estimated and brought to
account in the year.
Revenue growth
rate assumptions
RFS Aggregation
Revenue growth rates
Base
FY2021
FY2022
FY2023
–FY2025
(11%)
11%
2%
At-risk
(19%)
15%
2%
Alternative growth
(8%)
7%
2%
The volume of finance originations is assumed to be lower
by 6% in FY2021 and at lower expected net yields as the
business faces increased competition and a change in
financier mix. It is assumed that pre-COVID-19 run rates and
including the current competition effects is not recovered
until the end of FY2021.
The base scenario is assumed to be potentially at risk for a
projection risk for under-performing against planned targets
based on prior year experience.
As recovery was relatively steady in the immediate months
following stage 3 restrictions, the growth model assumes
recovery to pre-COVID-19 run rates
but includes the new competition effects for most
of FY2021. The growth model also assumes a recovery of net
yields as the business changes its financier mix and recovers
market share.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
75
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
2020
$’000
214,765
111,226
86,234
80,612
279
2019
$’000
221,831
126,560
82,036
116,621
846
Total revenue from contract with customers
493,116
547,894
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
-
-
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. 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. 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 as well as volume based commissions. 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 with 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.
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 lease 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.
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
76
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
based 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 finance originations that 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 are 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 and the shortfall provided for.
8 Other revenue items
Consolidated Group
Parent Entity
Interest revenue
Dividends received
Other revenue
2020
$’000
846
-
846
2019
$’000
1,781
-
1,781
2020
$’000
154
59,591
59,745
2019
$’000
776
189,173
189,949
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.
Dividends
Dividends are recognised when the Company’s right to receive payment is established.
9 Profit and loss information
(a) Impairment charges
Consolidated Group
Parent Entity
Other impairment charges
Impairment of goodwill
Impairment of other intangible assets
Impairment of investment in subsidiaries
2020
$’000
2019
$’000
2020
$’000
2019
$’000
48,475
1,664
-
17,985
269
-
50,139
18,254
-
-
74,348
74,348
-
-
-
-
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
77
(b) Impairment of financial assets
Consolidated Group
Parent Entity
Impairment of subordinated loan
Trade debtors specific and expected loss allowance
Finance receivables specific loss allowance
Finance lease receivable loss allowance
Related entities loan impairment
2020
$’000
4,596
1,248
(1,844)
(178)
-
3,822
2019
$’000
812
79
4,600
274
-
5,765
2020
$’000
2019
$’000
-
-
-
-
3,621
3,621
-
-
-
-
-
-
Group
The Group’s impairment of goodwill and other intangible assets relate to the RFS Aggregation segment and the business in the UK. The
UK operations have projected lower future cash flows affected by a weaker economic environment including the effects of the COVID-19
pandemic (COVID-19) affecting the products and markets that the businesses trade in. RFS Aggregation experienced increasing competitive
pressures during the year affecting finance originations and yields in addition to the impact of COVID-19. Refer note 6(e) for the assumptions
used in the assessment.
The subordinated loan loss allowance of $4,596,000 relates to the net investment in Maxxia Limited in the UK to which the Group has a joint
venture arrangement.
Finance lease receivable Expected Credit Loss Allowance (ECL) of $178,000 is the excess of the provision in the course of the year affected
largely by the reduction of the carrying value of Finance Lease receivables of $113,086,000 from $138,066,000 in 2019. The Group uses
the assessment criteria from its credit management system and adds forward looking indicators to reflect macro-economic factors to estimate
ECL. Forward looking factors at reporting date included the downgrade of the credit rating of some clients due to their industry COVID-19 risk,
resulting in the weighted average expected loss rate increasing to 0.86% from 0.79% in 2019.
Finance receivables specific loss allowance release of $1,844,000 is the discharge of a provision for lease assets recovered from distressed
clients.
Parent entity
The Parent entity’s carrying value of its investments in its controlled entities were assessed for its recoverable value that has resulted in an
impairment of $74,348,000 (refer note 16). The assessment of the recoverable value of loans to related entities has resulted in an impairment
of $3,621,000.
(c) Other operating expenses
Consulting1
Marketing
Property and corporate
Technology and communication
Other
Consolidated Group
Parent Entity
2020
$’000
11,678
7,735
4,065
13,197
11,119
47,794
2019
$’000
5,180
6,106
10,939
13,044
11,533
46,802
2020
$’000
1,616
-
432
-
-
2,048
2019
$’000
199
-
340
-
-
539
1. Consulting expenses include legal consulting expenses of $6.5m which was mostly related to the class action proceedings and $2m for the provision of the class
action settlement (refer note 29(b))
Notes to the Financial StatementsFor the year ended 30 June 2020
78
(d) Other expense items
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
Depreciation and amortisation expenses
Depreciation of assets under operating lease
Amortisation of software development
Depreciation of plant and equipment
Amortisation of intangibles
Depreciation of ROU
Superannuation
58,980
11,700
3,191
3,893
5,526
83,290
66,246
6,519
3,511
4,832
-
81,108
Defined contribution superannuation expense
8,863
8,796
(e) Government subsidies
JobKeeper Payment
Coronavirus Job Retention Scheme
10,029
1,237
11,266
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group is in receipt of the Federal Government economic response subsidy, JobKeeper Payment, for the Australian entities for the period
from April to June 2020. The UK entities were in receipt of the Coronavirus Job Retention Scheme, a temporary relief to provide financial
support to assist in the retention of employees who may otherwise be laid off during the COVID-19 pandemic. The JobKeeper subsidy enabled
the Company to retain all its employees and reduce the levels of stand down. In the UK, the subsidy was a pass through for those employees
that were furloughed.
The subsidies have been accounted for as a reduction to employee benefit expense in the Statement of Profit or Loss.
(f)
Impact of change in estimates
Consolidated Group
Parent Entity
Unearned premium liability and deferred acquisition costs
Unearned premium liability
Deferred acquisition costs
2020
$’000
2019
$’000
2020
$’000
2019
$’000
20,704
(6,774)
13,930
-
-
-
-
-
-
-
-
-
Revenue from warranty premium is deferred on the basis of the earnings pattern over the unexpired portion of contracts using projected future
claims obligations. Direct acquisition costs associated with the unexpired portion of contracts are also deferred. During the year, the estimated
value of future claims obligations was independently assessed using the methodology consistent with prior years and applying current risk
factors and a refreshed claims profile. The current claims profile reflects a slower earning pattern and the extension of validity of claims both as
a consequence of changes to products and operations. The resulting effect is to defer a larger portion to meet future claims.
The impact of the transition to the new estimates decreased Revenue from contracts with customers by $20,704,000 and decreased Brokerage
commissions and incentives by $6,774,000 in the Statements of Profit or Loss. The balance of unearned premium liability and acquisition costs
in the Statements of Financial Position at reporting date are as follows:
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 79
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
-
-
-
-
-
-
-
2019
$’000
(766)
-
342
(424)
-
-
-
-
-
-
-
-
-
2020
$’000
26,101
1,369
(4,885)
22,585
2019
$’000
42,075
56
(6,252)
35,879
2020
$’000
(537)
-
(106)
(643)
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
24,916
99,696
(21,689)
187,765
7,475
29,908
(6,507)
56,329
12,946
5,396
23,391
836
774
(277)
(154)
2,354
-
-
(1,369)
22,585
-
668
(222)
-
(251)
233
203
(56)
-
350
-
-
-
-
-
-
35,879
17,234
56,329
-
-
(17,877)
(56,753)
Unearned premium liability - current
Unearned premium liability – non-current
Warranty claims
Deferred acquisition costs - current
Deferred acquisition costs – non- current
2020
$’000
16,213
20,483
1,870
38,566
5,206
6,641
11,847
2019
$’000
8,429
8,116
646
17,191
2,859
2,929
5,788
-
-
-
-
-
-
-
10 Income Tax Expense / (Benefit)
(a) Components of tax expense / (benefit)
Consolidated Group
Parent Entity
Current tax expense / (benefit)
Adjustments for current tax of prior years
Deferred tax
Income tax expense / (benefit)
(b) The prima facie tax payable on profit before income tax is
reconciled to the income tax expense / (benefit) as follows:
Profit / (loss) before income tax
Prima facie tax payable on profit before
income tax at 30% (2019: 30%)
Add tax effect of:
– non-deductible impairment expense
– non-deductible subordinated loan
– non-deductible costs
– contingent consideration fair valuation
– share-based payments
– overseas tax rate differential of subsidiaries
– acquisition expenses
– share of joint venture loss
– over-provision of tax from prior year
Less tax effect of:
– dividends received
Income tax expense / (benefit)
22,585
35,879
(643)
(424)
Notes to the Financial StatementsFor the year ended 30 June 2020
80
(c) Deferred tax asset / (liability)
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
The balance comprises temporary differences
attributed for:
Amounts recognised in profit or loss
Doubtful debts
Provisions
Property, plant and equipment
Accrued expenses
Other receivables/prepayments
Other
Losses
Deferred acquisition expenses
Intangible assets
Unearned income
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
Closing balance at 30 June
717
8,477
(3,737)
7,582
460
131
123
285
(5,814)
(55)
8,169
284
8,453
10,122
(1,669)
8,453
3,331
4,885
111
126
8,453
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
3,331
-
-
-
79
(1,051)
131
-
-
-
-
-
-
-
160
(1,134)
-
-
53
-
-
(841)
(921)
27
(814)
-
(814)
(814)
(947)
106
27
-
(814)
(26)
(947)
-
(947)
(947)
(558)
(342)
(47)
-
(947)
(d) Income tax asset
Income tax asset
-
6,026
-
-
The income tax receivable in 2019 relating to income tax assessments for FY 2012, FY 2013 and FY 2014 were settled with the taxation
authorities and the refund is included in income taxes paid in the Statement of Cash Flows.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 81
(e) Unrecognised temporary differences
Consolidated Group
Parent Entity
Temporary differences that have not been tax effected:
Unused tax losses for which no deferred tax asset
has been recognised
Foreign currency translation reserve for investment in subsidiaries
2020
$’000
2019
$’000
2020
$’000
2019
$’000
1,251
4,018
5,269
1,329
4,560
5,889
-
-
-
-
-
-
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.
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.
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.
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
82
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
2020
2019
1.6
77.0
$1,269
$63,672
78,945
82,667
Basic earnings per share is calculated by dividing the profit attributable to members of the Company by the weighted average number of
ordinary shares outstanding during the financial year.
Diluted earnings per share
Diluted EPS – cents per share
Earnings used to calculate basic earnings per share ($’000)
Weighted average number of ordinary shares outstanding during the year used in the
calculation of basic EPS (‘000)
Weighted average number of options on issue outstanding (’000)
Weighted average number of ordinary shares outstanding during the year used in the
calculation of diluted EPS (‘000)
1.6
76.4
78,945
82,667
869
2,392
79,814
85,059
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 the employee incentive plan.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
83
12 Dividends
Final fully franked ordinary dividend for the year ended
30 June 2019 of $0.40 (2018: $0.40) per share franked
at the tax rate of 30% (2018: 30%)
Interim fully franked ordinary dividend for the year ended
30 June 2020 of $0.34 (2019: $0.34) per share franked
at the tax rate of 30% (2019: 30%)
Franking credits available for subsequent financial years
based on a tax rate of 30% (2019 – 30%)
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
33,281
33,066
33,281
33,066
26,310
28,107
26,310
28,107
59,591
61,173
59,591
61,173
91,455
128,758
91,455
128,758
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.
Notes to the Financial StatementsFor the year ended 30 June 2020
84
13 Cash and Cash Equivalents
Cash on hand
Bank balances
Short term deposits
(a) Cash and cash equivalents
Consolidated Group
Parent Entity
2020
$’000
5
90,178
1,225
2019
$’000
9
103,377
34,376
91,408
137,762
2020
$’000
-
220
-
220
2019
$’000
4
9,040
-
9,044
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
FY 2020, the floating interest rates for the Group and parent entity were between 0.59% and 1.22% (2019: 0.77% and 1.80%). The short
term deposits are also subject to floating rates, which in 2020 were between 1.43% and 2.34% (2019: 1.76% and 2.53%). These deposits
have an average maturity of 90 days (2019: 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
2020
2019
Average
interest rate %
1.46%
1.29%
Average
interest rate %
2.50%
2.36%
$’000
408,676
23,092
431,768
$’000
380,123
32,518
412,641
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 1.46% (2019: 2.50%).
Interest received
Consolidated Group
2020
$’000
5,976
2019
$’000
9,570
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
85
14 Trade and Other Receivables
Current
Trade receivables
Other receivables
Income tax receivable (refer note 10(d))
Amounts receivable from wholly owned entities
(a) Trade receivables
Consolidated Group
Parent Entity
2020
$’000
32,306
37,078
-
-
2019
$’000
41,516
13,486
6,026
-
69,384
61,028
2020
$’000
2019
$’000
-
-
-
-
-
-
12,863
12,863
49,350
49,350
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 includes a loss allowance of $967,000 (FY19: $793,000) and
specific doubtful debts allowance of $1,074,000 (2019: nil). The carrying amount 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.
Expected loss rate
Gross carrying amount
Loss allowance
Specific loss allowance
Total 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
Consolidated Group
Parent Entity
2020
$’000
2.82%
34,347
967
1,074
2,041
2019
$’000
1.87%
42,309
793
-
793
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
2020
Loss
allowance
$’000
Amount not
impaired
$’000
(821)
(55)
(221)
(341)
(603)
27,231
2,387
1,153
333
1,202
Total
$’000
28,052
2,442
1,374
674
1,805
Total
$’000
36,720
3,176
1,062
457
894
34,347
(2,041)
32,306
42,309
2019
Loss
allowance
$’000
Amount not
impaired
$’000
-
-
-
(131)
(662)
(793)
36,720
3,176
1,062
326
232
41,516
(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.
Notes to the Financial StatementsFor the year ended 30 June 2020
86
(c) Other receivables
Other receivables include $25,560,000 from the sale of a portfolio of operating leases at written down value to a financier to discharge the
internal financing of lease assets as the Group operates more off-Balance Sheet funding through Principal and Agency (P&A). The receivable
was settled in July 2020. The balance of other receivables includes non-revenue related transactions accruing to the Group and client related
expenses administered by the Group that are to be recovered.
The 2019 balance of Other receivables of $13,486,000 was re-stated from $31,366,000 as a result of re-classifying $17,880,000 to Trade
receivables for amounts due from customers for services rendered but not invoiced.
None of the other current receivables are impaired or past due.
15 Finance Lease Receivables
Consolidated Group
Parent Entity
Current finance lease receivables
Non-current finance lease receivables
2020
$’000
43,936
69,150
2019
$’000
57,412
80,654
113,086
138,066
2020
$’000
2019
$’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
Expected loss allowance
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 in 2019.
Consolidated Group
Parent Entity
2020
$’000
950
189
1,139
2019
$’000
1,128
2,021
3,149
2020
$’000
2019
$’000
-
-
-
-
-
-
Consolidated Group
Parent Entity
2020
$’000
3,149
-
3,149
177
(178)
(2,021)
12
1,139
2019
$’000
191
1,223
1,414
4,874
-
(3,059)
(80)
3,149
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
87
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.
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
2020
$’000
0.86%
110,782
2019
$’000
0.79%
142,829
950
1,128
2020
$’000
2019
$’000
-
-
-
-
-
-
Consolidated Group
Minimum
lease
payments
2020
$’000
Present value
of lease
payments
2020
$’000
Minimum
lease
payments
2019
$’000
Present value
of lease
payments
2019
$’000
47,296
72,233
1,138
43,936
68,062
1,088
67,579
80,513
292
56,796
80,985
285
120,667
113,086
148,384
138,066
Less: unearned finance income
(7,581)
-
(10,318)
-
Present value of minimum lease payments
113,086
113,086
138,066
138,066
Consolidated Group
16 Other financial assets at cost
(a) Investment in subsidiaries
Fair value measurement
Finance lease receivables
Carrying
amount
2020
$’000
2020
113,086
$’000
Carrying
amount
2019
$’000
2019
138,066
$’000
Fair
value
2020
$’000
2020
113,496
$’000
Consolidated Group
Parent Entity
Fair
value
2019
$’000
2019
134,643
$’000
Shares in subsidiaries at cost
Current finance lease receivables are short term and their carrying amount is considered to equal their fair value. The fair value of finance
lease receivables were calculated based on cash flows discounted using an average of current lending rates appropriate for the geographical
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
markets the leases operate of 3.62% (2019: 3.30%). They are classified as level 3 fair values in the fair values hierarchy due to the inclusion
accounting policy described in Note 2.
of unobservable inputs.
286,243
211,123
-
-
Notes to the Financial StatementsFor the year ended 30 June 2020
88
16 Other financial assets
(a) Investment in subsidiaries
Shares in subsidiaries at cost
Consolidated Group
Parent Entity
2020
$’000
-
2019
$’000
2020
$’000
2019
$’000
-
211,123
286,243
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
Easilease Pty Ltd
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 (QLD) Pty Ltd
Just Honk Pty Ltd
Plan Management Partners Pty Ltd
Carila Pty Ltd
Maxxia (UK) Limited
Maxxia Finance Limited
CLM Fleet Management plc
Anglo Scottish Asset Finance plc
European Vehicle Contracts Limited
Capex Asset Finance Limited
Maxxia Limited
Maxxia Fleet Limited
Wuxi McMillan Software Co. Ltd
Country of
Incorporation
% Owned
2020
% Owned
2019
Principal activities
Australia
Australia
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100% Remuneration services provider
100% Remuneration services provider
100% Remuneration services provider
100% Asset management and services
100% Asset management and services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Retail financial services
100% Asset management
75% Plan management services
100% Asset management
100% Investment holding
100% Asset management
100% Fleet management services
100% Fleet management services
100% Fleet management services
100% Fleet management services
100% Dormant
100% Asset management and services
100% 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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
89
Recognition and measurement
The Group’s investment in its subsidiaries are recognised at cost less impairment.
During the year, the Parent entity recognised impairments for its investments in Presidian Holdings Pty Ltd of $51,457,000 and in Maxxia UK
Holdings plc of $22,891,000 based on the assessment of their recoverable value.
On 30 June 2020, the Group acquired the remaining 25% of the share capital in Plan Management Partners Pty Ltd.
(b) Subordinated loan receivable
Consolidated Group
Parent Entity
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
Specific credit loss allowance
Carrying value at end of the financial year
2020
$’000
-
-
-
-
4,596
(4,596)
-
2019
$’000
1,169
6,129
(7,298)
-
812
(812)
-
2020
$’000
2019
$’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 next investment in the JV.
The loan is classified as a financial asset at amortised cost.
At reporting date the subordinated loan was assessed to be impaired and $4,596,000 (2019: $812,000) was expensed in the Statement of
Profit and Loss.
The loan accrues interest at commercial rates and the balance at reporting date approximates to fair value.
Notes to the Financial StatementsFor the year ended 30 June 2020
90
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
2020
$’000
337
(337)
-
2019
$’000
337
(337)
-
2020
$’000
2019
$’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 current 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 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 the loan receivable from the JV that forms part of the net investment until it is reduced
to zero, and thereafter the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made
payments on behalf of the joint venture entity. The Group’s share of intra-group balances, transactions and unrealised gains or losses on such
transactions between the Group and the joint venture are eliminated.
Information relating to the joint venture investment is set out below.
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
Consolidated Group
2020
$’000
16,155
121
16,276
23,013
11,665
34,678
2019
$’000
9,550
97
9,647
16,906
8,057
24,963
(18,402)
(15,316)
(18,402)
(9,201)
(15,316)
(7,658)
-
-
-
-
The Group’s share of the JV losses is limited to the carrying value of its net investment in the JV. During the year, the Group recognised an
impairment of $4,596,000 for the subordinated loan to the JV which at reporting date was fully written-down.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
91
Consolidated Group
2020
$’000
5,186
(8,202)
(3,016)
-
2019
$’000
6,164
(9,077)
(2,913)
-
(3,016)
(2,913)
-
-
-
-
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
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
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
20,840
(15,571)
5,269
25,385
(17,958)
7,427
360,876
(144,934)
434,508
(153,803)
215,942
221,211
62,272
158,939
280,705
288,132
74,030
214,102
Total plant and equipment
221,211
288,132
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
62,272
74,030
153,670
206,675
215,942
280,705
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes to the Financial StatementsFor the year ended 30 June 2020
92
(b) Movements in cost and accumulated depreciation
Consolidated Group
Plant and
equipment
$’000
Assets under
operating lease1
$’000
Year ended 30 June 2020
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 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
7,427
1,212
348
(485)
(3,191)
-
(42)
5,269
7,243
3,395
518
(63)
(3,511)
-
(155)
7,427
Total
$’000
288,132
68,891
348
(72,981)
(62,171)
(551)
(457)
280,705
67,679
-
(72,496)
(58,980)
(551)
(415)
215,942
221,211
302,128
91,921
-
(48,457)
(66,246)
472
887
309,371
95,316
518
(48,520)
(69,757)
472
732
280,705
288,132
1. Accumulated provision for impairment loss at reporting date is $4,733,000 (2019: $4,182,000).
(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 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 basis over the term of the lease based on the cost less residual
value of the lease.
Depreciation and impairment
Depreciation on assets is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Class of Fixed Asset
Plant and equipment
Motor vehicles under operating lease
Depreciation Rate
20% – 40%
20% – 33%
The useful lives and residual value of assets are reviewed and adjusted for impairment, if appropriate, at the end of the reporting period.
(d) Security
The above assets form part of the security supporting the fixed and floating charge pledged to the Group’s financiers.
(e) Property, plant and equipment held for sale
Property, plant and equipment no longer held under operating leases are classified as inventory.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
93
(f) Leases
This note discloses the Group as lessee for operating lease arrangements for the use of property and equipment.
i. Right of use assets
Consolidated Group
Parent Entity
Re-statement of assets carrying value on transition to AASB 16
New assets leased in the period
Depreciation included in profit or loss
2020
$’000
20,990
489
(5,526)
15,953
2019
$’000
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
-
-
ii. Lease liabilities
Consolidated Group
Parent Entity
Re-statement of lease liabilities on transition to AASB 16
New assets leased in the period
Finance charge included in profit or loss
Lease payments
Carrying value of lease liabilities
Current
Non-current
2020
$’000
31,868
489
1,031
(8,952)
24,436
6,523
17,913
24,436
2019
$’000
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Recognition and measurement of lease assets and liabilities
From 1 July 2019, leases for property and other assets are classified as Right-Of-Use (ROU) with a corresponding lease liability. ROU and
the lease liability are initially measured on a present value basis. Most of the (ROU) assets of the Group are for property that have more than
twelve months left in the rental period from the time of recognition. The value of leases are brought to account are for the value of the property
and exclude non-lease components.
Lease liabilities include the net present value of fixed rental payments less any lease incentives plus any rental adjustments where the
extensions available under the lease will probably be exercised. Lease payments are discounted using the Group’s incremental borrowing rate.
ROU is measured at cost comprising the amount of the initial measurement of lease liability, any initial direct costs and any provision for make-
good or restoration. ROU is depreciated over the shorter of the asset’s useful life and lease term on a straight line basis.
Payments for short term leases of less than 12 months and low-value leases are expensed on a straight line basis to the profit or loss when
incurred.
The principal portion of payments is included in financing activities in the Statements of Cash Flows and the finance charges is included in
operating activities.
Notes to the Financial StatementsFor the year ended 30 June 2020
94
19 Trade and Other Payables
Unsecured liabilities
Trade payables
GST payable
Sundry creditors and accruals
Amounts payable to wholly owned entities
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
24,577
4,594
65,291
-
27,150
6,177
61,261
-
-
103
-
128,221
94,462
94,588
128,324
-
-
1,741
85,409
87,150
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 expired pursuant to its commitments.
20 Other Liabilities
(a) Other liabilities
Customer receipts in advance
Unearned property incentives
Recognition and measurement
Consolidated Group
Parent Entity
2020
$’000
2,341
-
2,341
2019
$’000
3,257
5,590
8,847
2020
$’000
2019
$’000
-
-
-
-
-
-
Revenue received in advance
Customer receipts in advance represent payments for future services.
Unearned property incentives
Property incentives received were amortised over the term of the lease.
(b) Contract liabilities
Consolidated Group
Parent Entity
Maintenance fees received in advance
Rebates and cancellations
2020
$’000
4,051
4,047
8,098
2019
$’000
3,388
2,663
6,051
2020
$’000
2019
$’000
-
-
-
-
-
-
Maintenance fees received in advance
Maintenance fees received in advance is income from maintenance service contracts that are 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 that rebates 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 clawbacks 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 2020Notes to the Financial StatementsFor the year ended 30 June 2020
95
21 Provisions
Current
Employee benefit liabilities
Provision for class action
Provision for onerous contracts
Non current
Provision for long service leave
Provision for onerous contracts
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
11,800
2,000
-
10,339
-
749
13,800
11,088
1,608
-
1,608
1,365
-
1,365
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Employee benefit liabilities
Provision for onerous rent
Provision for class action
Balance at start of the year
Employee benefits earned and
accrued in the year
Finance charges and provision
adjustments
2020
$’000
11,704
8,901
2019
$’000
11,120
7,929
-
-
Payments in the year
(7,197)
(7,345)
Provision made in the year
-
-
Balance at the end of the year
13,408
11,704
2020
$’000
749
-
(290)
(459)
-
-
2019
$’000
1,404
-
(147)
(508)
-
749
2020
$’000
2019
$’000
-
-
-
-
2,000
2,000
-
-
-
-
-
-
Recognition and measurement
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and where it is probable
that the Group is required to settle the obligation, and the obligation can be reliably estimated.
Provisions are measured at the present value of expenditure expected at settlement. The discount rate used to determine the present value
reflects the current pre-tax market rate of the time value of money and the risks specific to the liability. The increase in the provision due to the
passage of time is recognised as interest expense.
Employee benefits
Employee entitlements to annual and long service leave have been provided for based on amounts expected to be paid when the leave
entitlements are used. Employee leave provisions are presented as current liabilities in the statement of financial position if the Group does not
have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is
expected to occur.
Annual leave and long service leave that are not expected to be settled wholly within twelve months have been measured at the present value
of the estimated future cash outflows to be made for those benefits. Expected future payments are discounted using interest rates attaching to
high quality corporate bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.
Employee liabilities other than annual leave and long service leave are included in other payables.
Notes to the Financial StatementsFor the year ended 30 June 2020
96
Provision for class action
The provision for class action of $2,000,000 is based on the possible settlement of the class action dispute currently under mediation
(refer note 29 (b)).
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.
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
2020
$’000
2019
$’000
2020
$’000
2019
$’000
11,706
8,779
5,761
5,761
251,914
319,520
9,115
263,620
328,299
14,876
13,585
19,346
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 $250,498,000 (2019: $309,953,000).
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.
(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, earnings covenants 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 2020Notes to the Financial StatementsFor the year ended 30 June 2020
97
23 Contingent consideration
Contingent consideration – Non-current
(a) Recognition and measurement
Consolidated Group
Parent Entity
2020
$’000
-
2019
$’000
1,374
2020
$’000
-
2019
$’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
2020
$’000
1,374
(1,459)
-
-
85
-
2019
$’000
6,158
(1,168)
265
(3,741)
(140)
1,374
2020
$’000
2019
$’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.
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 to be made in the acquisition of Anglo Scottish plc.
Notes to the Financial StatementsFor the year ended 30 June 2020
98
24 Issued Capital
(a) Share capital
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
77,381,107 (2019: 83,204,720) fully paid ordinary shares
76,419
135,868
76,419
135,868
(b) Movements in issued capital
Shares issued at 1 July 2019
Treasury shares
Shares held by external shareholders at the beginning of the year
Share buy-back
Treasury shares distributed in the year on the exercise of employee options
Capital reduction
Shares held by external shareholders at 30 June 2020
Shares issued at 1 July 2018
Treasury shares
Shares held by external shareholders at 30 June 2019
Number
of shares
Issue
price
83,204,720
(538,129)
82,666,591
(5,823,613)
538,129
-
77,381,107
$1.78
$10.18
Number
of shares
Issue
price
83,204,720
(538,129)
82,666,591
-
-
Ordinary
shares
$’000
135,868
-
135,868
(10,366)
5,478
(54,561)
76,419
Ordinary
shares
$’000
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) Capital reduction
The net assets of the parent were affected by the loss in value of its investments in and receivable balances from its subsidiaries amounting
to $77,969,000 resulting in a deficit in retained earnings of $54,561,000 at 30 June 2020. In order to avoid the limitation on the Company’s
capacity to pay a dividend, the deficit in retained earnings has been applied as a reduction against share capital for the value that is no longer
represented in assets in accordance with S.258F of the Corporations Act. The loss in value of assets is summarised as follows.
Investment in subsidiaries
Loan receivables from subsidiaries
Loss in value of assets
Consolidated Group
2020
$’000
74,348
3,621
77,969
2019
$’000
-
-
-
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
99
The loss in value of the investment in subsidiaries has resulted from the impairment of the carrying value of intangibles assets of the RFS
Aggregation and the Asset Management subsidiaries in the UK (refer note 16(a)) and the recoverable value of another subsidiary investment.
The parent entity’s assessment of the recoverability of loans receivable from its subsidiaries has resulted in an impairment of $3,621,000.
The capital reduction is non-cash and the impairment of the parent’s investment in its subsidiaries and loan receivables does not impact the
consolidated financial statements and does not affect net assets of the parent or the Consolidated Group.
(d) Share buy-back
In October 2019, the Company completed an off-market share buy-back of 5,823,613 fully paid ordinary shares at $13.74 per share that
was funded from cash of $80,016,443. The share buy-back comprised a capital component of $1.78 which reduced share capital by
$10,366,031 and a fully franked dividend per share of $11.96 that was paid out of retained earnings of $69,650,412.
(e) 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 fully distributed on the exercise of
employee options.
(f) Options
At 30 June 2020, there were 593,656 (2019: 2,030,950) unissued ordinary shares for which options were outstanding and exercisable at an
average price of $16.52 (2019: $13.68). 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.
(g) 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.
(h) 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 and key banking covenants. 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 43% (2019: 27%) calculated as net debt of $172,212,000 (2019: $190,713,000) divided by total debt
and equity of $401,098,000 (2019: $699,843,000). 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.
Notes to the Financial StatementsFor the year ended 30 June 2020 100
25 Reserves
(a) Share-based payment 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. In 2019
$9,969,000 of the reserve for vested equity based rights and options was transferred to retained earnings.
(b) Cash flow hedge reserve
Consolidated Group
Parent Entity
Revaluation - gross
Deferred tax
Balance at the end of the financial year
2020
$’000
(1,293)
111
(1,182)
2019
$’000
(1,157)
279
(878)
2020
$’000
-
-
-
2019
$’000
88
(26)
62
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
Consolidated Group
Parent Entity
Balance at the end of the financial year
2020
$’000
2019
$’000
(4,018)
(4,560)
2020
$’000
-
2019
$’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.
(d) Acquisition reserve
At 30 June 2020, the Company acquired Outside Equity Interest’s (OEI) remaining interest in Plan Partners Pty Ltd for $8,000,000.
The OEI shareholding was acquired at amortised cost of $868,000 and the remaining balance of $7,132,000 was placed in reserve.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 101
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)
Fair value at
2020
$’000
2019
$’000
Fair value
hierarchy
Valuation technique and key input
Interest rate swaps –
cash flow hedge
(1,293)
(1,157)
Contingent consideration
-
(1,374)
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.
The contingent consideration is assessed as unlikely to be
payable (refer note 23). In 2019 the discounted cash flow
used a discount rate of 2.8%, average annual revenues of
approximately $9.5m and EBITDA in the region of $3.2m.
Except as detailed in the above, the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial
statements approximate their fair values. The fair value of borrowings is not materially different to their carrying amounts since the interest
payable is close to market rates. The carrying amount of cash, trade and other receivables, trade and other payables are assumed to be the
same as their fair values, due to their short term nature.
Notes to the Financial StatementsFor the year ended 30 June 2020
102
27 Cash Flow Information
(a) Reconciliation of cash flow from operations
with profit from operating activities after tax
Profit for the year
Non cash flows in profit from operating activities
Amortisation
Right of use depreciation
Impairment
Depreciation
Loss allowance
Option expense
Fair valuation of contingent consideration
Finance lease receivables principle repayments and disposals
Purchase of assets under lease
Written down value of assets sold
Share buy-back expenses
Other
Changes in assets and liabilities,
net of the effects of purchase of subsidiaries
(Decrease) / Increase in trade receivables and other assets
Increase / (Decrease) in trade payables and accruals
Increase / (Decrease) in income taxes payable
(Decrease) / increase in deferred taxes
Increase in unearned revenue
(Decrease) / increase in provisions
Net cash from operating activities
(b) Working capital
Consolidated Group
Parent Entity
2019
$’000
2020
$’000
2019
$’000
63,817
(21,046)
188,189
2020
$’000
2,331
15,593
5,526
54,735
62,171
583
(512)
(1,462)
172,141
11,351
-
19,066
69,757
4,874
(750)
(1,168)
227,104
(232,459)
(318,756)
76,573
548
1,390
(17,667)
27,509
8,810
(5,214)
21,119
(3,255)
42,996
-
-
(4,403)
25,233
(6,347)
(5,962)
3,103
2,973
-
-
77,969
-
-
(512)
-
-
-
-
-
-
(4)
(270)
(1,316)
(133)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
179
2,162
(1,760)
388
-
-
188,460
132,888
54,688
189,158
The Group received relief to withhold $10.7 million of Federal, State and Corporate taxes for the reporting months of April to June 2020 and
these will be payable in FY2021.
Included in receivables is $25.6 million from the sale of a portfolio of operating lease contracts which was received in July 2020.
(c) 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.
(d) 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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 103
(e) 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
Financing liabilities
Financing cash flow from liabilities
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
2020
$’000
2019
$’000
265,381
328,430
-
-
2020
$’000
14,876
114,844
265,381
328,430
129,720
2019
$’000
19,362
36,059
55,421
Consolidated Group
Parent Entity
2020
$’000
328,430
(63,137)
-
88
2019
$’000
338,312
(10,696)
-
814
2020
$’000
55,421
(4,481)
78,780
-
2019
$’000
179,978
(10,762)
(113,795)
-
Liabilities at the end of the period
265,381
328,430
129,720
55,421
28 Commitments
(a) Operating lease commitments
The commitments at reporting date relate to a non-cancellable property lease that commences in January 2023 and has not been brought to
account in the Statement of Financial Position. The commitments in 2019 were for property leases that have now been brought to account in
the Statement of Financial Position on transition to the AASB 16: Leases (refer note 3(a)).
Minimum lease payments
– Not later than 12 months
– Between 1 and 5 years
– Greater than 5 year
Current payables
Consolidated Group
Parent Entity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
-
14,770
39,604
54,374
8,024
31,808
17,095
56,927
-
-
-
-
-
-
-
-
Notes to the Financial StatementsFor the year ended 30 June 2020 104
29 Contingent Liabilities
(a) Financial guarantees
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
Guarantees provided in respect of property leases
Consolidated Group
Parent Entity
2020
$’000
11,550
14,088
10,768
5,603
448
2019
$’000
12,550
14,478
10,724
5,512
-
2020
$’000
-
13,908
10,768
-
-
2019
$’000
50
11,171
10,724
-
-
42,457
43,264
24,676
21,945
(b) Class action update
On 14 August 2018, a class action proceeding was commenced in the Federal Court against Davantage Group Pty Ltd (trading as
“National Warranty Company”), a subsidiary of the Company, in relation to certain warranty products. Davantage Group Pty Ltd was acquired
by the Company in February 2015 and the claim relates to certain warranties entered into between 1 July 2013 and 28 May 2015. A signifi-
cant 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.
Davantage Group Pty Ltd attended a mediation in June 2020 and the matter is now scheduled to return before the Federal Court on
22 September 2020.
A provision of $2 million for possible settlement has been recognised in the Company’s financial statements for the year ended
30 June 2020.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 105
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 2020 and 2019 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
Consolidated Group
Parent Entity
2020
$
2019
$
2020
$
2019
$
-
-
-
-
-
-
59,591,464
189,173,277
12,863,000
49,350,000
127,707,000
85,409,000
(b) Key management personnel compensation
Consolidated Group
Parent Entity
Compensation
Short-term employment benefits
Post-employment benefits
Long-term employment benefits
Share-based payments
2020
$
2019
$
2020
$
2019
$
3,044,020
3,210,946
2,095,836
2,276,442
149,517
69,461
208,656
26,795
(129,375)
(348,013)
101,812
32,659
(55,173)
113,856
31,732
(254,914)
3,133,623
3,098,384
2,175,134
2,167,116
Notes to the Financial StatementsFor the year ended 30 June 2020 106
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. Historically, the Company has only issued Performance Options and Performance Rights and Voluntary Options on a tri-
ennial basis. Under the new LTIP, the Company will seek to issue Performance Rights 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 Rights with a three year vesting period. The issuance to the Managing Director was granted
on 22 October 2019 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 26 for details of the terms and conditions for 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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
107
(a) Options
Set out below are summaries of options granted under the plans:
Performance Options Consolidated Group and parent entity - 2020
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
332,381
17,340
71,140
308,488
15,920
66,027
576,253
105,272
2,030,950
$13.68
-
-
-
-
-
-
-
-
-
-
-
(538,129)
-
-
-
-
-
-
-
-
-
(332,381)
(17,340)
(71,140)
(308,488)
(15,920)
(66,027)
(109,348)
-
-
-
-
-
-
-
-
466,905
105,272
(538,129)
(920,644)
572,177
$10.18
$13.88
$16.64
-
-
-
-
-
-
-
-
-
-
-
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
Notes to the Financial StatementsFor the year ended 30 June 2020
108
Voluntary Options Consolidated Group and parent entity - 2020
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
3 July 2017
3 July 2017
30 September 2020
$13.45
30 September 2021
$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 - 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
$10.18
3 July 2017
3 July 2017
30 September 2020
$13.45
30 September 2021
$13.45
Weighted average exercise price
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,979
12,500
21,479
$13.45
-
-
-
-
-
(b) Rights
Set out below is a summary of Performance Rights granted under the Plan.
2020
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
23 October 2018
30 September 2021
1 July 2019
30 September 2022
22 October 2019
30 September 2022
18 December 2019
31 October 2020
Balance at
the start of
the year
Granted
during the
year
Forfeited
during
the year1
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
-
-
-
-
-
-
-
-
-
-
-
(83,429)
(4,365)
(17,860)
(87,883)
(4,598)
(18,814)
(19,670)
-
-
-
-
-
-
-
83,978
18,937
334,336
(56,823)
277,513
69,178
16,899
-
-
69,178
16,899
339,534
420,413
(293,442)
466,505
-
-
-
-
-
-
-
-
-
-
-
-
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.
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020
109
Balance
at end of
the year
Exercisable
at end of
the year
2019
Grant date
Exercise date
3 July 2017
30 September 2019
26 September 2017
30 September 2019
24 October 2017
30 September 2019
3 July 2017
30 September 2020
26 September 2017
30 September 2020
24 October 2017
30 September 2020
3 July 2018
30 September 2021
24 October 2018
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)
-
83,429
4,365
17,860
87,883
4,598
18,814
103,648
18,937
222,818
125,740
(9,024)
339,534
-
-
-
-
-
-
-
-
-
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
1 July 2019
22 October 2019
18 December 2019
Share price
at grant date
Expected life
(years)
Expected
dividend yield
$12.37
$14.85
$12.90
3.3
2.9
0.9
5.9%
5.0%
5.7%
Fair
value
$10.18
$12.83
$12.27
(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
2020
$
2019
$
2020
$
2019
$
(432,342)
(359,636)
3,552
4,960
(83,400)
(405,103)
(512,190)
(759,779)
-
-
-
-
-
-
-
-
Notes to the Financial StatementsFor the year ended 30 June 2020
110
32 Auditor’s Remuneration
Remuneration of the auditor (Grant Thornton Audit Pty Ltd)
of the parent entity for:
Audit or review of the financial report of the entity and
any other entity in the Consolidated Group
Assurance related
Remuneration of a network firm of the parent entity auditor:
Audit or review of the financial statements (UK)
Assurance related for non-statutory audit services
Consolidated Group
Parent Entity
2020
$
2019
$
2020
$
2019
$
301,200
285,200
157,970
219,220
179,813
10,009
182,673
-
-
-
-
-
-
-
-
-
MMS ANNUAL REPORT 2020Notes to the Financial StatementsFor the year ended 30 June 2020 111
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 2020 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
2020
$’000
2019
$’000
Statement of Comprehensive Income
Revenue and other income
Employee and director benefits expenses
Depreciation and amortisation expenses and impairment
Leasing and vehicle management expenses
Consulting cost expenses
Marketing expenses
Property and corporate expenses
Technology and communication expenses
Finance costs
Other expenses
Impairment
Profit / (loss) before income tax
Income tax expense
Profits / (losses) attributable to members of the parent entity
Other comprehensive income
Other comprehensive (loss) / income for the year after tax
Total comprehensive (loss) / 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
Share buyback
Capital reduction
Lease transition
Retained earnings at the end of the financial year
331,702
(93,827)
(69,138)
(43,261)
(3,065)
(6,781)
(2,405)
(10,205)
(5,005)
(3,868)
(74,348)
19,799
(26,504)
(6,705)
(62)
(6,767)
232,072
(6,705)
(59,591)
-
(69,650)
54,561
(2,219)
148,468
360,794
(101,400)
(69,318)
(39,598)
(3,622)
(4,739)
(7,947)
(10,391)
(6,681)
(2,038)
-
115,060
(33,841)
81,219
110
81,329
202,057
81,219
(61,173)
9,969
-
-
-
232,072
Notes to the Financial StatementsFor the year ended 30 June 2020
112
Notes to the Financial Statements
For the year ended 30 June 2020
(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
Lease liabilities
Total current liabilities
Non current liabilities
Provisions
Borrowings
Lease liabilities
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
2020
$’000
44,750
47,981
10,358
-
5,149
-
2019
$’000
100,806
31,293
11,061
74,030
7,026
6,026
108,238
230,242
193,006
56,740
6,515
9,007
107,558
372,826
177,571
60,600
8,284
11,410
174,760
432,625
481,064
662,867
69,618
3,634
11,788
7,037
4,749
96,826
1,603
149,153
15,356
166,112
77,181
4,775
10,324
11,484
-
103,764
2,076
188,153
-
190,229
262,938
293,993
218,126
368,874
76,420
(6,762)
148,468
218,126
135,868
934
232,072
368,874
MMS ANNUAL REPORT 2020 113
Notes to the Financial Statements
For the year ended 30 June 2020
34 Events subsequent to the reporting date
At the date of this report, significant uncertainties remain in the economic environment and the impact of COVID-19 on the business sectors
affecting the Group’s businesses. Travel restrictions are still extensively administered and a lockdown now operates in Victoria and in Auckland
in New Zealand. A second COVID-19 wave may cause the re-imposition of a lockdown in the UK and other locations that the Group’s
businesses operate in. Accordingly, there is significant uncertainty to the condition of markets that the Group operates in that may affect the
recoverable value of assets, adequacy of liability of provisions and the financial cash flow assumptions used to assess the carrying value of
non-current assets.
The Group is expected to receive $7.6m (after-tax) in JobKeeper Payments for July to September 2020.
Other than the above and matters disclosed in this Annual Report there were not material events subsequent to reporting date.
114
MMS ANNUAL REPOR T 202 0
Directors’ Declaration
The Directors are of the opinion that:
1.
the financial statements and notes on pages 46 to 113 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 2020 and financial performance for the
financial year ended on that date; and
2. there are reasonable grounds to believe that the Company will be
able to pay its debts as and when they become due and payable.
3. at the date of this declaration, there are reasonable grounds to
believe that the members of the extended closed group identified
in Note 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.
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
7 September 2020
Melbourne, Australia
115
Independent Audit Report
As at 30 June 2020
Grant Thornton Audit Pty Ltd
Level 22 Tower 5
Collins Square
727 Collins Street
GPO Box 4736
Melbourne VIC 3008
T +61 3 8320 2222
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 2020, 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 2020 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.
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.
Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to
their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Limited 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. Liability limited by a scheme approved under Professional Standards Legislation.
www.grantthornton.com.au
116
Independent Audit Report
As at 30 June 2020
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and intangible assets (Note 6 and 9(a))
At 30 June 2020 the Group has $89,326,000 of goodwill and
$18,193,000 in other intangible assets (excluding software
development costs) contained within separate cash generating
units (CGUs).
During the year, the group recognised an impairment against
goodwill and other intangible assets totalling $50,139,000
including the following CGU’s:
(cid:120) Retail Financial Services Aggregation;
(cid:120) CLM Fleet Management;
(cid:120)
(cid:120) Capex Asset Finance.
Anglo Scottish Finance; and
Management are required to perform an impairment test on
goodwill and other infinite life intangibles at least annually, and
are also required to perform an impairment test on intangible
assets with finite useful lives if indicators of impairment are
identified.
We consider this a key audit matter due to the nature of the
balances and the judgments required in preparing the ‘value in
use’ models and due to the judgement in determining CGU's,
impairment indicators and triggers. This involves judgements
about the future results of the business, growth and the discount
rates applied.
Warranty revenue and unearned premium liability (Note 9f)
The warranty area of the business derives revenues through the
gross wholesale premiums obtained from 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. At year-end this balance represented
a liability of $38,566,000.
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.
Our procedures included, amongst others:
(cid:120) reviewing the impairment assessment value-in-use (VIU)
models for compliance with AASB 136 Impairment of Assets;
(cid:120) reviewing the completeness and accuracy of the underlying
data used in the impairment assessment VIU models;
(cid:120) 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;
(cid:120) evaluating management’s process for the preparation and
review of the impairment assessment VIU models, taking into
consideration the impacts of sector specific issues;
(cid:120) utilising internal valuation specialists to review the
appropriateness of the impairment assessment VIU models,
appropriateness of benchmarks compared to external data and
compliance with the requirements of AASB 136;
(cid:120) evaluating the mathematical accuracy of the VIU model
calculations and assessing the appropriateness of the
methodologies including evaluating cash flow projections
compared to the historical accuracy of the budgeting process;
(cid:120) assessing the key growth rate assumptions by comparing them
to historical results, economic or industry forecasts and the
discount rate by reference to the cost of capital for the relevant
components and the Group as well as applying specific
adjustments for the particular CGU where the CGU had a
higher risk of impairment;
(cid:120) performing sensitivity analysis in relation to the cash flow
projections, discount and growth rate assumptions on CGU’s
with a higher risk of impairment. The impairment analysis
considered the individual and collective impacts; and
(cid:120) assessing the adequacy of the Group’s disclosures within the
financial statements.
Our procedures included, amongst others:
(cid:120) verifying the mathematical accuracy of the unearned premium
liability and warranty revenue calculations to ensure the
revenue profile assumptions have been correctly applied;
(cid:120) reviewing the completeness and accuracy of the underlying
data used in the calculation;
(cid:120) assessing the reasonableness of management’s key
assumptions in relation to the revenue profile, which is based
on the profile of future claim costs by;
o
o
analytically reviewing the claims pattern during the year
to determine the appropriateness of the percentages in
the unearned premium model; and
selecting a sample of claims in the current year and
agreeing their details to supporting documentation and
payments;
(cid:120)
testing the accuracy of the gross premiums used in the
unearned premium calculation by selecting a sample of gross
premiums and agreeing amounts and key terms to supporting
contracts; and
(cid:120) assessing the adequacy of the Group’s disclosures within the
financial statements.
MMS ANNUAL REPORT 2020
117
Independent Audit Report
As at 30 June 2020
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 2020, 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: https://www.auasb.gov.au/auditors_responsibilites/ar1_2020.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 20 to 41 of the Directors’ report for the year ended 30 June
2020.
In our opinion, the Remuneration Report of McMillan Shakespeare Limited, for the year ended 30 June 2020 complies
with section 300A of the Corporations Act 2001.
118
Independent Audit Report
As at 30 June 2020
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, 7 September 2020
MMS ANNUAL REPORT 2020
119
Auditor’s Independence Declaration
For the year ended 30 June 2020
Grant Thornton Audit Pty Ltd
Level 22 Tower 5
Collins Square
727 Collins Street
GPO Box 4736
Melbourne VIC 3008
T +61 3 8320 2222
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 (the Company) and its subsidiaries (the Group) for the year ended 30 June 2020, 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, 7 September 2020
Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to
their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Limited 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. Liability limited by a scheme approved under Professional Standards Legislation.
www.grantthornton.com.au
120
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 14 August 2020, 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 Limited2
Citicorp Nominees Limited
Asia Pac Technology Pty Ltd3
Number of Ordinary Shares
Percentage of Ordinary Shares 1
31,899,313
9,094,470
6,050,941
5,406,438
3,343,025
41.22
11.75
7.82
6.99
4.32
1 As at 14 August 2020, 77,381,107 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.
NUMBER OF SHARE & OPTION HOLDERS
As 14 August 2020, 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 $13.45 and expiring on 30 September 2020
Options exercisable at $13.45 and expiring on 30 September 2021
Options exercisable at $16.64 and expiring on 30 September 2022
Number of Holders
5,651
1
2
24
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 14 August 2020, the distribution of share and option holders in the Company was as follows:
Distribution of Shares & Options
Number of Holders of Ordinary Shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,000+
3,570
1,653
249
153
26
As at 14 August 2020 there were 401 shareholders who held less than a marketable parcel of 54 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 2020
121
Shareholder Information
TOP 20 SHAREHOLDERS
As at 14 August 2020, 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
Chessari Holdings Pty Ltd2
Citicorp Nominees Pty Limited
Asia Pac Technology Pty Ltd
National Nominees Limited
UBS Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
Ann Leslie Ryan
Milton Corporate Limited
MOHL Invest Pty Ltd
AFICO Pty Ltd
CS Third Nominees Pty Limited
AMP Life Limited
Warbont Nominees Pty Ltd
Neweconomy Com Au Nominees Pty Limited <900 Account>
HSBC Custody Nominees (Australia) Limited-GSCO ECA
HSBC Custody Nominees (Australia) Limited – A/C 2
Citicorp Nominees Pty Limited
Totals: Top 20 holders of issued Capital
Total Remaining Holders Balance
Number of
Ordinary Shares
31,899,313
9,094,470
6,050,941
5,406,438
3,343,025
1,509,821
1,491,226
1,358,623
1,124,872
1,008,418
803,532
475,000
455,012
396,824
380,264
238,553
213,397
198,131
196,601
189,542
65,834,003
11,547,104
Percentage of
Ordinary Shares 1
41.22
11.75
7.82
6.99
4.32
1.95
1.93
1.76
1.45
1.30
1.04
0.61
0.59
0.51
0.49
0.31
0.28
0.26
0.25
0.24
85.08
14.92
1 As at 14 August 2020, 77,381,107 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.
UNQUOTED SECURITIES
As at the date of this Annual Report, the details of unquoted securities in the Company are as follows:
Class
Number of Securities
Number of Holders
Options exercisable at $13.45 and expiring on 30 September 2020
Options exercisable at $13.45 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
8,979
12,500
541,843
1
2
24
122
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MMS ANNUAL REPORT 2020 123
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 5
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
McMillanShakespeareGroup
ABN 74 107 233 983AFSL No. 299054Level 21, 360 Elizabeth StreetMelbourne Victoria 3000mmsg.com.auMcMillan Shakespeare Limited