Money3 Corporation Limited Annual Report 2018 About Money3 Money3 is a leading provider of pre-owned automotive finance to Australians either not serviced by or excluded by traditional lenders Contents 1 About Money3 2 FY18 Key Highlights 3 Chairman & Managing Director’s Report 6 Financial Report Brand Products • Secured Auto Loans • Unsecured Personal Loans Channels • Broker • Branch • Online History • 18+ yrs of lending experience • Over 800,000 loans settled worth over $1bn in value Dividend • 9.5 cents dividend • 50% Payout ratio Highlights • 31.4% growth in Broker division • Over 80% of portfolio in secured automotive loans Key financials • $121.9m Revenue • $56.6m EBITDA • $32.0m NPAT Funding • $96.3m available for deployment • $150m finance facility Strategic • Increase market share in secured automotive loans • Transition from SACC lending • Digital & technology solutions 1 Money3 Corporation Limited | Annual Report 2018 11.9% Increase in EBITDA driven by stronger performance across all divisions 31.4% Increase in Broker division revenue 11.2% Increase in total revenue to $121.9m FY18 Key Highlights 10.1% Increase in NPAT to $32.0m in line with guidance Gross Loan book increased 12.8% to $308.1m Final dividend declared of 5.00 cents full franked, taking full year dividend to 9.5 cents 2 Chairman & Managing Director’s Report On behalf of the board of directors of Money3 Corporation Limited (Money3), it is our pleasure to present the Annual Report for the financial year ended 30 June 2018 (FY18). Money3 provides a range of sustainable loan products to consumers who cannot access funding from traditional lenders and who want to move up the credit risk continuum to financial and social inclusion. Demand from consumers for Money3’s products and approach to customer care continues to grow. Lending momentum continues to build for secured automotive receivables as does cash collection, with August 2018 producing record results in both areas. Ray Malone Executive Chairman Money3 Corporation Limited Scott Baldwin Managing Director Money3 Corporation Limited 27 September 2018 27 September 2018 In an environment where traditional financial service providers have chosen to retreat from customers we choose to serve, we are delighted to report Money3 has achieved significant strategic and operational milestones. Money3 is stronger operationally, bolstering our cash collection teams in both number and with technological enhancements, is well funded for growth and has a strategic direction to pursue with vigour. We continue to be deeply appreciative of the ongoing excellence and commitment that our people show to serving our customers, which is best demonstrated through our continued secured loan book growth in FY18. 3 Money3 Corporation Limited | Annual Report 2018 Chairman & Managing Director’s Report (continued) FY18 Revenue ($m) 11.2% FY18 EBITDA ($m) 11.9% FY18 NPAT ($m) 10.1% 121.9 109.6 96.7 120 100 80 60 40 20 0 69.0 43.5 56.6 50.6 35.3 24.4 13.7 60 50 40 30 20 10 0 30 25 20 15 10 5 0 32.0 29.1 20.1 13.9 7.8 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 20 15 10 5 0 19.91 18.81 9.50 14.21 11.82 8.13 5.65 5.25 5.25 4.50 10 8 6 4 2 0 300 250 200 150 100 50 0 198.8 8 . 1 5 1 3 . 8 1 7 . 8 2 6 1 / 6 / 0 3 308.1 2 . 8 4 2 273.1 9 . 2 1 2 6 . 4 2 6 . 5 3 7 1 / 6 / 0 3 8 . 1 3 1 . 8 2 8 1 / 6 / 0 3 Financial Results In FY18 we delivered another year of strong growth, and an outstanding financial result. Revenues were up 11.2% from $109.6m to $121.9m, EBITDA increased by 11.9% to $56.6m and NPAT increased by 10.1% to $32.0m in line with market expectations. Gross loans receivable increased by 12.8% to $308.1m, up from $273.1m driven by a stronger performance from the Broker division. The expenditure review program launched in FY17 continued to be successful in FY18 and will be extended into FY19. We have significantly reduced marketing spend over the period and still managed to increase application volume, which is a tremendous result from our marketing team. Broker division continues to impress with its performance increase in revenue of 31.4% to $73.6m and EBITDA by 32.4% to $45.9m. Gross loans receivable grew by 18.1% to $252.5m despite lack of additional funding till late May 2018. Cash collections in Broker division strengthened through efficiencies and improvements in customer engagement, evidenced by 23.2% growth to $153.5m. Secured automotive loans now represent 80.6% of the total gross loans receivable of $308.1m, compared to 78.0% at the end of FY17. We also launched a personal loan product delivered through our broker channel with interest rates under 48%. These were a mix of secured and unsecured personal loans generally for existing clients to repair or upgrade their cars. At 30 June 2018, these loans represent $4.4m in gross loans receivable and classified under the larger amount longer term asset category. We expect to see good growth in this product over FY19. Money3 was an early adopter of Accounting Standards AASB9 and AASB15 in FY18. The FY17 results were not restated for AASB9 and AASB15 and, are therefore, not comparable with FY18 results. On a normalised basis, FY18 EBITDA increased by 20%. 4 FY18 EPS (Basic) (cents) 5.8% FY18 DPS (cents) 68.1% Gross Loan Book ($m) Auto Loans Larger Amount Longer Term SACC 121.9 109.6 96.7 56.6 50.6 32.0 29.1 120 100 80 60 40 20 0 69.0 43.5 60 50 40 30 20 10 0 35.3 24.4 20.1 13.9 13.7 7.8 30 25 20 15 10 5 0 9.50 5.65 5.25 5.25 4.50 19.91 18.81 14.21 11.82 8.13 20 15 10 5 0 10 8 6 4 2 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 300 250 200 150 100 50 0 198.8 8 . 1 5 1 3 . 8 1 . 7 8 2 6 1 / 6 / 0 3 308.1 2 . 8 4 2 273.1 . 9 2 1 2 . 6 4 2 . 6 5 3 7 1 / 6 / 0 3 8 . 1 3 1 . 8 2 8 1 / 6 / 0 3 Dividends The Directors of Money3 have declared a final dividend of 5.00 cents per share fully franked, payable on the 23 October 2018 to those shareholders on the register at the close of business on the 2 October 2018. The final dividend payable of 5.00 cents per share brings the full year dividend to 9.50 cents per share fully franked. Outlook With a healthy $96.3m available in growth funding and investments in digital solutions to enhance customer engagement, the business is exceptionally well placed to expand its market share of secured automotive receivables, particularly through further penetration and integration with broker relationships and leveraging existing customers who already know and love our products and approach to customer care. We will also diligently maintain a focus on cost savings that have been identified and implemented across the business. Training, compliance and collections activity will continue to be a focus to reinforce Money3’s market leading position. The business continues to transition away from Small Amount Credit Contract (SACC) lending. The gross loans receivable decreased by $7.5m and represents less than 10% of Money3’s gross loans receivable at 30 June 2018. We continue to work towards and exit in the best interest of all stakeholders. Conclusion On behalf of the Board of Money3, we would like to thank our staff and management for their outstanding customer service and commitment to our vision. Finally, we would like to thank you, our shareholders, for your continued support as we execute Money3’s growth strategy. We are excited by the outlook for the business and look forward to continuing to grow shareholder value. 5 Money3 Corporation Limited | Annual Report 2018 Financial Report for the year ended 30 June 2018 Contents Corporate Governance Statement Consolidated Statement of Financial Position 7 Directors’ Report 7 Remuneration Report 14 26 Consolidated Statement of Changes in Equity 27 Consolidated Statement of Cash Flows 28 Auditor’s Independence Declaration Notes to the Consolidated Financial Statements 23 Directors’ Declaration 24 Consolidated Statement of Profit or Loss and Other Comprehensive Income 25 29 Independent Auditor’s Report 64 ASX Additional Information 69 Corporate Information 72 6 Corporate Governance Statement The statement outlining Money3 Corporation Limited’s corporate governance framework and practices in the form of a report against the Australian Securities Exchange Corporate Governance Principles and Recommendations, 3rd Edition, will be available on the Money3 website, www.money3.com.au, under Corporate Governance in the Investors tab in accordance with listing rule 4.10.3 when the 2018 Annual Report is lodged. Directors’ Report The Board of Directors (“the Board”) of Money3 Corporation Limited (“Money3” or “the Company”) present the annual financial report on the consolidated entity, consisting of Money3 Corporation Limited and its subsidiaries (“the Group”) for the year ended 30 June 2018. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: Directors’ Details The following persons were Directors of the Company during the whole year, unless otherwise stated, and up to the date of this report: Ray Malone • Executive Chairman (resigned as Non-Executive Chairman appointed as Executive Chairman on 1 July 2017) Ray is currently Chief Executive Officer and Executive Chairman of AMA Group Limited (“AMA”) and having delivered outstanding shareholder value at AMA over the last 8 years, brings significant strategic experience and track record to Money3. Other Current Non-Executive Directorships: Nil Kang Tan ACA (UK) FIPA (Aust) • Non-Executive Director • Member of the Remuneration Committee • Member of the Audit Committee Kang has been a member of the Institute of Chartered Accountants in England and Wales since 1983 and a fellow of the Institute of Public Accountants in Australia since 1998. Kang spent ten years as an Accountant with La Trobe University Union. Before coming to Australia, in Malaysia Kang was the Group Financial Controller of Tanming Corporation Berhad for four years. Kang established his first small cash loan branch in Glenroy, Victoria in August 2000. Kang held an ownership interest in four of the Money3 trading companies prior to being acquired by Money3. Other Current Non-Executive Directorships: Nil. Leath Nicholson B.Ec (Hons) LLB (Hons) LLM (Commercial Law) • Non-Executive Director • Chairman of the Remuneration Committee • Member of the Audit Committee Leath brings broad commercial and legal experience to Money3, specifically in the area of mergers and acquisitions and corporate governance. He has practised extensively in the consumer credit regulatory sector and has provided legal advice to Money3 in relation to both its corporate and consumer credit obligations since 2010. Leath was a Corporate Partner at a leading national law firm, gaining experience with a breadth of ASX listed entities, before co-founding Nicholson Ryan in 2008. Other Current Non-Executive Directorships: AMA Group Limited since 23 December 2015 and CCP Technologies Limited (ASX:CT1) as non-executive Chairman since 14 October 2016. 7 Money3 Corporation Limited | Annual Report 2018 Directors’ Report (continued) Stuart Robertson B.Com ACA FINSIA GAICD MBA • Non-Executive Director • Chairman of the Audit Committee Stuart’s background includes broad experience in business advisory, investment banking, alternative investments and funds management, in addition to extensive experience in the consumer finance sector. Stuart currently provides consulting services focused on deal origination and structuring primarily in the unlisted market. Stuart has held senior roles at BT Funds Management, KBC Investments Limited and Zurich Financial Services in Australia, London and New York. He is a qualified Chartered Accountant, a Fellow of the Financial Services Institute of Australasia (FINSIA) and graduate of the Australian Institute of Company Directors. In addition, he holds a Masters of Business Administration from the Macquarie Graduate School of Management. Other Current Non-Executive Directorships: Ellerston Global Investments Limited since 24 July 2014 and Ellerston Asian Investments Limited since 25 June 2015. Stuart was appointed to the board of Praemium Limited (ASX:PPS) on 12 May 2017. Scott Baldwin B.Eng. (Hons) MBA GAICD • Managing Director • Member of the Remuneration Committee (non-voting) Joining Money3 in 2008 as the Chief Operating Officer, Scott has a wealth of experience in sales, marketing and technology. Appointed to the board in 2009, Scott established and led the growth of the secured vehicle financing division at Money3. Prior to joining Money3, Scott spent over a decade in a variety of senior roles with General Electric Healthcare, from Sales & Service across Asia to leading infrastructure projects and working on the Asian Mergers and Acquisitions team. Other Current Directorships: Nil. Company Secretary’s Details Terri Bakos B.Acc. ACA ACIS • Company Secretary (appointed on 31 October 2016) Joining Money3 in October 2016 as Company Secretary, Terri has over 20 years’ experience providing company secretarial, financial accounting and compliance services to ASX listed and unlisted public companies in the technology, mining and biotech sectors. Former Company Secretary’s Details Brett Coventry B.Acc. CPA MBA (resigned 29 March 2018) • Chief Financial Officer and Joint Company Secretary Joining Money3 in January 2017 as Chief Financial Officer and Joint Company Secretary, Brett is an experienced CPA and governance professional with nearly two decades of senior finance experience across high growth FMCG and technology spaces. His most recent experience was in senior finance and commercial roles at ASX listed Catapult Group International Limited (CAT) as CFO, responsible for listing CAT on the ASX. Brett has significant experience in financial management, capital raising, acquisitions, commercial operations and governance. Brett resigned in March 2018. Principal Activities The principal activities of the Group during the financial year were the provision of financial services specialising in the delivery of secured and unsecured personal loans. There has been no significant change in the principal activities during the financial year. 8 Dividends – Money3 Corporation Limited Dividends paid to members during the financial year were as follows: Final ordinary dividend for year ended 30 June 2017 of 3.15 cents (2016 – 2.5 cents) per fully paid share paid on 27 October 2017 Interim ordinary dividend for the year ended 30 June 2018 of 4.5 cents (2017 – 2.5 cents) per fully paid share paid on 21 May 2018 Total Dividends Paid 2018 $‘000 2017 $‘000 4,993 3,880 7,203 12,196 3,882 7,762 Since the end of the financial year the Directors have declared the payment of a final 2018 ordinary dividend of 5.00 cents per fully paid share. Based on the current number of shares on issue, the dividend payment is expected to be $8.8m. This dividend will be paid on 23 October2018 by the Company. The Board advises that the dividend payout ratio guidance will continue to be 30-50% of underlying NPAT to balance shareholder returns in the form of dividends versus capital growth through reinvestment of profit into the loan book. Review of Operations Money3 is pleased to announce full year results for the year ended 30 June 2018 and confirms its record Net Profit After Tax (“NPAT”) of $32.0m is in line with its recent updated profit guidance of $32.0m. Money3 continues to focus on building a profitable and scalable secured automotive lending business through medium term secured loans. Money3 has a range of sustainable loan products that it offers to consumers who cannot access funding from traditional lenders and who want to move up the financial continuum to financial and social inclusion. Group Results Headline achievements for the Group include: • 31.4% increase in Broker Division Revenue to $73.6m • 11.2% increase in Group Revenue to $121.9m • 11.9% increase in Group EBITDA to $56.6m • 10.1% increase in Group NPAT to $32.0m • 12.8% increase in Gross Loans Receivable to $308.1m. • $96m funds available comprising $50m undrawn finance facility and $46m in cash and cash equivalents as at 30 June 2018 to accelerate loan book growth in FY19. • Final FY18 dividend of 5.00 cents fully franked, taking full year dividend to 9.50 cents fully franked Money3 delivered a solid financial result in FY18. Revenues were up 11.2% and gross loans receivable increased by 12.8%, despite the lack of additional funding until mid May 2018. In FY18, Money3 continued to focus on improving its quality of originations as well as cost controls contributing to overall growth in performance. The Company has early adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers effective 1 July 2017. This resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. These changes have been applied retrospectively, however, comparative periods have not been restated, rather the differences in the carrying amounts of financial assets and liabilities resulting from this adoption are recognised in retained earnings at 1 July 2017. Accordingly, at 1 July 2017, Retained Earnings has decreased by $10.2m (net of tax). The detailed impact on the results are detailed in Note 1 (f). The implementation of the new accounting standards has enabled Money3 to align revenue recognition to its cash flows. Since the transition adjustments were applied only from 1 July 2017, the prior period information in the tables in this report is not comparable. 9 Money3 Corporation Limited | Annual Report 2018 Directors’ Report (continued) The key financial operating results of the Group are outlined in the table below: Total revenue EBITDA NPAT Gross loans receivable Net loans receivable Broker Division 30 Jun 18 $‘000 30 Jun 17 $‘000 % Change 121,876 56,572 32,028 308,047 268,305 109,638 50,576 29,086 273,095 241,644 11.2 11.9 10.1 12.8 11.0 The Broker Division of Money3 consists primarily of secured loans (mainly automotive) between $2,000 and $35,000 over periods up to 60 months. Over 15,000 loans were settled in FY18. This is a record number of settlements for the company. All financing under the Broker Division is provided under the All Other Credit (“AOC”) Contract, in accordance with the National Consumer Credit Protection Act 2009. Money3 has over 150 accredited independent broker relationships across Australia, which provides approximately 75% of settled loans, in addition to receiving leads from various websites and referral partners. The key financial operating results for the Broker division are outlined in the table below: Total revenue EBITDA Gross loans receivable Net loans receivable 30 Jun 18 $‘000 73,618 45,887 252,537 227,116 30 Jun 17 $‘000 56,022 34,650 213,862 195,916 % Change 31.4 32.4 18.1 16.4 The Broker Division was delighted to report the strongest month of settlements in Money3’s history was in the month of May 2018 with approximately 1,600 loans. The Broker Division delivered exceptional revenue and EBITDA growth during the year. Revenue for the year increased by 31.4% to $73.6m, driven by an increase in the number of loans written during the year and improved cash collections. The growth in written loans provides a strong platform for future financial periods. Branch Division The Branch Division consists of 49 physical branches located across Australia and provides cash loans to customers ranging from $50 to $8,000, mainly on an unsecured basis. Financing under the Branch Division is provided under either a Small Amount Credit Contract (“SACC”), Medium Amount Credit Contract (“MACC”) or an All Other Credit (“AOC”) Contract, in accordance with the National Consumer Credit Protection Act 2009. 10 The key financial operating results for the Branch division are outlined in the table below: Total revenue EBITDA Gross loans receivable Net loans receivable 30 Jun 18 $‘000 30 Jun 17 $‘000 % Change 34,466 11,230 45,936 33,889 35,127 14,832 41,409 31,520 (1.9) (24.3) 10.9 7.5 The implementation of the new accounting standards has contributed to slower revenue recognition as revenue is aligned with cash receipts from customers. The new accounting standards also resulted in an increase in allowance for impairment losses impacting EBITDA margins significantly. Online Division Cash Train provides cash loans to customers ranging from $200 to $2,000, mainly on an unsecured basis. Financing under the Online Division is provided under either a Small Amount Credit Contract (“SACC”) or a Medium Amount Credit Contract (“MACC”), in accordance with the National Consumer Credit Protection Act 2009. The key financial operating results for the Online division are outlined in the table below: Total revenue EBITDA Gross loans receivable Net loans receivable 30 Jun 18 $‘000 30 Jun 17 $‘000 % Change 13,792 4,843 9,574 7,300 18,655 5,286 17,824 14,208 (26.1) (8.4) (46.3) (48.6) Similar to the Branch segment, the Online segment has also been impacted by slower revenue recognition and increased allowance for impairment losses on implementation of the new accounting standards. Furthermore, the gross loans receivable, which primarily comprises SACC loans reduced by 46.3%. This reflects Money3’s focus on originating secured loans. Strategic Update Market Money3 continues to increase its market share of the secured loans market which will see further growth in revenues and profitability over time. Coupled with the expenditure review program it is expected this segment of Money3 will continue to dominate the financial metrics of the overall business. Funding In December 2017, Money3 secured a $150m finance facility. During FY18, $100m of the facility was drawn down in two tranches and was used to repay existing debt facilities of $80m. At 30 June 2018, Money3 has $96m of funds available to accelerate loan book growth comprising $46m in cash and cash equivalents and $50m in undrawn finance facility. The business remains conservatively geared and it is expected that future growth of the receivables book will come from debt and not equity funding. Material Risks Key strategic risks facing the business include the following: Risk that the business cannot refinance debt facilities when they expire Money3 to date has been conservatively geared and has been using a mixture of debt and equity to fund growth. If debt facilities could not be refinanced, lending could be reduced to allow cash receipts to repay debt facilities, a capital raising could be undertaken, or the dividend reduced or eliminated. 11 Money3 Corporation Limited | Annual Report 2018 Directors’ Report (continued) Risk that part of the business is subject to an adverse regulatory change or regulatory review Given the finance industry is heavily regulated, changes in legislation is a significant risk. With increased attention from the media, advocate groups and Environmental and Social Governance (ESG) policies, all financiers including Money3 are coming under increased scrutiny from regulators. Money3 has a diversified range of product offerings that means it is not reliant on any one product. Lending practices are continually monitored and reviewed, to ensure compliance with regulatory requirements. Risk that there is a downturn in the economy and collections reduce There is a risk that the economic cycle may result in slowing cash collections and an increase in bad debts. As the business is dealing with customers that are credit impaired, the business is adept at helping customers to manage their repayment obligations around life’s challenges. Money3 knows that it is important to help customers on their journey to financial and social inclusion, and that means being flexible when the customer needs it as well as taking payment when customers have available funds. Money3’s collection practices are built around this premise. A downturn in the economy could also provide further lending opportunities to Money3 as credit practices of larger financial institutions tighten. Significant Changes in State of Affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Group that occurred during the year under review. Significant Matters Subsequent to the Reporting Date No matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of Money3, the results or the state of affairs of the Group. Likely Developments and Expected Results of Operations The likely developments in the Group’s operations, to the extent that such matters can be commented upon, are covered in the Review of Operations section on pages 9 to 12 of this Financial Report. Indemnification and Insurance of Directors and Officers The Group has indemnified the Directors and Officers for costs incurred, in their capacity as a Director or Executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid a premium in respect of a contract to insure the Directors and Executives against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Non-Audit Services There were no non-audit services provided by the auditor during the 2018 or 2017 financial years. Environmental Regulation The operations of the Group are not subject to any significant environmental regulations under Australian Commonwealth, State or Territory law. The Directors are not aware of any breaches of any environmental regulations. Proceedings on behalf of the Group No person has applied to the Court for leave to bring proceedings to which the Group is a party, for taking responsibility on behalf of the Group for all or part of these proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. 12 Rounding of amounts The Group is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the “rounding off” of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with the instrument to the nearest dollar. Share Options As at the date of this report, there were 9,650,000 options to acquire ordinary shares of Money3 Corporation Limited on issue (2017: 26,990,000). On exercise, options convert into one ordinary share of Money3 Corporation Limited. The options carry neither right to dividends nor voting. Details of unissued ordinary shares in the Group under option at the date of this report are: Issuing entity Type No. of shares under option Exercise Price $ Expiry Date Money3 Corporation Ltd Employee Options 500,000 0.996056 21 October 2018 Money3 Corporation Ltd Director’s Options 1,000,000 1.496056 30 November 2018 Money3 Corporation Ltd Employee Options 1,000,000 1.496056 30 November 2018 Money3 Corporation Ltd Employee Options 500,000 1.496056 20 October 2019 Money3 Corporation Ltd Employee Options 1,650,000 1.696056 14 April 2020 Money3 Corporation Ltd Directors Options 5,000,000 1.50000 23 November 2021 Shares Issued as a Result of the Exercise of Options During the year, the options holders under the bond facility exercised 14,751,696 options at $1.296056. In addition, other option holders exercised 300,000 options in a cashless conversion at $1.696056 and 2,000,000 options at $1.496056. There were 200,000 employee options forfeited during the year. Meetings of Directors The number of meetings of the Board and of other Committee meetings held during the year ended 30 June 2018 and the numbers of meetings attended by each Director were: Director Ray Malone Kang Tan Leath Nicholson Stuart Robertson Scott Baldwin Board Audit Committee Remuneration Committee Held Attended Held Attended Held Attended 8 8 8 8 8 8 8 8 8 8 * 2 2 2 * * 2 2 2 * * 1 1 * 1 * 1 1 * 1 * Not a member of the relevant committee during the year 13 Money3 Corporation Limited | Annual Report 2018 Remuneration Report The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001. Key Management Personnel Disclosed in This Report The Key Management Personnel (“KMP”) covered in this Remuneration Report are those people having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The table below outlines the KMP at any time during the financial year and unless otherwise indicated, were KMP for the entire year. Name Role Non-Executive Directors (“NED”) Kang Tan Leath Nicholson Stuart Robertson Executive Directors Ray Malone Scott Baldwin Executives Brett Coventry Siva Subramani Craig Harris Michael Rudd Rob Camilleri Non-Executive Director Non-Executive Director Non-Executive Director Executive Chairman (appointed 1 July 2017) (resigned as Non-Executive 1 July 2017) Managing Director Chief Financial Officer and Company Secretary (resigned 29 March 2018) Acting Chief Financial Officer (appointed 29 March 2018) General Manager – Broker Division General Manager – Branch and Online Divisions Chief Information Officer Remuneration Philosophy The performance of the Group depends upon the quality of its Directors and Executives. To prosper, the Group must attract, motivate and retain highly skilled directors and executives. To that end, the Group embodies the following principles in its remuneration framework: • Provide competitive rewards to attract high calibre executives; • Focus on creating sustained shareholder value; • Significant portion of executive remuneration at risk, dependent upon meeting predetermined performance benchmarks; and • Differentiation of individual rewards commensurate with contribution to overall results and according to individual accountability, performance and potential. The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the Directors, Managing Director (MD) and the senior management team. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of Directors and senior managers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality board and executive team. 14 Remuneration Structure In line with best practice corporate governance, the structure of NED, MD and senior management remuneration is separate and distinct. NED Remuneration The Board seeks to set aggregate remuneration at a level which provides the Group with the ability to attract and retain Directors of the highest calibre. The Constitution and the ASX Listing Rules specify that the aggregate remuneration of NED’s shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the NED as agreed. The current approved aggregate remuneration is $500,000 (2017: $500,000). On 20 December 2017, the board agreed to ask the shareholders to increase the remuneration pool for non-executive directors to $750,000 at the next Annual General Meeting. Senior Management and MD Remuneration The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities to: • Reward executives for Group level and individual performance against targets set by reference to appropriate benchmarks; • Align the interests of executives with those of shareholders; • Link reward with the strategic goals and performance of the Group; and • Ensure total remuneration is competitive by market standards. The executive remuneration program is designed to support the Group’s reward philosophies and to underpin the Group’s growth strategy. The program comprises the following components: • Fixed remuneration component; and • Variable remuneration component including short term incentive (“STI”) and long-term incentive (“LTI”). Fixed Remuneration The level of fixed remuneration is set to provide a base level of remuneration which is both appropriate to the position and is competitive in the market. Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. Variable Remuneration – STI The objective of the STI program is to link the achievement of the operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the Group is reasonable. The individual performance of each executive is also rated and considered when determining the amount, if any, of the short-term incentive pool allocated to each executive. The aggregate of annual STI payments available for executives across the Group are usually delivered in the form of a cash bonus. Variable Remuneration – LTI The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who can influence the generation of shareholder wealth and thus have a direct impact on the Group’s performance against relevant long-term performance hurdles. In the 2018 financial year, no options were granted (2017: 5,000,000) to the MD and directors. Performance rights of 344,871 were issued to key executives during the year. 15 Money3 Corporation Limited | Annual Report 2018 Remuneration Report (continued) Contract of Employment All executives of the Group are employed under a letter of appointment. Various notice periods of up to 6 months are required to terminate the appointment. The MD and the Acting Chief Financial Officer (“CFO”) letters of appointment contain specified LTI entitlements. Other executives’ letters of appointment do not contain specified LTI entitlements and are rolling with no fixed term. Key terms of these letters of appointment are outlined below: Name Scott Baldwin Siva Subramani Craig Harris Michael Rudd Rob Camilleri Type of agreement Permanent Permanent Permanent Permanent Permanent Base salary including superannuation $ STI (on target) $ Termination notice period 375,000 200,000 264,990 210,000 210,000 375,000 6 months either party – 1 months either party 132,495 3 months either party 63,000 63,000 1 month either party 1 month either party Relationship Between Remuneration Policy and Group Performance All Executive Directors and KMP receive a base salary, superannuation and fringe benefits. In considering the Group’s performance and creation of shareholder wealth, the Directors have regard to the indices in respect of the current financial year and the previous four financial years. The following table shows revenue, profits, dividends, share price, Earnings per Share (“EPS”) and KMP remuneration at the end of each year. Financial performance from continuing operations for the past five years is indicated by the following table: Revenue ($’000) NPAT ($’000) Closing share price Price increase/(decrease) $ Price increase/(decrease) % 30 June 2018 30 June 2017 30 June 2016 30 June 2015 30 June 2014 121,876 32,028 $1.95 $0.67 52% 109,638 29,086 $1.28 $0.08 7% 96,661 20,134 $1.20 $0.06 5% 69,035 13,941 $1.14 $0.06 6% 43,508 7,832 $1.08 $0.29 37% Earnings per share 19.91 cents 18.81 cents 14.21 cents 11.82 cents 8.13 cents Dividend paid per share 9.50 cents 5.65 cents 5.25 cents 5.25 cents 4.50 cents Total KMP remuneration ($’000) 3,988 2,966 2,450 1,704 1,132 16 Details of Remuneration The compensation of each member of the KMP of the Group is set out below: Short term employee benefits Post- employ- ment benefits Salary & fees $ Bonus $ Annual leave $ Super $ Long term benefits Long service leave $ Share based payments $ Term- ination Total $ 2018 NED’s Kang Tan Leath Nicholson Stuart Robertson NED’s Total Scott Baldwin Ray Malone^ Siva Subramani* Brett Coventry* Craig Harris Michael Rudd Rob Camilleri 82,192 121,000 105,024 308,216 346,710 300,000 60,169 175,457 238,047 179,241 198,372 – – – – – – – – 300,000 36,082 – – 36,301 79,497 58,000 13,699 – 6,647 19,619 19,260 16,455 15,729 Executives Total 1,497,996 487,497 113,792 7,808 – 9,976 17,784 25,000 – 4,671 20,010 25,000 23,219 19,411 117,311 Total 2017 NED’s Ray Malone Vaughan Webber Kang Tan Leath Nicholson Stuart Robertson NED’s Total Scott Baldwin Jennifer Martin Brett Coventry Craig Harris Michael Rudd Michael Kanizay Rob Camilleri 1,806,212 487,497 113,792 135,095 – 21,471 60,000 70,000 67,500 218,971 336,115 105,925 94,733 226,613 185,880 71,846 80,787 – – – – – – 145,096 22,500 – 58,080 46,027 8,742 – – – – – – – 24,021 10,537 7,804 18,543 13,391 4,308 6,214 – 2,040 5,700 6,650 6,413 20,803 30,000 8,908 9,325 30,000 18,217 7,846 7,675 Executives Total 1,101,899 280,445 84,818 111,971 Total 1,320,870 280,445 84,818 132,774 – – – – 10,916 – 50 – 4,672 2,897 86 18,621 18,621 – – – – – – 4,280 – – 4,999 2,632 – – 11,911 11,911 – – – – – – – – – – – – – – – – – – – – 21,864 – – – 19,497 – – 90,000 111,250 232,250 89,000 204,000 200,250 526,250 356,000 1,074,708 185,417 61,545 101,573 150,156 235,958 135,480 485,417 133,082 352,960 516,632 515,770 382,777 1,226,129 3,439,605 1,426,379 3,987,596 123,611 123,611 – – 74,167 59,333 257,111 247,611 – 90,093 171,688 327,502 – – 23,511 65,700 150,817 133,246 496,885 787,123 169,734 201,955 509,923 593,649 112,239 94,676 41,361 836,894 2,469,299 41,361 1,094,005 2,966,184 * A number of KMP did not hold their roles for the full financial year. Remuneration is only disclosed for the time they were KMP. ^ Ray Malone was appointed as Executive Chairman during the financial year. 17 Money3 Corporation Limited | Annual Report 2018 Remuneration Report (continued) The following table shows for the Executive remuneration received in each of the years, the relevant percentages for fixed remuneration, STI and LTI: Fixed Remuneration At risk –STI At risk –LTI 2018 % 35 62 57 51 41 57 2017 % 51 n/a n/a 55 37 100 2018 % 2017 % 2018 % 2017 % 28 n/a n/a 15 12 4 18 n/a n/a 11 8 n/a 33 38 43 29 46 33 31 n/a n/a 34 55 n/a Scott Baldwin Ray Malone Siva Subramani Craig Harris Michael Rudd Rob Camilleri The following table outlines the percentage of target STI achieved (and forfeited) and the total STI awarded, for each Executive KMP for 2018: Scott Baldwin Siva Subramani Craig Harris Michael Rudd Rob Camilleri STI On Target Opportunity $ 375,000 n/a 132,495 63,000 63,000 Achieved % Forfeited % STI Awarded $ 100 n/a 100 100 100 0 n/a 0 30 0 375,000 30,000 132,495 44,100 63,000 Other Transactions Related to KMP Raymond Malone entered into a consultancy deed with Shildplex Pty Limited, a company controlled by himself to provide services to Money3 to secure a funding facility. Shildplex Pty Limited was paid $945,000 (2017: NIL) during the year, following the successful drawdown by Money3 of the $150m Fortress Funding Facility negotiated by Shildplex Pty Limited. Leath Nicholson is a director of Nicholson Ryan lawyers and Panorama Pty Limited which Money3 has engaged to perform legal services and compliance services. Nicholson Ryan has been paid $350,655 (2017: $294,133) and Panorama $52,800 (2017: $Nil) during the year. Transactions between the Group and these parties are conducted on normal commercial terms. Loans with KMP There are currently no loans with KMP. 18 Value of Options The value of options is determined at grant date using the Binomial Option Pricing Model considering factors including exercise price, expected volatility and option life and is included in remuneration on a proportional basis from grant date to vesting date. As the options vest over time, the cost is expensed in accordance with AASB2 Share Based Payments over the vesting period. In the 2018 financial year, the expense for KMP was $1,426,379 (2017: $1,094,005). Inputs into the determination of the fair value of options issued to the KMP are set out below: Exercise price Grant date Expiry date Share price at grant date Expected volatility Expected dividend yield Risk free rate Employee- Expire 21/10/2018 Employee – Expire 30/11/2018 Employee – Expire 20/10/2019 Employee – Expire 14/04/2020 Employee/ Director – Expire 23/11/2021 $0.996056 $1.496056 $1.496056 $1.696056 $1.50 21/10/2013 30/11/2013 20/10/2014 15/04/2015 28/11/2016 21/10/2018 30/11/2018 20/10/2019 14/04/2020 23/11/2021 $1.05 32% 4.25% 3.4% $1.00 32% 4.25% 3.4% $1.20 31% 3.5% 1.84% $1.52 31% 3.5% 1.84% $1.69 37% 3.33% 2.125% Share Based Compensation The following table discloses terms and conditions of each grant of options provided as compensation, as well as details of options exercised during the year: Name Craig Harris Craig Harris Issue Date Options Granted Exercise Price Expiry Date Vesting Date 21 Oct 2013 500,000 $0.996056 21 Oct 2018 21 Oct 2016 30 Nov 2013 1,000,000 $1.496056 30 Nov 2018 30 Nov 2016 Scott Baldwin 30 Nov 2013 1,000,000 $1.496056 30 Nov 2018 30 Nov 2016 Michael Rudd 20 Oct 2014 500,000 $1.496056 20 Oct 2019 21 Oct 2017 Michael Rudd 15 Apr 2015 200,000 $1.696056 14 April 2020 14 April 2018 Scott Baldwin 28 Nov 2016 2,400,000 $1.50 23 Nov 2021 24 Nov 2019 Ray Malone 28 Nov 2016 1,250,000 $1.50 23 Nov 2021 24 Nov 2019 Leath Nicholson 28 Nov 2016 750,000 $1.50 23 Nov 2021 24 Nov 2019 Stuart Robertson 28 Nov 2016 600,000 $1.50 23 Nov 2021 24 Nov 2019 Value of options exercised during year $ – – – – – – – – – Maximum total value of issue yet to vest or exercise $ 109,500 74,000 74,000 7,250 11,511 1,068,000 556,250 333,750 267,000 The options will vest if an event occurs which gives rise to a change in control of the Group. Share options carry no rights to dividends and no voting rights. In accordance with the terms of the share option schemes, options may be exercised at any time from the date on which they vest to the date of their expiry, subject to any additional requirements of the allocation. 19 Money3 Corporation Limited | Annual Report 2018 Remuneration Report (continued) Performance Rights Granted to KMP Name Rob Camilleri Siva Subramani Total Grant Date 01/07/2017 01/01/2018 Performance Rights Granted 194,871 150,000 344,871 Issue Price Expiry Date Vesting Date Value of Performance Rights Granted $1.28 $1.64 30/06/2022 30/06/2021 $222,445 31/12/2022 31/12/2021 $197,288 $419,733 Performance rights are issued for a four-year vesting period based on specific performance criteria. The performance rights have been valued by reference to the underlying value of ordinary Money3 shares, adjusted for the impact of the vesting conditions, including the rights to dividends, where appropriate. KMP Equity Holdings Details of KMP equity holdings of the Group, including their personally related parties are disclosed below. Name Ray Malone Kang Tan Leath Nicholson Stuart Robertson Scott Baldwin Brett Coventry** Siva Subramani Craig Harris Michael Rudd Total Balance at 1 July 2017 On exercise of options Net change other* Balance as at 30 June 2018 5,406,421 5,385,360 93,727 114,392 3,857,606 50,370 – 1,407,354 684,087 16,999,317 – – – – – – – – – – (2,954,196) 2,452,225 2,016 5,387,376 – 5,446 93,727 119,838 313,264 4,170,870 N/A 1,925 518,456 501,960 N/A 1,925 1,925,810 1,186,047 (1,611,129) 15,337,818 * Net change other refers to the shares purchased, sold, or issued under the Dividend Reinvestment Plan (“DRP”). This amount may also include a Director or employee’s initial shareholding prior to becoming KMP. ** Ceased to be a KMP during the year hence balance not applicable. 20 Options Over Ordinary Shares in the Group held by KMP Name Scott Baldwin Craig Harris Michael Rudd Ray Malone Leath Nicholson Stuart Robertson Total Balance as at 1 July 2017 Options exercised Options granted Balance as at 30 June 2018 Total exercisable and vested Total options unvested 3,400,000 1,500,000 700,000 1,250,000 750,000 600,000 8,200,000 – – – – – – – – – – – – – – 3,400,000 1,000,000 2,400,000 1,500,000 1,500,000 700,000 700,000 1,250,000 750,000 600,000 – – – – – 1,250,000 750,000 600,000 8,200,000 3,200,000 5,000,000 Restricted Shares in the Group held by KMP Name Craig Harris Michael Rudd Brett Coventry* Michael Rudd Total Grant Date 01/07/2016 01/07/2016 01/07/2016 01/07/2016 Restricted Shares Granted 484,373 484,373 290,624 193,798 1,453,168 Issue Price Expiry Date Vesting Date Value of Restricted Shares Granted $1.03 $1.03 $1.03 $1.03 30/06/2021 30/06/2020 $600,623 30/06/2021 30/06/2020 $600,623 30/06/2021 30/06/2020 $360,374 30/06/2021 30/06/2020 $251,211 $1,812,829 * Brett Coventry resigned on 29 March 2018 and per his employment agreement elected to keep his shares as part of his termination agreement by paying $168,707 for the future expense portion to vesting date. The restricted shares have been valued by reference to the underlying value of ordinary Money3 shares, adjusted for the impact of the vesting conditions, including the rights to dividends, where appropriate. Restricted shares have rights including entitlement to dividends and voting. End of Remuneration Report (Audited) 21 Money3 Corporation Limited | Annual Report 2018 Directors’ Report (continued) Auditor’s Independence Declaration The auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 23 of the financial report. Signed in accordance with a resolution of the Directors. On behalf of the Directors Ray Malone Chairman Melbourne Dated 27 August 2018 22 Auditor’s Independence Declaration Tel: +61 3 9603 1700 Fax: +61 3 9602 3870 www.bdo.com.au Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia DECLARATION OF INDEPENDENCE BY DAVID GARVEY TO THE DIRECTORS OF MONEY3 CORPORATION LIMITED As lead auditor of Money3 Corporation Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Money3 Corporation Limited and the entities it controlled during the period. David Garvey Partner BDO East Coast Partnership Melbourne, 27 August 2018 BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 23 Money3 Corporation Limited | Annual Report 2018 Directors’ Declaration The Directors of Money3 Corporation Limited declare that: 1. in the Directors’ opinion, the financial statements and the accompanying notes set out on pages 25 to 63 and the Remuneration Report in the Directors’ Report set out on pages 14 to 21, are in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance, for the financial year ended on that date; and (b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations), Corporations Regulations 2001 and other mandatory professional reporting requirements; 2. the financial report also complies with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) as disclosed in Note 1; and 3. there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 by the Managing Director and Chief Financial Officer for the financial year ended 30 June 2018. Signed in accordance with a resolution of the Directors pursuant to section 295(5) of the Corporations Act 2001. On behalf of the Directors Ray Malone Chairman Melbourne Dated 27 August 2018 24 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2018 Note 3 Consolidated 2018 $’000 Consolidated 2017 $’000 121,876 109,638 Revenue from continuing operations Expenses from operating activities: Bad debt expense (net of recoveries) Movement in provision for doubtful debt expense Bank fees and credit checks Employee related expenses Professional fees Occupancy expenses Technology expenses Advertising expenses Administration expenses Loss on disposal of assets Net finance costs Depreciation and amortisation Total Expenses 18,099 2,717 2,554 30,660 2,226 3,421 2,528 2,591 388 120 9,057 840 12,320 4,994 2,373 27,116 1,636 3,332 2,605 4,119 567 – 7,280 1,022 75,201 67,364 46,675 (14,647) 42,274 (13,188) Profit before income tax from continuing operations Income tax expense 4(a) Profit after income tax from continuing operations 32,028 29,086 Total comprehensive income net of tax 32,028 29,086 Profit attributable to: Owners of Money3 Corporation Limited Total comprehensive income attributable to: 32,028 29,086 Owners of Money3 Corporation Limited 32,028 29,086 Basic earnings per share (cents) Diluted earnings per share (cents) 16 16 19.91 19.45 The statement of profit or loss and other comprehensive income is to be read in conjunction with the attached notes. 18.81 18.45 25 Money3 Corporation Limited | Annual Report 2018 Consolidated Statement of Financial Position as at 30 June 2018 Consolidated 2018 $’000 Consolidated 2017 $’000 Note ASSETS Current assets Cash and cash equivalents Loans receivable Current tax receivable Other assets Total current assets Non-current assets Loans receivable Other assets Property, plant & equipment Intangible assets Deferred tax assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax payable Employee benefit obligations Provisions Total current liabilities Non-current liabilities Borrowings Employee benefit obligations Provisions Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Retained earnings Total equity 5 6 6 7 8 4(b) 9 12 10 11 12 10 11 13 14 46,308 130,607 2,222 348 21,106 157,609 – 553 179,485 179,268 116,841 424 2,062 18,722 9,172 147,221 326,706 7,313 – – 1,622 308 9,243 97,825 303 156 98,284 107,527 219,179 153,969 4,092 61,118 67,358 438 2,222 19,175 6,240 95,433 274,701 5,799 29,572 5,346 1,458 308 42,483 49,939 220 – 50,159 92,642 182,059 125,761 4,816 51,482 219,179 182,059 The statement of financial position is to be read in conjunction with the attached notes. 26 Consolidated Statement of Changes in Equity for the year ended 30 June 2018 Issued Capital $’000 Retained Earnings $’000 Reserves $’000 Total $’000 Note Total equity at 1 July 2016 123,590 30,158 2,769 156,517 Profit after income tax expense for the year Total comprehensive income for the year – – 29,086 29,086 Transactions with owners in their capacity as owners: Transaction costs arising from share issue Employee share schemes – value of employee’s service Options exercised Dividend paid (3) 1,265 77 – – – **832 (7,762) – – – 2,047 – – 29,086 29,086 (3) 3,312 77 (6,930) Closing balance as at 30 June 2017 125,761 51,482 4,816 182,059 Total equity at 1 July 2017 125,761 51,482 4,816 182,059 Early adoption of accounting policy (net of tax) 1(f)* – (10,196) – (10,196) Restated total equity at the beginning of the financial year Profit after income tax expense for the year Total comprehensive income for the year 125,761 41,286 4,816 171,863 – – 32,028 32,028 – – 32,028 32,028 Transactions with owners in their capacity as owners: Employee share schemes – value of employee’s service Options exercised Dividend paid 1,420 24,091 – – 2,071 3,491 (2,795) 21,296 **2,697 (12,196) – (9,499) Closing balance as at 30 June 2018 153,969 61,118 4,092 219,179 * See Note 1 for details regarding the restatement as a result of a change in accounting policy for early adoption of AASB 9 and AASB 15. ** Shares issued to shareholders that elected to participate in the DRP. The statement of changes in equity is to be read in conjunction with the attached notes. 27 Money3 Corporation Limited | Annual Report 2018 Consolidated Statement of Cash Flows for the year ended 30 June 2018 Consolidated 2018 $’000 Consolidated 2017 $’000 Note Cash flows from operating activities Interest, fees and charges from customers Payments to suppliers and employees (GST Inclusive) Interest received from banks Finance costs Income tax paid Net cash provided by operating activities before changes in operating assets Loan principal advanced to customers net of repayments Net cash used in operating activities 17 Cash flows from investing activities Payment for property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from share issue Proceeds from borrowings Repayment of borrowings Dividends paid Net cash provided by financing activities 120,243 (39,667) 168 (8,420) (20,777) 51,547 (56,126) (4,579) (347) – (347) 22,280 97,347 (80,000) (9,499) 30,128 106,000 (39,360) 227 (6,494) (15,723) 44,650 (74,389) (29,739) (754) 18 (736) 1,339 29,989 – (6,930) 24,398 Net increase/(decrease) in cash held 25,202 (6,077) Cash and cash equivalents at the beginning of the year 21,106 27,183 Cash and cash equivalents at end of the year 5 46,308 21,106 The statement of cash flows is to be read in conjunction with the attached notes. 28 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Introduction The financial report covers Money3 Corporation Limited (“Money3” or “the Company”) and its controlled entities (“the Group”). Money3 is a company limited by shares whose shares are publicly traded on the Australian Securities Exchange (ASX). Money3 is incorporated and domiciled in Australia. The presentation currency and functional currency of the Group is Australian dollars and amounts are rounded to the nearest thousand dollars, unless otherwise indicated. The financial report was authorised for issue by the Board of the Company at a Directors meeting on the date shown on the Declaration by the Board attached to the Financial Statements. 1. Summary of Significant Accounting Policies (a) Basis of accounting The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations and complies with other requirements of the law, as appropriate for profit oriented entities. The financial report comprises the consolidated financial statements of the Group. The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared on an accrual basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. The financial statements have been prepared in accordance with Australian Accounting Standards, which are based on the Group continuing as a going concern which assumes the realisation of assets and the extinguishment of liabilities in the normal course of business and at the amounts stated in the financial report. During the year the Group early adopted AASB 9 Financial Instruments and AASB15 Revenue from Contracts with Customers (refer Note 1(f)) and changed its depreciation policy (refer Note 7). (b) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2018 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Company has control. The Company controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless a transaction provides evidence of impairment to the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 29 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) (c) Rounding of amounts The Group and the Company are of a kind referred to in ASIC Corporations (Rounding in Financial/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 Instrument to the nearest thousand dollars, unless otherwise indicated. (d) Critical accounting estimates, assumptions and judgements In the application of Australian Accounting Standards, management is required to make judgements, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revisions affect both current and future periods. Judgements and estimates which are material to the financial report are found in the following notes: Note 3 Note 6 Note 8 Revenue Loans receivable Page 34 Page 37 Intangible assets Page 40 (e) Notes to the financial statements The notes to the financial statements were restructured to make the financial report more relevant and readable, with a focus on information that is material to the operations, financial position and performance of the Group. Additional information has also been included where it is important for understanding the Group’s performance. Notes relating to individual line items in the financial statements now include accounting policy information where it is considered relevant to an understanding of these items, as well as information about critical accounting estimates and judgements. Details of the impact of new accounting policies and all other accounting policy information are disclosed at the end of the financial report in Note 26. 30 (f) Early adoption of new standard adopted by the group The Group has early adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers with a date of initial application of 1 July 2017, which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with AASB 9 and AASB 15, comparative figures have not been restated. AASB 9 replaces the provisions of AASB 139. The nature and effects of the key changes to the Group’s accounting policies resulting from its adoption of AASB 9 are summarised below. The early adoption of AASB 15 has not had any impact on the financial statements. (i) Revenue Recognition On assessing the nature of the Group’s contracts and the requirements of AASB 9, all fees on loan products are now considered to be integral to the loan and are recognised as revenue using the effective interest rate method under AASB 9. Prior to adoption of AASB 9, point in time fees such as arrears, default and variation fees were recognised as revenue when an underlying event occurred. (ii) Impairment of financial assets AASB 9 replaces the “incurred loss” model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at Fair Value through Other Comprehensive Income (FVOCI), but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139. (iii) Transition disclosures Changes in accounting policies resulting from the adoption of AASB 9 have been applied retrospectively, however, comparative periods have not been restated, rather the differences in the carrying amounts of financial assets and liabilities resulting from the adoption of AASB 9 are recognised in retained earnings at 1 July 2017. Accordingly, the information presented for 30 June 2018 is not comparable to the information presented in the 30 June 2017 consolidated financial statements. The transition disclosures have been amended since interim reporting at 31 December 2017. Retained Earnings (Impact of adopting AASB 9 and AASB 15) Retained Earnings Balance under AASB 139 as at 30 June 2017 Changes in application of effective interest rate method – Note 1 (f) (i) Increase in provision for doubtful debts (expected credit losses) – Note 1 (f) (ii) Related tax effect Restated retained earnings balance in accordance with AASB 9 and AASB 15 as at 1 July 2017 $’000 51,482 (13,104) (1,463) 4,371 41,286 31 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 1. Summary of significant accounting policies (continued) (f) Early adoption of new standard adopted by the group (continued) Adjustments made to Statement of Financial Position ASSETS Current Assets Cash and cash equivalents Loans receivable Other assets Total current assets Non-current assets Loans receivable Other assets Property, plant & equipment Intangible assets Deferred tax asset Total non-current asset Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax payable Employee benefit obligations Provisions Total current liabilities Non-current liabilities Borrowings Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Retained earnings Total equity 32 As at 30 June 2017 $’000 Impact of AASB 9 and AASB 15 $’000 As at 1 July 2017 (Restated) $’000 21,106 115,517 553 137,176 – (11,803) – 21,106 103,714 553 (11,803) 125,373 109,450 (2,764) 106,686 438 2,222 19,175 6,240 137,525 274,701 5,799 29,572 5,346 1,458 308 42,483 49,939 220 50,159 92,642 – – – 4,371 1,607 (10,196) – – – – – – – – – – 438 2,222 19,175 10,611 139,132 264,505 5,799 29,572 5,346 1,458 308 42,483 49,939 220 50,159 92,642 182,059 (10,196) 171,863 125,761 4,816 51,482 182,059 – – (10,196) (10,196) 125,761 4,816 41,286 171,863 2. Segment Information The Group has identified its operating segments on the basis of internal reports and components of Money3 that are regularly reviewed by the chief operating decision makers in order to allocate resources to the segments and to assess their performance. Broker This segment provides lending facilities generally based on the provision of an underlying asset as security, generally referred through a broker. Branch This segment provides services and lending facilities generally without the provision of an underlying asset as security through the branch network. Online This segment provides lending facilities without the provision of an underlying asset as security through the internet. Segment profit earned by each segment represents earnings without the allocation of central administration costs and directors’ salaries, interest income and expense in relation to corporate facilities, bad debt collection and income tax expense. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The unallocated assets include various corporate assets held at a corporate level that have not been allocated to the underlying segments. Consolidated – 2018 Segment revenue EBITDA / Segment result Depreciation and amortisation Net finance costs Profit before tax Income tax expense Profit after tax Net loans receivable Broker $’000 73,618 45,887 (159) – Branch $’000 34,466 11,230 (122) – Online $’000 Unallocated $’000 13,792 4,843 (459) – – (5,388) (100) (9,057) Total $’000 121,876 56,572 (840) (9,057) 45,728 11,108 4,384 (14,545) 46,675 – – – – – – 227,116 33,889 7,300 – – – (14,647) 32,028 268,305 Corporate expenditure is regularly reviewed throughout the year with a view to better align costs to business units. Consolidated – 2017 Segment revenue EBITDA / Segment result Depreciation and amortisation Net finance costs Profit before tax Income tax expense Profit after tax Net loans receivable Broker $’000 56,022 34,650 (148) 1 Branch $’000 35,127 14,832 (239) (12) Online $’000 Unallocated $’000 Total $’000 18,655 5,286 (517) 2 (165) 109,638 (4,192) (117) (7,272) 50,576 (1,022) (7,280) 34,503 14,581 4,771 (11,581) 42,274 – – – – – – 195,916 31,520 14,208 – – – (13,188) 29,086 241,644 33 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 3. Revenue Revenue from operating activities Interest, fees and charges Cheque cashing fees Other Total revenue from operating activities Key Estimate Consolidated 2018 $’000 Consolidated 2017 $’000 121,433 108,934 443 – 693 11 121,876 109,638 The deferring of loan fees and charges assumes that the loan will be repaid in line with the repayments already received. This key estimate is regularly reviewed, and it is unlikely any change in the estimate will have a material impact. Recognition and Measurement Revenue is measured at fair value of the consideration received or receivable and recognised to the extent that it is probable that the economic benefits will flow to the economic entity and the revenue can be reliably measured. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and specifics of each arrangement and contract. Interest, Fees and Charges Interest, fees and charges includes interest on loan products, application and credit fees, and other period fees including arrears, default and variation fees. Revenue associated with loans is deferred and recognised over the life of the loans using the effective interest rate method over the loan period. (Also refer Note 1(f)). Cheque Cashing Fees Revenue is recognised when the service is performed and there are no unfulfilled service obligations that will restrict the entitlement to receive the consideration. 34 4. (a) Income Tax Income tax expense Current tax Deferred tax Prior year adjustments Deferred tax expense Increase/(decrease) in deferred tax assets Increase/(decrease) in deferred tax liabilities Deferred tax expenses Reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% Tax effect of amounts which are not deductible/(taxable) Share based payments Other (deductible expenses)/(non-assessable income)/non-deductible expenses Adjustments recognised in the current year in relation to tax of prior years Income tax expense 4. (b) Deferred Tax Assets Deferred tax balance comprises temporary differences attributable to: Employee leave benefits Provision for doubtful debts Accruals and lease incentives Borrowings Intangibles Consolidated 2018 $’000 Consolidated 2017 $’000 13,287 1,360 – 15,231 (1,923) (120) 14,647 13,188 1,096 264 1,360 (1,596) (327) (1,923) 46,675 14,003 42,274 12,682 621 23 – 614 12 (120) 14,647 13,188 Consolidated 2018 $’000 Consolidated 2017 $’000 1,528 7,408 231 198 (193) 1,119 5,003 211 235 (328) Net balance disclosed as deferred tax assets 9,172 6,240 35 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 4. (b) Deferred Tax Assets (continued) Recognition and Measurement Current Tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred Tax Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances they relate to are levied by the same taxation authority. Tax Consolidation On 1 July 2010, Money3 Corporation Limited (“the head entity”) and its wholly-owned Australian controlled entities formed a tax consolidated group under the tax consolidation regime. The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the group allocation approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by subsidiaries to the head entity. 5. Cash and cash equivalents Cash in hand Petty Cash Cash at Bank and on call* Term Deposit* Total cash and cash equivalents Consolidated 2018 $’000 Consolidated 2017 $’000 548 4 35,755 10,001 46,308 566 4 15,536 5,000 21,106 * The effective interest rate on term deposits was 2.55% (2017: 2.1%); these deposits have an average maturity of 3 months. The deposits on call (11am) have an effective interest rate of 1.6% (2017: 1.6%). Recognition and Measurement For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand and deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to cash and are subject to an insignificant risk of changes in value. 36 6. Loans Receivable Loans receivable Allowance for impairment losses Total loans receivable Current loans receivable Non-current loans receivable Total loans receivable Consolidated 2018 $’000 Consolidated 2017 $’000 268,305 241,644 (20,857) (16,677) 247,448 224,967 130,607 116,841 157,609 67,358 247,448 224,967 Gross written loans represent cash to be received at balance date. Deferred revenue represents interest, fees and charges accumulated on individual loans which will be recognised as revenue in future periods using the effective interest rate method. Gross written loans less deferred revenue represents the loans receivable calculated in accordance with the accounting policy. Gross written loans Deferred revenue Loans receivable Key Estimate Consolidated 2018 $’000 Consolidated 2017 $’000 308,047 (39,742) 273,095 (31,451) 268,305 241,644 Recognition of income is in line with the expected repayment profile of loans. There have been changes in the estimates of future cash flows from loans receivable as a result of adoption of AASB 9 Financial Instruments resulting in changes to the classification between current and non-current loans. These changes have been applied prospectively. Recognition and Measurement Loans and other receivables are non-derivative financial assets, with fixed and determinable payments that are not quoted in an active market. Loans and other receivables are initially recognised at fair value, including direct transaction costs and are subsequently measured at amortised cost using the effective interest method. Loans and other receivables are due for settlement at various times in line with the terms of their contracts. The Group applies a three-stage approach to measuring expected credit losses (ECLs) for loans receivable measured at amortised cost. Loans receivable move through the following three stages based on the change in credit risk since initial recognition: Stage 1: 12-months ECL The Group collectively assesses ECLs on loans receivable where there has not been a significant increase in credit risk since initial recognition and that were not credit impaired upon origination. For these loans receivable, the Group recognises as a collective provision the portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months. The Group does not conduct an individual assessment of exposures in Stage 1 as there is no evidence of one or more events occurring that would have a detrimental impact on estimated future cash flows. 37 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 6. Loans Receivable (continued) Stage 2: Lifetime ECL – not credit impaired The Group collectively assesses ECLs on loans receivable where there has been a significant increase in credit risk since initial recognition but are not credit impaired. For these loans receivable, the Group recognises as a collective provision a lifetime ECL (i.e. reflecting the remaining term of the loans receivable). Like Stage 1, the Group does not conduct an individual assessment on Stage 2 loans receivable as the increase in credit risk is not, of itself, an event that could have a detrimental impact on future cash flows. Stage 3: Lifetime ECL – credit impaired The Group identifies, both collectively and individually, ECLs on those exposures that are assessed as credit impaired based on whether one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. For exposures that have become credit impaired, a lifetime ECL is recognised as a collective or specific provision. A loan receivable balance is written off when the customer is unlikely to pay their obligation and the Group determines there is no reasonable expectation of recovery. In assessing whether reasonable expectation of recovery exists, multiple factors are considered including days past due without repayment, recourse available to the Group such as realisability of security, insurance payout and other related factors. Determining the stage for impairment At each reporting date, the Group assesses whether there has been a significant increase in credit risk for loans receivable since initial recognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date of initial recognition. This includes quantitative and qualitative information. Refer to Note 20. Loans receivable will move through the ECL stages as asset quality deteriorates. If, in a subsequent period, asset quality improves and reverses any previously assessed significant increase in credit risk since origination, then the allowance for impairment losses reverts from lifetime ECL to 12-months ECL. Loans receivable that have not deteriorated significantly since origination are considered to have a low credit risk. The allowance for impairment losses for these loans receivable is based on a 12-months ECL. When an asset is uncollectible, it is written off against the related provision. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off reduce the amount of the expense in the income statement. Measurement of Expected Credit Losses (ECLs) ECLs are derived from unbiased and probability-weighted estimates of expected loss and incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of future events and economic conditions at reporting date. The Group calculates ECL using three main components, a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The 12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument respectively. The EAD represents the total value the Group is exposed to when the loan receivable defaults. The LGD represents the unrecovered portion of the EAD taking into account mitigating effect of realisable value of security. For further details on how the Group calculates ECLs including the use of forward looking information, refer to the Credit quality of financial assets section in Note 20. 38 7. Property, Plant and Equipment Year ended 30 June 2018 Gross carrying amount Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Accumulated depreciation Balance at 1 July 2017 Depreciation expense Disposals Balance at 30 June 2018 Net carrying amount at 30 June 2018 Year ended 30 June 2017 Gross carrying amount Balance at 1 July 2016 Additions Disposals Balance at 30 June 2017 Accumulated depreciation Balance at 1 July 2016 Depreciation expense Disposals Balance at 30 June 2017 Net carrying amount at 30 June 2017 Total $’000 7,447 347 (1,309) 6,485 5,225 387 (1,189) 4,423 Total $’000 6,722 755 (30) 7,447 4,716 522 (13) 5,225 Motor vehicles $’000 Rental Assets $’000 Leasehold Improvements $’000 Furniture, Equipment and Fittings $’000 62 – – 62 54 1 – 55 7 422 – (422) – 422 – (422) – – 3,260 16 (295) 2,981 2,019 123 (241) 1,901 3,703 331 (592) 3,442 2,730 263 (526) 2,467 1,080 975 2,062 Motor vehicles $’000 Rental Assets $’000 Leasehold Improvements $’000 Furniture, Equipment and Fittings $’000 422 – – 422 422 – – 422 2,941 319 – 3,260 1,750 269 – 2,019 3,267 436 – 3,703 2,479 251 – 2,730 92 – (30) 62 65 2 (13) 54 8 – 1,241 973 2,222 39 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 7. Property, Plant and Equipment (continued) Recognition and Measurement Property, Plant and Equipment at Cost Property, plant and equipment is recorded at cost less accumulated depreciation and cumulative impairment charges. Cost includes those costs directly attributable to bringing the assets into the location and working condition necessary for the asset to be capable of operating in the manner intended by management. Additions, renewals and improvements are capitalised, while maintenance and repairs are expensed. The carrying values of property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. Depreciation Depreciation on assets acquired in prior financial years was calculated on a diminishing value basis to write off the cost of the asset over its estimated useful life. Depreciation on assets acquired from 1 July 2017 is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain plant and equipment, the shorter lease term. The straight-line method is deemed to be more aligned to the useful life of the assets and hence a more appropriate method of depreciation. The difference in amounts of depreciation with the two methods has been deemed to be immaterial. Estimates of remaining useful life are made on a regular basis for all assets, with annual reassessments for major items. The expected useful life of plant and equipment is as follows: Leasehold improvements 2 – 10 years Furniture, fittings and equipment 3 – 10 years 8. Intangible Assets Goodwill allocated to: Broker Branch Online Customer lists Less accumulated amortisation Net carrying amount at end of year 40 Consolidated 2018 $’000 Consolidated 2017 $’000 10,295 5,068 2,717 10,295 5,068 2,717 18,080 18,080 2,265 (1,623) 642 2,265 (1,170) 1,095 18,722 19,175 Reconciliation of the fair values at the beginning and end of the current financial year are set out below: Balance at 1 July 2017 Amortisation expense Balance at 30 June 2018 Key Estimate and Judgement Goodwill $’000 Customer lists $’000 18,080 – 18,080 1,095 (453) 642 Total $’000 19,175 (453) 18,722 Goodwill is tested annually as to whether it has suffered impairment. The recoverable amounts of Cash Generating Units (“CGU’s”) have been determined based on value in use calculations. These calculations require the use of assumptions. Recognition and Measurement All intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the entity’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Customer Lists The customer lists acquired in the business combination are amortised on a straight-line basis over the period of their expected benefit, being their estimated life of 5 years. Impairment Goodwill is allocated for impairment testing purposes to three CGU’s, being Broker, Branch and Online operations. The recoverable amount of the CGU is based on a number of key assumptions as detailed below. Goodwill Impairment Tests and Key Assumptions Used The Group tests at least annually whether goodwill and intangible assets with indefinite useful lives have suffered any impairment, and when there is an indication of impairment. The tests incorporate assumptions regarding future events which may or may not occur, resulting in the need for future revisions of estimates. There are also judgements involved in determination of CGU’s. The recoverable amount of Broker, Branch and Online was determined based on a value in use discounted cash flow (“DCF”) model. The ‘value in use’ calculations use cash flow projections based on the 2019 financial budgets extended over the subsequent four-year period (“Forecast Period”) and applies a terminal value calculation using estimated growth rates approved by the Board for the business relevant to each CGU. The following are the key assumptions used in determining the recoverable value: 2019 Budget revenue growth 2019 Budget expense growth/(reduction) Terminal value => 5 years Revenue growth rate > 1 year Expense growth rate > 1 year Broker % Branch % Online % 11 27 3 5 3 (7) (8) 2 2 2 (6) (23) 2 2 2 Pre-tax discount rate applied to cash flow 14.86 15.81 15.32 41 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 8. Intangible Assets (continued) The Directors concluded that, based on these assumptions, the recoverable amount exceeds the carrying amount and as such, there is no impairment of goodwill in the current year (2017: $nil). Management believe that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the CGU’s. 9. Trade and other payables Current liabilities (Unsecured): Trade payables Accrued expenses Total trade and other payables Recognition and Measurement Consolidated 2018 $’000 Consolidated 2017 $’000 228 7,085 7,313 500 5,299 5,799 Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. 10. Employee Benefit Obligations Current Employee leave obligations – current Non-Current Employee leave obligations – non-current Consolidated 2018 $’000 Consolidated 2017 $’000 1,622 1,622 303 303 1,458 1,458 220 220 Total employee benefit obligations 1,925 1,678 Recognition and Measurement The Leave obligations cover the Group’s liability for long service and annual leave. The current portion of this liability includes all the accrued annual leave, the unconditional entitlements to long service leave where employees have completed the required period of service and those where employees are entitled to pro-rata payments in certain circumstances. Liabilities for unpaid salaries, salary related costs and provisions for annual leave are recorded in the statement of financial position at the salary rates which are expected to be paid when the liability is settled. Obligations for long service leave and other long-term benefits are recognised at the present value of expected future payments to be made. In determining this amount, consideration is given to expected future salary levels and employee service histories. Expected future payments are discounted to their net present value using Milliman corporate bond rates. 42 Other Employee Obligations – Defined Contribution Superannuation Benefits All employees of the Group receive defined contribution superannuation entitlements, for which the Group pays the fixed superannuation guarantee contribution (currently 9.5% of the employee’s average ordinary salary) to the employee’s superannuation fund of choice. All contributions in respect of employees’ defined contribution entitlements are recognised as an expense when they become payable. The Group’s obligation with respect to employees’ defined contribution entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Group’s statement of financial position. The defined contribution plan expense for the year was $1,708,549 (2017: $1,689,426) and is included in employee expenses. 11. Provisions Current Lease make good Non-Current Lease make good Total provisions Consolidated 2018 $’000 Consolidated 2017 $’000 308 308 156 156 464 308 308 – – 308 Recognition and Measurement Provisions Make good provision Money3 Corporation Limited and its subsidiaries is required to restore the leased premises of its branches and main headquarters to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of the leasehold improvements and are amortised over the term of the lease. Provisions are recognised when the Group has a present obligation (legal, equitable or constructive) as a result of a present or past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, considering the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the discounted present value of those cash flows. As that discount is unwound it is expensed in the statement of profit or loss. 43 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 11. Provisions (continued) Movements in each class of provision during the financial year, other than employee benefits, are set out below Make Good Provision Carrying amount at the start of the year Charged to profit and loss Amounts used during the year Carrying amount at the end of the year 12. Borrowings Current Bonds – Bonds face value – Unamortised bond issue and option costs Non-current Finance facility (net of unamortised costs) Total borrowings Recognition and Measurement Consolidated 2018 $’000 Consolidated 2017 $’000 308 179 (23) 464 369 5 (66) 308 Consolidated 2018 $’000 Consolidated 2017 $’000 – – – 97,825 97,825 97,825 30,000 (428) 29,572 49,939 49,939 79,511 Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest method including the borrowing costs. Finance Facility – Fortress On 1 December 2017, the Group entered into a $150m finance facility. The facility agreement is for 3 years from the date of the initial advance, being 15 December 2017. The facility is subject to a first ranking General Security Agreement (fixed and floating charge) over all present and after acquired assets of the Group, however has the ability for the assets of the Branch and Online Divisions to be released. Wilbow facility and bonds The Wilbow facility of $50m was repaid in December 2017. The $30m bonds were repaid in May 2018. 44 Financing Facilities Available Finance facility Used at balance date Unused at balance date Assets Pledged as Security Consolidated 2018 $’000 Consolidated 2017 $’000 150,000 (100,000) 50,000 50,000 (50,000) – Under the terms of the financing facility, there is General Security Agreement (fixed and floating charge) over all present and after acquired assets of the Group. The carrying amounts of assets pledged as security for borrowings are: Current assets Floating charge – Cash and cash equivalents – Receivables Total current assets pledged as security Non-current assets Floating charge – Receivables – Plant and equipment – Intangible assets Total non-current assets pledged as security Total assets pledged as security Compliance with Loan Covenants Consolidated 2018 $’000 Consolidated 2017 $’000 46,308 130,607 176,915 21,106 157,702 178,808 116,841 2,062 18,722 137,625 314,572 67,358 2,222 19,175 88,755 267,563 Money3 Corporation Limited has complied with the financial covenants of its borrowing facilities during the 2018 and 2017 reporting periods. 45 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 13. Share Capital Shares 2018 Shares 2017 Consolidated 2018 $’000 Consolidated 2017 $’000 Fully paid ordinary shares 176,264,520 155,889,008 153,969 125,761 Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Movement in Shares on Issue Movement in the shares on issue of the Company during the financial year are summarised below: Consolidated 2018 Consolidated 2017 Number of ordinary shares ‘000 Number of ordinary shares ‘000 Value $’000 Value $’000 Balance at the beginning of the financial year 155,889 125,761 152,483 123,590 Issued during the year: Share issue costs Issue of shares – exercise of options Issue of shares – employees share scheme Issue of shares – DRP – 16,752 1,950 1,674 – 24,091 1,420 2,697 – 60 2,730 616 (3) 77 1,265 832 Balance at end of the financial year 176,265 153,969 155,889 125,761 Recognition and Measurement Ordinary Shares Ordinary shares have the right to receive dividends as declared and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. The Company does not have limited authorised capital and issued shares have no par value. Dividend Reinvestment Plan Money3 Corporation Limited has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by issue of new ordinary shares rather than being paid in cash. Shares are issued under the plan at a 5% discount to the market price. Options Information relating to the Money3 Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the year is set out in Note 21. 46 14. Reserves Share option reserve Balance at the beginning of the financial year Share based payments expensed for the year Options exercised Forfeiture of options and rights Balance at the end of the financial year Consolidated 2018 $’000 Consolidated 2017 $’000 4,816 2,071 (2,746) (49) 4,092 2,769 2,047 – – 4,816 The share option reserve is used to recognise the grant date fair value of options issued to employees and directors but not exercised, the grant date fair value of shares issued to employees and the grant date fair value of options issued to bond holders but not exercised. 15. Dividends Recognised amounts Fully paid ordinary shares 2018 Cents per share Final dividend fully franked at 30% tax rate Interim dividend fully franked at 30% tax rate 3.15 4.50 Unrecognised amounts Fully paid ordinary shares 2018 $’000 4,993 7,203 2017 Cents per share 2.50 2.50 2017 $’000 3,880 3,882 Final dividend fully franked at 30% tax rate 5.00 8,813 3.15 4,911 On 24 August 2018, the Directors declared a fully franked final dividend of 5.00 cents per share to the holders of fully paid ordinary shares in respect of the financial year ended 30 June 2018, to be paid to shareholders on 23 October2018. The dividend will be paid to shareholders on the Register of Members on 2 October 2018. This dividend has not been included as a liability in these financial statements. The total estimated dividend to be paid is $8.8m. The Group has $38.3m of franking credits at 30 June 2018 (2017: $25.0m). 47 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 16. Earnings per share a) Basic and diluted earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) b) The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: Earnings used in basic and diluted earnings per share (NPAT) Weighted average number of ordinary shares for the purpose of basic earnings per share (c) Weighted average number of ordinary and potential ordinary shares used in the calculation of diluted earnings per share as follows: Weighted average number of ordinary shares basic Dilutive potential ordinary shares Consolidated 2018 Cents Consolidated 2017 Cents 19.91 19.45 18.81 18.45 $’000 32,028 Number (‘000) $’000 29,086 Number (‘000) 160,891 154,596 160,891 3,764 154,596 3,053 Weighted average number of ordinary shares and potential ordinary shares used in calculation of diluted earnings per share 164,655 157,649 Recognition and Measurement Basic Earnings per Share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year. Diluted Earnings per Share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Options granted to employees and bond holders are considered to be ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. 48 17. Reconciliation of Operating Profit after Income Tax to Net Cash Flows used in Operating Activities Net Profit after tax Non-cash items: Depreciation and amortisation expense Loss/(Profit) on sale of property, plant and equipment Allowance for impairment losses Amortisation of bond costs Share based payments Changes in Movements in assets and liabilities: (Increase)/decrease in assets Loans receivable Other receivables Deferred tax assets Increase/(decrease) in liabilities Trade and other payables Current tax payable Provisions and employee entitlements Net cash used in operating activities 18. Auditor’s Remuneration Consolidated 2018 $’000 Consolidated 2017 $’000 32,028 29,086 840 120 2,717 967 2,507 1,022 (1) 4,994 889 2,047 (39,660) (65,840) 114 (2,932) 1,515 (3,198) 403 – (1,851) 541 (684) 58 (4,579) (29,739) Consolidated 2018 $’000 Consolidated 2017 $’000 Auditing and reviewing the financial reports (inclusive of GST) 238,350 176,432 49 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 19. Leases Operating Leases Operating leases relate to head office in Melbourne, the Cash Train office in Perth and Branch premises throughout Australia, all of which have lease terms of up to 5 years. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Not later than one year Later than one year but not later than five years More than five years Total minimum payments Recognition and Measurement The Group as Lessee Consolidated 2018 $’000 Consolidated 2017 $’000 1,661 2,487 – 4,148 1,990 4,024 – 6,014 Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Payments made under operating leases are charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the term of the lease. 20. Financial Risk Management The Group is exposed to a variety of financial risks through its use of financial instruments. This note discloses the Group’s objectives, policies and processes for managing and measuring these risks. The Group’s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets. The Board ensures that the Group maintains a competent management structure capable of defining, analysing, measuring and reporting on the effective control of risk inherent in the Group’s underlying financial activities and the instruments used to manage risk. Key financial risks including interest rate risk and credit risk are reviewed by management on a regular basis and are communicated to the Board so that it can evaluate and impose its oversight responsibility. The Group does not enter or trade financial instruments, including derivative financial instruments, for speculative purposes. Specific Risks • Market risk • Credit risk • Liquidity risk Financial Assets/Liabilities Used The principal categories of financial assets/liabilities used by the Group are: Financial assets at amortised cost • Cash and cash equivalents – Note 5 • Loans and other receivables – Note 6 Financial liabilities at amortised cost • Trade and other payables – Note 9 • Borrowings – Note 12 50 Objectives, Policies and Processes The risk management policies of the Group seek to mitigate the above risks and reduce volatility on the financial performance of the Group. Financial risk management is carried out centrally by the Finance Department of the Group. Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The group overall strategy remains unchanged from 2017. 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. Gearing Ratio The Board reviews the capital structure on a semi-annual basis. As a part of this review the Board considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the Board the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt. Financial assets Debt (long term and short term borrowings) Cash and cash equivalents Net debt Total equity Debt to equity ratio (a) Market Risk (i) Price risk Note 12 5 Consolidated 2018 $’000 Consolidated 2017 $’000 97,825 (46,308) 51,517 219,179 23.5% 79,511 (21,106) 58,405 182,059 32.0% The Group does not hold financial assets or liabilities that are subject to price risk. (ii) Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s short-term deposits held, deposits at call and borrowings. The interest income earned or paid on these balances can vary due to interest rate changes. The Group policy is to maintain at least 60% of its borrowings at fixed rate. Where necessary, the Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. During the current year, there did not arise a need to take interest rate swaps. Impact on post tax profit Impact on equity Interest rates – increase by 100 bps (50 bps) Interest rates – decrease by 50 bps (50 bps) 2018 $’000 (376) 188 2017 $’000 (206) 206 2018 $’000 (376) 188 2017 $’000 (206) 206 51 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 20. Financial Risk Management (continued) (a) Market Risk (continued) (iii) Foreign exchange risk The Group operates only in Australia and is not exposed to foreign exchange risk. (b) Credit Risk Credit risk is managed on a Group basis. Credit risk arises from cash and deposits with banks and financial institutions, as well as credit exposures to outstanding receivables, net of any allowance for impairment losses, as disclosed in the statement of financial position and notes to the financial report. Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. With the exception of its dealings with core customers, the Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. (i) Credit quality analysis The following table sets out information about the credit quality of financial assets measured at amortised cost. Explanation of terms: 12-month ECL, lifetime ECL and credit impaired are included in Note 6. Loans receivable Strong Good Watch list Sub-standard Credit impaired Consolidated 2018 $’000 Lifetime ECL – not credit- impaired Lifetime ECL – credit impaired – – 62,779 4,779 – – – – – 5,800 Consolidated 2017 $’000 Total Total 131,851 124,683 63,096 62,779 4,779 5,800 48,718 53,954 6,809 7,480 12-month ECL 131,851 63,096 – – – Gross carrying amount, net of deferred revenue 194,947 67,558 5,800 268,305 241,644 Allowance for impairment (12,820) (7,469) (568) (20,857) (16,677) Carrying amount 182,127 60,089 5,232 247,448 224,967 Quality classification definitions • • • • • ‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible to low probability of default. ‘Good’ exposures demonstrate a good capacity to meet financial commitments with low default risk. ‘Watch list’ exposures require closer monitoring and a reasonable capacity to meet financial instruments, with moderate default risk. ‘Sub-standard’ exposures require varying degree of attention and default risk is high. ‘Credit impaired’ exposures have been assessed as impaired. The above credit quality classifications defined above encompasses a range of granular internal credit rating grades. Cash and cash equivalents The Group held cash and cash equivalents of $46.3m at 30 June 2018 (2017: $21.1m). The cash and cash equivalents are held with financial institutions that are rated A to AA-, based on Fitch rating. 52 (ii) Collateral held and other credit enhancements The Group holds collateral and other credit enhancements against certain of its credit exposures. The nature of collateral held by the Group against loans receivable are motor vehicles and trailers. There were no significant changes in the quality of the collateral subject to normal wear and tear of the underlying vehicles. There are no financial assets where the Group has not recognised a loss allowance because of the collateral. (iii) Amounts arising from Expected Credit Losses (ECL) Expected credit loss is measured from the initial recognition of a financial asset. The maximum period considered when measuring ECL is the maximum contractual period over which the Group is exposed to credit risk. Inputs, assumptions and techniques used for estimating impairment The Group calculates ECL using three main components, a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). PD estimates are determined using statistical models based on internally compiled data on performance, default information on exposures that are segmented into homogenous portfolio, generally by product. LGD is the magnitude of the likelihood of a loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates against defaulted counterparties. The EAD represents the exposure in the event of a default. The EAD of a financial asset is its gross carrying value less deferred revenue. There were no changes to the estimation techniques or significant assumptions made during the reporting period. Significant increase in credit risk When determining whether the risk of default has increased significantly since initial recognition, the Group considers both quantitative and qualitative information and analysis based on the Group’s historical experience. Each loan receivable is assigned a credit rating at initial recognition. Credit risk is deemed to have increased significantly if the credit rating has significantly deteriorated at the reporting date relative to the credit rating at the date of initial recognition. Deterioration in internal rating is primarily based on number of payment dishonours and but may also consider other qualitative information about the customer such as status of employment, other sources of income, credit score from credit agencies, etc. in line with the Group’s credit policies. A backstop approach based on delinquency is not used due to the nature of the customer segment the Group operates in. Money3’s core customers are often financially challenged and generally have a bad credit history and are lacking in budgeting ability. Modified financial assets The contractual terms of a loan may be modified for a number of reasons. The revised terms usually include extending the maturity, changes to interest rate and changes to the timing of interest and fee payments. A loan that is renegotiated is derecognised as if the existing agreement is cancelled and a new agreement is made on substantially different terms. Loan modifications that do not result in derecognition are considered to be a commercial restructure. The credit risk on these loans are considered to have increased significantly as such modifications are generally due to financial difficulties of the customer. Forward looking economic inputs The Group considers reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. The Group incorporates forward looking information in the measurement of ECL as a management overlay. The economic factors that are considered includes but not limited to, gross domestic product, unemployment, interest rates and inflation The PD, LGD and EAD models which support these determinations are reviewed periodically to compare the loss estimates against actual loss experience. Given the provisions of AASB 9 Financial Instruments have been adopted in the current financial year, there is limited evidence available to make these comparisons. Therefore, the underlying models and their calibration, including the impact of forward looking economic conditions remain subject to review and refinement. 53 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 20. Financial Risk Management (continued) (b) Credit Risk (continued) Loss allowance The following table shows the reconciliation of loss allowance between the measurement basis under AASB 139 and its transition to AASB 9. As at 30 June 2017 Under AASB 139 $’000 Transition adjustment Under AASB 9 As at 1 July 2017 Under AASB 9 $’000 Loss allowance 16,677 1,462 18,139 The following table shows the reconciliation from the opening to the closing balance of the loss allowance. Consolidated 2018 $’000 12-month ECL Lifetime ECL – not credit- impaired Lifetime ECL – credit impaired 11,519 14,532 (2,648) (132) 147 (10,598) – 12,820 5,865 – 2,648 – (144) (1,759) 859 7,469 755 – – 132 (3) (611) 295 568 Total 18,139 14,532 – – – (12,968) 1,154 20,857 Loans receivable Balance at 1 July 2017 New originations Transfer to lifetime ECL – not credit impaired Transfer to lifetime ECL –credit impaired Transfer to 12-month expected credit losses Financial assets derecognised / written off Net remeasurement of loss allowance Loss allowance at 30 June 2018 (iv) Concentrations of credit risk The Group operates across Australia and provides only consumer loans. The Group does not monitor concentration of exposure within the Australian Geography. (c) Liquidity Risk Liquidity risk is the risk that the Group will not be able to pay their debts as and when they fall due. The Group has borrowings and the Directors ensure that the cash on hand is sufficient to meet the commitments of the Company and Group at all times. Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Liquidity risk includes the risk that the Group: • will not have sufficient funds to settle a transaction on the due date; • will be forced to sell financial assets at a value which is less than what they are worth; and • may be unable to settle or recover a financial asset at all. To help reduce these risks where possible, the strategy is to borrow long term and lend short term and maintain adequate cash reserves. 54 Maturity of Financial Liabilities The Group holds the following financial instruments. Amounts presented below represent the future undiscounted principal and interest cash flows. 2018 Financial Liabilities: Borrowings Trade and other payables Total financial liabilities 2017 Financial Liabilities: Borrowings Trade and other payables Total financial liabilities Consolidated < 1 year $’000 1-5 years $’000 > 5 years $’000 Total $’000 – 7,313 7,313 100,000 – 100,000 – – – 100,000 7,313 107,313 Consolidated < 1 year $’000 1-5 years $’000 > 5 years $’000 Total $’000 38,700 5,799 44,499 53,912 – 53,912 – – – 92,612 5,799 98,411 The contractual maturities in the table above reflect gross cash flows, which may differ to the carrying values of the liabilities at the reporting date. Also, affecting liquidity are cash at bank and non-interest bearing receivables and payables. Liquidity risk associated with these financial instruments is represented by the carrying amounts as shown above. The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their net fair values. The net fair values of financial assets and financial liabilities are determined as follows: • the net fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and • the net fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow theory. 55 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 21. Share Based Payments Options Movement in the share options of the Group during the financial year are summarised below: 2018 Weighted average exercise price $ 1.39 – 1.58 1.70 1.30 2017 Number of options 24,800,000 5,100,000 (2,610,000) (300,000) – 1.60 26,990,000 – 1.62 1.79 years 19,440,000 2018 Number of options 26,990,000 – (17,051,696) (200,000) (88,304) 9,650,000 2.52 years 4,650,000 2017 Weighted average exercise price $ 1.28 1.50 0.51 1.63 – 1.39 – 1.44 Balance at the beginning of the financial year Granted during the financial period Exercised during the financial period Forfeited during the financial period Expired during the financial period Balance at the end of the financial year Weighted average remaining contractual life Exercisable at the end of the financial year Options on issue have the following conditions: • The options vest in full when an event occurs which gives rise to a change in control of the Company. • If the Company, after having granted these options, restructures its issued share capital, ASX Listing Rules will apply to the number of shares issued to the option holder on exercise of an option. • Employee and director options will not be listed on the ASX, but application will be made for quotation of the shares resulting from the exercise of the options. • Options issued in relation to the bond are listed on the ASX under the ASX code MNYO. • On issue of the resulting shares, they will rank equally with ordinary shares on issue at that time. • Share options carry no rights to dividends and no voting rights. In accordance with the terms of the share option schemes, options may be exercised at any time from the date on which they vest to the date of their expiry, subject to any additional specific requirements of the allocation Consideration received on the exercise of options is recognised as contributed equity. No options expired during the periods covered by the above tables. 56 Share options outstanding at the end of the year have the following expiry dates and exercise prices: Grant Date 15 April 2015 21 October 2013 30 November 2013 20 October 2014 15 April 2015 28 November 2016 Total Expiry Date 16 May 2018 Exercise Price $ 1.29605 Share Options 2018 Share Options 2017 – 14,840,000 21 October 2018 0.996056 500,000 500,000 30 November 2018 1.496056 2,000,000 4,000,000 20 October 2019 1.496056 500,000 500,000 14 April 2020 1.696056 1,650,000 2,150,000 23 November 2021 1.500000 5,000,000 5,000,000 9,650,000 26,990,000 Weighted average remaining contractual life of options outstanding at the end of the period 2.52 years 1.79 years Restricted Shares in the Company held by KMP Name Craig Harris Michael Rudd Brett Coventry* Michael Rudd Total Grant Date 01/07/2016 01/07/2016 01/07/2016 01/07/2016 Restricted Shares Granted 484,373 484,373 290,624 193,798 1,453,168 Issue Price $ 1.03 1.03 1.03 1.03 Expiry Date Vesting Date 30/06/2021 30/06/2020 30/06/2021 30/06/2020 30/06/2021 30/06/2020 30/06/2021 30/06/2020 Value of Restricted Shares Granted $ 600,623 600,623 360,374 251,211 1,812,829 * Brett Coventry resigned on 29 March 2018 and per his employment agreement elected to keep his shares as part of his termination agreement by paying $168,707 for the future expense portion to vesting date. • The restricted shares vest in full on the vesting date when an event occurs which give rise to a change in control of the Company. • Restricted shares have rights including entitlement to dividends and voting. • On issue of the restricted shares, they will rank equally with ordinary shares on issue at that time. 57 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 21. Share Based Payments (continued) Performance Rights Movement in performance rights issued during the financial year are summarised below: Balance at the beginning of the financial year Granted during the financial period Exercised during the financial period Forfeited during the financial period Balance at the end of the financial year Weighted average remaining contractual life Exercisable at the end of the financial year 2018 Number of rights 2017 Number of rights 1,022,028 1,587,819 (240,974) (58,125) – 1,022,028 – – 2,310,748 1,022,028 3.24 years 3.50 years – – Performance rights granted during the year were subject to the following conditions: • The performance rights vest in full when an event occurs which give rise to a change in control of the Company. • If the Company, after having granted these performance rights, restructures its issued share capital, ASX Listing Rules will apply to the number of shares issued to the rights holder on exercise of a right. • Employee and director performance rights will not be listed on the ASX, but application will be made for quotation of the shares resulting from the exercise of the rights. • On issue of the resulting shares, they will rank equally with ordinary shares on issue at that time. • Performance rights carry no rights to dividends and no voting rights. In accordance with the terms of the performance rights schemes, rights are automatically issues on vesting. Performance rights outstanding at the end of the year have the following vesting dates and expiry dates: Vesting Date Expiry Dates Performance Rights 2018 Performance Rights 2017 1 July 2016 (Issue 12) 1 July 2017 (Issue 13) 30 June 2020 30 June 2021 30 June 2021 30 June 2022 722,928 272,820 1 January 2018 (Issue 14) 31 Dec 2021 31 Dec 2022 1,315,000 1,022,028 – – Total 2,310,748 1,022,028 Weighted average remaining contractual life of rights outstanding at the end of the period 3.24 years 3.0 years 58 The fair value of the Performance Rights has been determined by an independent advisor as defined by AASB 2 using the following inputs as at 30 June 2018: Grant date Vesting date Expiry date Share price at measurement date Dividend yield Discount rate Recognition and Measurement 2018 Issue 14 2018 Issue 14 01 Jan 2018 01 July2017 31 Dec 2021 30 June 2021 31 Dec 2022 30 June 2022 1.700 4% 13.25 1.440 4% 13.25 Options, restricted shares and performance rights are granted under the Money3 Corporation Limited’s Director and Employee Share Option Plan. Options, restricted shares and performance rights are granted under the plan for no consideration. The Board meets to determine eligibility for the granting of options, restricted shares and performance rights and to determine the quantity and terms of options, restricted shares and performance rights that will be granted. The valuation of options, restricted shares and performance rights are determined by an independent expert taking into account the terms and conditions upon which the instruments were granted. The expected price volatility is based on the historical volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options issued under employee share option plan Performance rights issued under employee share plan Restricted shares issued employee share plan 2018 $’000 632 873 566 2017 $’000 697 729 621 Total 2,071 2,047 Employee Share Scheme A scheme under which shares may be issued by the Company to employees for no cash consideration was approved. All Australian resident permanent employees (excluding executive directors, other key management personnel of the Group and the Group company secretary) who have been continuously employed by the group for a period of at least one year are eligible to participate in the scheme. Employees may elect not to participate in the scheme. Under the scheme, eligible employees may be granted up to $1,000 worth of fully paid ordinary shares in Money3 Corporation Limited annually for no cash consideration. The number of shares issued to participants in the scheme is the offer amount divided by the weighted average price at which the Company’s shares are traded on the Australian Stock Exchange during the week up to and including the date of grant. The shares are recognised at the closing share price on the grant date (grant date fair value). Offers under the scheme are at the discretion of the Board. Shares issued under the scheme rank equally with other fully paid ordinary shares on issue. Number of shares issued under the scheme on 31 October 2017 to participating employees was 145,734. Each participant was issued with shares worth $1,000 based on the share price of $1.56. The shares had a grant date fair value of $1.56. 59 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 22. Controlled Entities The consolidated financial statements incorporate the assets, liabilities and results of subsidiaries in accordance with the accounting policy described in Note 1. The subsidiaries of the Company are: Percentage of equity held by the consolidated entity Investment Country of incorporation 2018 % 2017 % Acquisition date 2018 $’000 2017 $’000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 July 2006 1 July 2006 1 July 2006 1 July 2006 1 July 2006 1 July 2006 1 July 2006 1 July 2006 1 July 2006 01 November 2006 16 April 2007 13 March 2008 03 May 2013 01 November 2016 01 November 2016 3,100 3,037 2,970 484 1,665 1,688 484 2,898 1,742 – – – – – – 3,100 3,037 2,970 484 1,665 1,688 484 2,898 1,742 – – – – – – 18,068 18,068 Name Antein Pty Ltd Bellavita Pty Ltd Australia Australia Hallowed Holdings Pty Ltd Australia Kirney Pty Ltd Nexia Pty Ltd Pechino Pty Ltd Happy.com.au Pty Ltd Tannaster Pty Ltd Tristace Pty Ltd Australia Australia Australia Australia Australia Australia Money3 Branches Pty Ltd* Australia Money3 Franchising Pty Ltd* Australia Money3 Wodonga Pty Ltd* Australia Australian Car Leasing Pty Ltd* Australia Money3 Loans Pty Ltd * Money3 Services Pty Ltd* Australia Australia Total * The investment in these subsidiaries is less than $1,000 60 23. Parent Entity Financial Information (a) Summary Financial Information The financial position and results of Money3 Corporation Ltd, the parent entity, are as follows: ASSETS Total current assets Total non-current assets Total assets LIABILITIES Total current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Share option reserve Retained earnings Total equity Profit from continuing operations Total comprehensive income (b) Guarantees entered by the Parent Entity The parent entity has not entered into guarantees for any of its subsidiaries. (c) Contingent Liabilities of the Parent Entity The parent entity has no contingent liabilities at the time of the report. (d) Contractual Commitments by the Parent Entity The parent entity has contractual commitments for leases which are disclosed within Note 19. Company 2018 $’000 Company 2017 $’000 39,499 284,144 15,404 209,763 323,643 225,167 6,601 97,863 104,464 219,179 10,414 79,529 89,943 135,224 153,969 127,061 4,092 61,118 4,816 3,347 219,179 135,224 32,028 32,028 12,795 12,795 61 Money3 Corporation Limited | Annual Report 2018 Notes to the Consolidated Financial Statements (continued) 24. Related Party Disclosures (a) Parent and Ultimate Controlling Entity The parent and ultimate controlling entity is Money3 Corporation Limited which is incorporated and domiciled in Australia. Interest in subsidiaries are listed in Note 22. (b) Key Management Personnel Remuneration The aggregate compensation of the KMPs of the Group is set out below: Short term employee benefits Post-employment benefits Long term benefits Share based payments Termination payments Total Consolidated 2018 $’000 Consolidated 2017 $’000 2,407,501 1,686,133 135,095 18,621 132,774 11,911 1,426,379 1,094,005 – 41,361 3,987,596 2,966,184 (c) Other Transactions with KMP or their Related Parties Geoffrey Baldwin holds bonds from the Company to the value of $Nil (2017: $250,000). Geoffrey is the father of Scott Baldwin. Brian Baldwin holds bonds from the Company to the value of $Nil (2017: $70,000). Brian is the brother of Scott Baldwin. Lynne Anderson holds bonds from the Company to the value of $Nil (2017: $50,000) Lynne is the sister of Scott Baldwin. On 15 May 2018, the bonds were redeemed. Prior to redemption all transactions on these bonds were made on normal commercial terms and conditions and at market rates. Interest was charged at a commercial rate of 9%. There are no loans made by the disclosing entity or any of its subsidiaries to any KMP or their personally related entities. The financial statements include the following items of expenses that resulted from transactions other than compensation or equity holdings with KMP and their related entities: Interest paid to: Geoffrey Baldwin Brian Baldwin Lynne Anderson Total interest paid Consolidated 2018 $’000 Consolidated 2017 $’000 23,425 6,559 4,685 34,669 22,423 6,278 4,485 33,186 Transactions between the Group and these parties are conducted on normal commercial terms. Raymond Malone entered into a consultancy deed with Shildplex Pty Limited, a company controlled by himself to provide services to Money3 to secure a funding facility. Shildplex Pty Limited was paid $945,000 (2017: NIL) during the year, following the successful drawdown by Money3 of the $150m Fortress Funding Facility negotiated by Shildplex Pty Limited. Leath Nicholson is a director of Nicholson Ryan lawyers and Panorama Pty Limited which Money3 has engaged to perform legal services and compliance services. Nicholson Ryan has been paid $350,655 (2017: $294,133) and Panorama $52,800 (2017: $Nil) during the year. All transactions with related parties are at arm’s length on normal commercial terms and conditions and at market rates. 62 25. Significant Matters Subsequent to the Reporting Date No matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of the Group, the results or the state of affairs of the Group in future years. 26. Other Accounting Policies Impact of Standards Issued but not yet Applied Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2018 reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below: Mandatory application date/Date of adoption by Group Mandatory for financial years commencing on or after 1 January 2019. At this stage the Group does not intend to adopt the standard before its effective date. Title of standard AASB 16 Leases Nature of change Impact AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item and a financial liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date the Group has non-cancellable operating leases commitments of $4,148,000, see note 19. However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows. Some of the commitments maybe covered by the exception for short-term and low value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16. 63 Money3 Corporation Limited | Annual Report 2018 Independent Auditor’s Report Tel: +61 3 9603 1700 Fax: +61 3 9602 3870 www.bdo.com.au Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia INDEPENDENT AUDITOR'S REPORT To the members of Money3 Corporation Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Money3 Corporation Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, 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: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 64 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. Revenue Recognition Key audit matter How the matter was addressed in our audit Refer to note 1(f) and 3 of the accompanying financial statements The Group has early adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 July 2017. This has had a significant impact on the recognition of revenue from interest on loan products, application and credit fees, and other period fees including arrears, default and variation fees. The adoption of AASB 9 Financial Instruments has impacted the timing of revenue recognition compared to prior financial periods as these fees are required to be recognised using the effective interest rate method. This includes a transitional adjustment to opening retained earnings. As there are a large number of loan contracts and the terms vary by product, significant risk exists that revenue is incorrectly recognised. Revenue recognition is significant to our audit as the Group may inappropriately account for interest and fees potentially leading to revenue and profit not being recognised consistently over the life of a loan contract using the effective interest rate method. Our procedures, amongst others, included: • Understanding the newly adopted revenue recognition method ensuring it is in accordance with AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers. • Detailed analysis of deferred fees and charges to ensure they are recognised over the life of a loan using the effective interest rate method in accordance with AASB 9. • Testing the transitional adjustment to opening retained earnings for the adoption of AASB 9. • Our Audit Information Technology specialists were used, in conjunction with other audit procedures, to test the Group’s controls over: loan initiation and approval; standard terms, fees and charges; calculation of interest, revenue and deferred revenue in respect of fees and charges; controls for recording transactions in the company’s loan systems and the general ledger; and testing for duplicate loans. • Evaluating and testing the controls relevant to the approval and recording of loans to customers. • Testing a sample of loans to ensure accurate recording of the interest, fees and charges revenue using the effective interest rate method. • Detailed analysis of revenue and the timing of its recognition based on expectations derived from our industry knowledge and knowledge of the company’s products, fees and charges, following up variances from our expectations. • Reviewing the appropriateness of the related disclosures of revenue recognition and adoption of AASB 9 Financial Instruments in the financial statements. 65 Money3 Corporation Limited | Annual Report 2018 Independent Auditor’s Report (continued) Loans receivable and adequacy of allowance for impairment losses Key audit matter How the matter was addressed in our audit Refer to note 1(f) and 6 of the accompanying financial statements The Group has a significant balance of receivables at 30 June 2018 which consist of short term personal loan contracts from customers. The Group adopted AASB 9 Financial Instruments during the year which has required a change to the methodology used by the Group to estimate the provision for impairment of receivables. The provision is calculated using an expected credit loss “ECL” model. The assessment of the recoverable value of customer loans using the ECL model requires significant judgement, using both qualitative and quantitative assumptions, to estimate the recoverability of the loans receivable. In our view, correctly estimating the allowance for impairment losses against loans receivable is significant to our audit. Our procedures amongst others, included: • Understanding the Group’s new ECL model to ensure it is in accordance with AASB 9 Financial Instruments. • Detailed analysis of management’s estimate of the impairment allowance and the adequacy of procedures and processes adopted by management. • Detailed analysis of loans in arrears or subject to special payment terms using prior periods history of loans in these categories subsequently going into default and using this evidence to support the appropriateness of the impairment allowance at year end. • Testing of controls around the aging of debts in the company’s loan software system and the appropriateness and application of the business rules for recognising loans in default. • Challenging management’s impairment allowance based on expectations derived from our industry knowledge and knowledge of the Groups credit risk and following up variances from our expectations. • Evaluating the adequacy of the disclosures in the financial report. Other information The directors are responsible for the other information. The other information comprises the information contained in the Directors’ report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the Annual Report, which is expected to be made available to us after that date. 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 identified above 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 on the other information that we obtained prior to the date of this auditor’s report, 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. 66 When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and will request that it is corrected. If it is not corrected, we will seek to have the matter appropriately brought to the attention of users for whom our report is prepared. 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 ability of the group 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 has 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 (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. 67 Money3 Corporation Limited | Annual Report 2018 Independent Auditor’s Report (continued) Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 14 to 21 of the directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Money3 Corporation Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO East Coast Partnership David Garvey Partner Melbourne, 27 August 2018 68 ASX Additional Information Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 27 August 2018. (a) Distribution of equity securities The number of shareholders, by size of holding, in each class of equity are: Distribution of Shareholdings 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total OrdinCary Shares Unlisted Options & Performance Rights Number of Holders Number of Shares Number of Holders Number of Options & Rights 122 905 542 1,215 738 141,063,335 27,339,908 4,068,911 3,443,492 373,512 13 9,778,179 6 9 – – 1,551,124 84,766 – – 3,522 176,289,158 28 11,414,069 The number of shareholders holding less than a marketable parcel of shares are 182 5,852 69 Money3 Corporation Limited | Annual Report 2018 ASX Additional Information (continued) (b) Twenty largest holders of quoted shares are: Name of Holder UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED RUBI HOLDINGS PTY LTD HOSKING FINANCIAL INVESTMENTS PTY LTD SANDHURST TRUSTEES LTD PLATEY PTY LTD NATIONAL NOMINEES LIMITED 1 2 3 4 5 6 7 8 9 10 CS THIRD NOMINEES PTY LIMITED 11 WALLBAY PTY LTD 12 13 BALDWIN BROTHERS INVESTMENTS PTY LTD NATIONAL NOMINEES LIMITED 14 MR ANDREW JOHN HOPKINS 15 ROCSANGE PTY LTD 16 MATOOKA PTY LTD 17 18 19 20 SILVAN BOND PTY LTD BNP PARIBAS NOMS PTY LTD CRAIG HARRIS AUST EXECUTOR TRUSTEES LTD Top 20 shareholders (c) Substantial shareholders Listed Ordinary Shares No. of Shares % of Holding 25,641,777 15,854,456 12,113,730 10,119,372 8,500,000 5,689,115 4,052,174 3,445,000 2,734,954 2,555,371 2,498,096 2,402,535 2,307,818 2,068,346 1,916,154 1,740,607 1,596,600 1,559,507 1,518,677 1,473,811 14.55 8.99 6.87 5.74 4.82 3.23 2.30 1.95 1.55 1.45 1.42 1.36 1.31 1.17 1.09 0.99 0.91 0.88 0.86 0.84 109,788,100 62.28 The names of the substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Tiga Trading Pty Ltd & Associated entities Rocsange Pty Ltd & Associated entities No. of Shares % Held 26,090,272 10,382,169 14.98 5.89 70 (d) Voting rights The voting rights attached to equity securities are set out below: (i) Ordinary shares: Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. (ii) Options and performance rights (e) Unquoted equity securities The Company has issued (or may issue in the future) options and performance rights with no voting rights. The Company has a total of 11,414,069 (2017: 26,990,000) options and performance rights on issue. Director Options The Company has issued nil options during the year (2017: 5,000,000) to the Directors (or their nominees) (“Director Options”). Issue Date Options Granted Exercise Price Expiry Date Vesting Date Scott Baldwin 30 November 2013 1,000,000 $1.496056 30 November 2018 30 November 2016 Scott Baldwin 28 November 2016 2,400,000 $1.500000 23 November 2021 24 November 2019 Ray Malone 28 November 2016 1,250,000 $1.500000 23 November 2021 24 November 2019 Leath Nicholson 28 November 2016 750,000 $1.500000 23 November 2021 24 November 2019 Stuart Robertson 28 November 2016 600,000 $1.500000 23 November 2021 24 November 2019 • The options vest in full when an event occurs which gives rise to a change in control of the Company. • If the Company, after having granted these options, restructures its issued share capital, the number of options to which each option holder is entitled, or the exercise price of the options must be reorganised in accordance with the ASX Listing Rules. • Options will not be listed on ASX, but application will be made for quotation of the shares resulting from the exercise of the options. • On issue of the resulting shares, the shares will rank equally with ordinary shares on issue at that time. (f) On-market buy-back There is no current on-market buy-back of the Company’s securities. 71 Money3 Corporation Limited | Annual Report 2018 Corporate Information Money3 Corporation Limited is a company incorporated and domiciled in Australia. Company Directors Ray Malone Executive Chairman Kang Tan Non-Executive Director (retired 27 August 2018) Leath Nicholson Non-Executive Director Stuart Robertson Non-Executive Director Scott Baldwin Managing Director Company Secretary Terri Bakos Head Office Level 1, 40 Graduate Road Bundoora Victoria 3083 Telephone 03 9093 8255 Facsimile 03 9093 8227 Registered Office Level 1, 40 Graduate Road Bundoora Victoria 3083 Share Registry Link Market Services Limited Level 1, 333 Collins Street Melbourne Victoria 3000 Auditors BDO East Coast Partnership Level 14, 140 William Street Melbourne Victoria 3000 Solicitors Nicholson Ryan Legal Pty Ltd Level 7, 420 Collins Street Melbourne Victoria 3000 Bankers Bendigo Bank 4 Prospect Hill Road Camberwell Victoria 3124 Stock Exchange Listing Money3 Corporation Limited shares are listed on the Australian Securities Exchange (ASX code MNY) Website www.money3.com.au 72 www.colliercreative.com.au #MNY0011 money3.com.au