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Annual Report 2004
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Chairman’s report
Managing Director’s overview
Highlights
Organic growth strategy at a glance
Review of operations
Board of Directors
Senior management
Corporate governance
Financial report
Directors’ report
1
2
4
5
6
10
11
12
17
18
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Chairman’s report
In a reporting period that saw record levels of home lending,
two interest rate increases, concern for future affordability
for first homebuyers and a very competitive marketplace,
Mortgage Choice has achieved another strong year of growth.
Central to this success was the continued
You will all be aware that after the conclusion of
commitment of our franchise network to high
this reporting period the company successfully
levels of customer satisfaction plus the support
listed on the ASX. This positioned Mortgage
and commitment of the group office team.
Choice as the first national pure-play mortgage
The financial result for the year to 30 June 2004
broker to achieve such status.
was a net profit after tax of $9.962 million, an
Congratulations to Managing Director Paul Lahiff
increase of 58.5% per cent on the previous
and his team for this outstanding achievement.
period and a slightly more positive result than
our prospectus forecasts for FY2004.
As part of the IPO process we appointed a board
to oversee your interests. I was invited to become
Mortgage Choice initiated $9.8 billion in housing
Chairman and we were fortunate to be able to
loan approvals during FY2004, representing
interest two outstanding individuals in Deborah
almost 5% of the total loan approvals in
Ralston and Steve Jermyn (whose brief resumes
Australia (as measured by the Australian Bureau
you will read elsewhere) both of whom bring
of Statistics in their analysis of the Housing
specific expertise to the team.
Market) during the period. Our loan book now
exceeds $17.5 billion, 34.3% up on FY2003.
We believe that our franchisees
can continue to make good profits.
We grew the system by adding 64 new
franchisees during the year, giving us 399
franchises nationally at year-end.
This result underlines the strength of the
Mortgage Choice business model and the
capability of our independent franchisees
across Australia. I am sure with the support of
the corporate organisation those independent
businessmen and businesswomen will ensure we
will deliver on our forecasts in the current year.
The board has formed the required corporate
governance committees of audit, remuneration
and nomination.
Mortgage Choice is well positioned as one of the
leading mortgage brokers in a growing industry.
The Directors believe that we can deliver on
the promises included in our prospectus, and
we believe that our franchisees can continue to
make good profits.
I look forward to working with this youthful
enthusiastic group of franchisees and
management.
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1
Managing
Director’s overview
Our mission – Mortgage Choice aspires to be the mortgage
broker of choice to a majority of Australians. It will do this by
offering consumers the most professional home loan advice and
highest standards of service of any broker group.
The Mortgage Choice network is profitable, large, ethical and
highly trained because it has the best people, support tools and
systems in the industry. It is trusted by consumers, respected by
lenders and envied by competitors.
Having completed my first year in August 2004,
that following the two interest rate increases in
I have been able to thoroughly analyse the
November and December 2003 we are seeing a
business model from every angle and have come
correction and certainly not a crash. Australian
to the conclusion that it is robust, durable and
Bureau of Statistics data has revealed total
geared for growth. With that in mind there has
housing approvals for the 2004 year was
been no reason to change the model and indeed
$199.8 billion. We forecast a 13.8% reduction
we can see, through specialising in the housing
in housing approvals for the 2005 year. At our
sector, Mortgage Choice can continue to grow
forecast figure of $172.1 billion it will be broadly
market share at the expense of its competitors.
consistent with the 2003 financial year and will
Much has been written about the state of the
housing market. We have formed the view
still be a very robust market indeed.
2
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Housing finance market and standard mortgage
variable rate: 1984 – 2004
(cid:78)
(cid:79)
(cid:73)
(cid:76)
(cid:76)
(cid:73)
(cid:77)
(cid:172)
(cid:4)
(cid:18)(cid:16)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:17)(cid:24)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:17)(cid:22)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:17)(cid:20)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:17)(cid:18)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:17)(cid:16)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:24)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:22)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:20)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:18)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(cid:16)
(cid:17)(cid:24)
(cid:17)(cid:22)
(cid:17)(cid:20)
(cid:17)(cid:18)
(cid:17)(cid:16)
(cid:24)
(cid:22)
(cid:20)
(cid:18)
(cid:16)
(cid:77)
(cid:85)
(cid:78)
(cid:78)
(cid:65)
(cid:172)
(cid:172)
(cid:82)
(cid:69)
(cid:80)
(cid:69)
(cid:84)
(cid:65)
(cid:82)
(cid:172)
(cid:84)
(cid:83)
(cid:69)
(cid:82)
(cid:69)
(cid:84)
(cid:78)
(cid:73)
(cid:172)
(cid:76)
(cid:69)
(cid:66)
(cid:65)
(cid:172)
(cid:73)
(cid:82)
(cid:65)
(cid:86)
(cid:172)
(cid:69)
(cid:71)
(cid:65)
(cid:71)
(cid:84)
(cid:82)
(cid:79)
(cid:77)
(cid:68)
(cid:82)
(cid:65)
(cid:68)
(cid:78)
(cid:65)
(cid:84)
(cid:83)
(cid:172)
(cid:69)
(cid:71)
(cid:65)
(cid:82)
(cid:69)
(cid:86)
(cid:33)
(cid:17)(cid:25)(cid:24)(cid:20) (cid:17)(cid:25)(cid:24)(cid:21) (cid:17)(cid:25)(cid:24)(cid:22) (cid:17)(cid:25)(cid:24)(cid:23) (cid:17)(cid:25)(cid:24)(cid:24) (cid:17)(cid:25)(cid:24)(cid:25) (cid:17)(cid:25)(cid:25)(cid:16) (cid:17)(cid:25)(cid:25)(cid:17) (cid:17)(cid:25)(cid:25)(cid:18) (cid:17)(cid:25)(cid:25)(cid:19) (cid:17)(cid:25)(cid:25)(cid:20) (cid:17)(cid:25)(cid:25)(cid:21) (cid:17)(cid:25)(cid:25)(cid:22) (cid:17)(cid:25)(cid:25)(cid:23) (cid:17)(cid:25)(cid:25)(cid:24) (cid:17)(cid:25)(cid:25)(cid:25) (cid:18)(cid:16)(cid:16)(cid:16) (cid:18)(cid:16)(cid:16)(cid:17) (cid:18)(cid:16)(cid:16)(cid:18) (cid:18)(cid:16)(cid:16)(cid:19) (cid:18)(cid:16)(cid:16)(cid:20)
(cid:41)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)
(cid:47)(cid:87)(cid:78)(cid:69)(cid:82)(cid:13)(cid:79)(cid:67)(cid:67)(cid:85)(cid:80)(cid:73)(cid:69)(cid:68)
(cid:33)(cid:86)(cid:69)(cid:82)(cid:65)(cid:71)(cid:69)(cid:172)(cid:77)(cid:79)(cid:82)(cid:84)(cid:71)(cid:65)(cid:71)(cid:69)(cid:172)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:172)(cid:82)(cid:65)(cid:84)(cid:69)
(cid:57)(cid:69)(cid:65)(cid:82)(cid:172)(cid:69)(cid:78)(cid:68)(cid:69)(cid:68)(cid:172)(cid:19)(cid:16)(cid:172)(cid:42)(cid:85)(cid:78)(cid:69)
Source: ABS, RBA and Mortgage Choice estimates
Regulation of the mortgage broking industry has
Much has been written about the future of the
been part of Mortgage Choice’s agenda for some
mortgage broking industry. Whilst Mortgage
years now. Whilst we applaud what the national
Choice has declined to speculate on the growth
body the Mortgage Industry Association of
prospects of the industry, what we do know is,
Australia (MIAA) is doing in conjunction with ASIC
the broker market share has grown from a
to reform the industry, it is still of concern that
relatively insignificant level to approximately 29%
those brokers who sit outside the MIAA can set
of new loans (by value) in just over 12 years
their own ethical standards.
(according to MISC (Market Intelligence Strategy
Mortgage Choice welcomed the introduction of
Centre)).
new regulations in NSW for finance and mortgage
The mortgage broker proposition is appealing to
brokers. Central to these regulations was the
all participants, i.e., the consumers, the lenders
compulsory introduction of a Finance Broking
and the brokers themselves. There is no doubt the
Contract that provides the consumer with much
consumer is the winner and has driven the growth
more consistent disclosure around important
of the industry against a backdrop of an ever-
matters such as commissions, alternative forms of
increasing and complex array of product offerings.
remuneration and lender panel members.
A pleasing aspect of our business is the continual
Whilst Mortgage Choice has had these levels of
high ratings our customers give to our franchise
disclosure in place for some years through its
owners and staff. A survey is conducted each
Customer Charter, it decided to adopt a national
month of 200 different customers and in two very
approach to the introduction of the contract,
important areas of potential for repeat and referral
which became law on 1 August 2004. Regulation
business Mortgage Choice constantly scores in the
in WA, whilst different to that in NSW, also
high 80 percentile, or above.
provides for a broker contract.
I want to acknowledge the support of the board
In the year under review, Mortgage Choice
through the process of floating the company. Their
decided to adopt a policy on alternative forms of
wise counsel was sought and much appreciated in
remuneration ahead of the industry association.
my first 12 months in the role and this will continue
The policy is consistent with that adopted by
to be the case. Our staff continue to amaze me
the Financial Planning Association and applies to
with their dedication and customer care attitude.
all levels in the organisation. The policy and the
recipients of alternative forms of remuneration
can be found in the Customer Charter and on the
company’s website respectively.
This business is built on a series of partnerships.
Two groups I have already mentioned. Another
two are our valued and inspirational franchise
owners and their staff and, the lender panel
members who continue to support our model.
I look forward with confidence to the year ahead.
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3
Highlights
■ All key financials for FY2004 exceeded
prospectus forecast
■ Net profit after tax $9.962 million,
up 58.5% on FY2003 $6.285 million
(0.8% up on prospectus)
■ Total operating revenue $102.9 million,
up 34.7% on previous period
(0.4% up on prospectus)
■ Earnings per share were 9.07 cents
(diluted 9.06 cps) compared to the
full year 2003 of 5.72 cps
■ Mortgage Choice handled $9.8 billion in
housing loan approvals during FY2004,
representing almost 5% of total loan
approvals (as a % of Australian Bureau of
Statistics Housing Market) during the period
■ Loan book now exceeds $17.5 billion,
34.3% up on FY2003
■ Strong growth in franchise network, which
now stands at 399 franchises nationally
(up from 335 in FY2003)
■ Increased percentage of revenue earned
through trailing commission – now 40.7%
of revenue
■ Average loan approval size $218k compared
with ABS average $191k (ABS excludes
investor loans, alterations and additions)
Total operating revenue up
34.7% on previous period.
Loan book 34.3%
up on FY2003.
4
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Organic growth
strategy at a glance
Growth opportunity Current strategy
Grow network
Expand geographically
Generate more leads
Convert more leads
Forecast for net increase of 59 franchises for the
year ended 30 June 2005
Focus on WA and VIC, where Mortgage Choice is
under-represented
Ongoing marketing activities including a national
radio campaign, referral marketing initiatives,
proactive public relations strategy and opening
of new retail premises
Customer relationship marketing initiatives and
ongoing training focus
Retain loans for longer
‘Client for Life’ initiatives
Develop retail concepts
premises design and further encourage franchisees
Implement standard shopfront and commercial
to move to retail/commercial premises
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5
Review of operations
Mortgage Choice believes the combination of the following
fundamental components of its business model provides it with
competitive advantages over other brokers in the marketplace:
■ high quality service: Mortgage Choice aims
A complex range of products
to provide a higher level of support to its
franchisees than its competitors;
Mortgage Choice assists customers in the
selection of a mortgage from a complex range
■ strength of lender relationships: Mortgage
of products available via its lender panel by
Choice generates significant loan volumes for
identifying the loan that is most suitable based
lenders and this places it in a strong position
on an individual’s particular needs. Customers are
to shape key operational issues with lenders
provided a choice across a broad range of over
and drive initiatives such as electronic loan
200 home loan products offered by a panel of
processing;
27 lenders, representing each major category of
■ franchise business model: Mortgage Choice
lender.
operates through a network of franchisees.
Mortgage Choice brokers are provided with the
The symbiotic relationship between the
company’s proprietary software system which
franchisees and the company is underpinned
allows a comparison of the customer’s loan
by the franchisees being incentivised to grow
requirements with the products offered by the
their business whilst valuing the services
lender panel. The system generates a list showing
provided by the company;
which lenders would approve the customer’s
■ brand: Mortgage Choice’s brand is recognised
application and indicates the maximum
as a leading consumer brand and has
been built upon a proposition of being the
advocate of the customer and not the lender.
This is supported by its industry leadership on
issues such as regulation;
■ economies of scale: Mortgage Choice’s
loan book is now of such a size that trailing
income now covers all fixed costs, with
origination revenue (net of commissions paid
to franchisees and marketing costs) flowing
through to the bottom line; and
■ no product of its own: Unlike some of its
competitors, Mortgage Choice does not
distribute its own products, acting only as
an originator for banks and other financial
institutions.
borrowing amount for each of these lenders.
Based on the list, the customer’s circumstances
and preferences plus the judgment of the broker,
a shortlist of possible loans is presented to the
customer for their decision. Completed loan
application forms are submitted by the broker
on the customer’s behalf, thereby saving the
customer time and the associated administrative
burden. These services are provided at no direct
cost to the customer.
Electronic lodgement
Mortgage Choice, Aussie Mortgage Market and
AFG are working with NextGen.Net to develop
a common platform for the electronic flow of
information between lenders and brokers. The
introduction of electronic loan processing will
deliver major efficiencies for our lender partners
and improved lender service levels for consumers
and franchisees.
6
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In May 2004, Mortgage Choice submitted its
Mortgage Choice recognises the importance
first loans electronically to ANZ using the new
of developing and nurturing the relationships
platform, and the use of the product has grown
between broker and lender. Dedicated staff
steadily since. There are also another three
lenders currently in various stages of testing and
development to be added later in 2004.
Lender panel
oversee the operational relationship franchisees
have with the lender panel. This team provides
lenders with structured access to the franchise
network and promotes operational effectiveness
by working with lender partners to improve
The 27 member Mortgage Choice panel
service and processing efficiencies.
currently includes most of Australia’s leading
lenders, providing a cross section of products
that Mortgage Choice considers to be a
representative offering of available home loans.
Mortgage Choice believes the benefits enjoyed
by lenders include:
Franchise operations
Mortgage Choice licenses the use of the
Mortgage Choice name and business systems to
its franchisee network. Accredited loan writers
(mortgage brokers) comprise franchisees and
consultants or employees of franchisees. The
■ volume: Brokers provide incremental mortgage
relationship between Mortgage Choice and its
business that would not necessarily be been
franchisees is governed by a franchise agreement
generated through the lender’s branch network;
and an operations manual that sets out the
■ cost flexibility: By outsourcing an element of
company’s policies and procedures, including
their origination business, lenders have been
minimum performance standards. Franchisees may
able to lower fixed costs;
grow their businesses by acquiring other franchises.
■ education: Aided by specialist skills and
product knowledge, brokers have educated
Franchisees who own more than one franchise are
called Multiple Franchise Operators (MFOs).
consumers on the full range of mortgage
Franchisees operate their businesses from home
products offered by lenders on the company’s
offices, retail premises and recently, kiosks in
panel;
shopping centres.
■ geographic expansion: Brokers have facilitated
Mortgage Choice restricts the number of
low cost geographic expansion for lenders
franchisees it recruits to each geographic region
into areas where branch networks are less
under its broker resource model, which segments
extensive or do not exist;
the market into postcode defined marketing
■ profitability: By originating mortgages of
a higher average loan size, broker sourced
business can be at least as or more profitable
than business sourced through the branch
network; and
■ efficiency: A broker’s familiarity and
experience with each lender’s process can
increase the efficiency of the lodgment and
settlement process.
areas. This model analyses the number of
households and the residential lending market
size (based on census data) in each postcode,
and allocates franchises based on target market
share in each area.
While Mortgage Choice is strongly represented
in some areas (e.g., NSW) there are other parts
of the country in which the company considers
itself to be under-represented based on its
existing market share (particularly VIC and WA).
These areas represent further organic growth
opportunities for the core business.
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7
Franchise network size: 2000-2004
(cid:21)(cid:22)(cid:25)
(cid:20)(cid:23)(cid:25)
(cid:19)(cid:25)(cid:25)
(cid:20)(cid:16)(cid:25)
(cid:19)(cid:19)(cid:21)
(cid:19)(cid:18)(cid:20)
(cid:18)(cid:25)(cid:23)
(cid:18)(cid:22)(cid:22)
(cid:18)(cid:20)(cid:24)
(cid:18)(cid:17)(cid:23)
(cid:18)(cid:16)(cid:16)(cid:16)
(cid:18)(cid:16)(cid:16)(cid:17)
(cid:18)(cid:16)(cid:16)(cid:18)
(cid:18)(cid:16)(cid:16)(cid:19)
(cid:18)(cid:16)(cid:16)(cid:20)
(cid:33)(cid:83)(cid:172)(cid:65)(cid:84)(cid:172)(cid:19)(cid:16)(cid:172)(cid:42)(cid:85)(cid:78)(cid:69)
(cid:38)(cid:82)(cid:65)(cid:78)(cid:67)(cid:72)(cid:73)(cid:83)(cid:69)(cid:83)
(cid:34)(cid:82)(cid:79)(cid:75)(cid:69)(cid:82)(cid:83)
Source: Mortgage Choice
Over the four years to 30 June 2004, the number
Franchisee support services
of franchises and brokers within the franchise
network has grown 84% and 129% respectively.
Franchise terminations have declined over the past
fours years, reflecting tighter selection standards,
more effective training and improved performance
management processes. Mortgage Choice is in the
process of developing a compliance framework
to improve its monitoring of franchisees against
operational standards.
With a growing retail/commercial presence
(149 as at 30 June 2004), the establishment of
the franchise network management team aims to
ensure commercial premises are strategically located,
meet operating standards and, have adequate staff
and capital backing. It aims to ensure business
cases for loan consultants are viable and sustainable
as well as ensuring national consistency in the
interpretation and application of the operations
The ongoing recruitment of quality new franchisees
manual, strategic management, project review
is an important element of Mortgage Choice’s
board and marketing advisory board. There is an
growth strategy. Mortgage Choice recruits new
objective and transparent decision making process
franchisees from a number of sources, including
that is subject to peer review and questioning.
national advertising, editorials, expos and referrals
from existing franchisees.
Mortgage Choice franchisees come from a variety
of backgrounds and the company believes that
sales skills, inter-personal skills, commitment,
The training and support we
provide to our franchisees represents
a competitive advantage.
energy and ambition are usually more important
Mortgage Choice works closely with its franchisees
than previous industry experience. Recruitment
in growing their business through assistance in lead
is selective, with an average of only one in
generation, training, brand and marketing support,
29 applicants being selected to be franchisees in
public relations support, field support, regulatory
FY2004. Vetting is performed in each state by a
compliance, information systems and other ongoing
franchise development manager.
support services (e.g., lender panel negotiations
Mortgage Choice believes the training and support
and payment reconciliations). These services are
it provides to its franchisees represent a competitive
provided by a dedicated group office located in
advantage in its recruitment of franchisees. On
Sydney and state offices that also provide a number
joining Mortgage Choice, all franchisees undertake
of administrative processes. Mortgage Choice aims
comprehensive training (which is accredited by the
to continually improve the support, resources and
MIAA), lender accreditation and an in-the-field
training offered to the franchise network to make
mentoring program. Once the initial training is
their businesses as efficient as possible.
completed, brokers receive regular updates and
support from the state office infrastructure and at
professional development functions.
Branding, marketing and promotion
Mortgage Choice has created a trusted and
recognisable brand through its marketing and
public relations activities over a number of years
plus, a long term brand strategy built upon
Mortgage Choice’s customer advocacy.
8
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Following consumer research, a new tagline was
MCS is a distributed system that allows a franchisee
implemented and launched with a national TV, radio
to work offline (e.g., in a customer’s home), and
and print campaign. The tagline “There’s only one
then ‘replicate’ back at the office – synchronising
choice, Mortgage Choice” leverages the popular
customer information and receiving product updates
and memorable jingle implemented in 2003.
from the central system. Through this system, a
Consumer focus groups conducted half yearly
over the past 12 months have consistently rated
franchisee has daily access to the latest products
and features offered by the lender panel.
Mortgage Choice as one of the most trusted
In November 2003, Mortgage Choice commenced
brands in the broker market.
development of a new IT enterprise information
In a growing mortgage broking market, it is a core
priority of the business to actively and effectively
promote Mortgage Choice’s image, positioning and
points of difference. Such marketing aims to build
the Mortgage Choice brand, clearly distinguish
system that is expected to provide a sound platform
for future growth of the business for the next three
to five years and result in operating efficiencies.
This system will be developed and implemented
incrementally and is expected to be operational
the company from its competitors and encourage
around mid 2005.
customers to select Mortgage Choice as their broker
of choice.
Outlook
Mortgage Choice’s marketing activities incorporate
two elements:
■ national and state-wide marketing managed by
group office; and
■
local marketing activities, managed by
franchisees.
Mortgage Choice operates as a residential mortgage
specialist and this has facilitated strong growth via a
focused approach and a refinement of expertise.
Mortgage Choice intends to remain focused on
the residential mortgage broking market in the
foreseeable future. The company believes that,
given the relative immaturity of the broking sector,
National campaigns are developed regularly and kits
the overall size of the housing finance market
are distributed to all franchisees. Each campaign has
and the attraction of the broking proposition
a different theme relevant to mortgage finance that
to consumers, there remains strong potential
is reflected across all types of marketing material.
for brokers as a whole to increase their share of
Different channels and media used by Mortgage
mortgage origination and for Mortgage Choice to
Choice include radio, referral marketing, print
increase its market share within the broking market.
advertising, television and sponsorships.
Group office engages in national and statewide
marketing that generates leads through the
Mortgage Choice call centre and aims to build
Growth opportunities in two major areas:
acquisitions and product diversification.
a trustworthy brand that can be leveraged by
Over the longer term, Mortgage Choice will also
franchisees in their local marketing area. This is
consider other growth opportunities in two major
supported by a strategically planned, proactive
areas: acquisitions and product diversification.
public relations strategy. Call centre leads are
distributed by head office to the franchise network
on an equitable basis according to marketing area.
Mortgage Choice expects consolidation to occur
in the mortgage broking industry. A number of
factors could potentially act as catalysts, including a
Mortgage Choice also has referral marketing
stricter regulatory environment, economies of scale
activities designed to assist franchisees in generating
in marketing, support and administration, and a
referrals from their local, existing network of
preference by lenders to deal with a smaller number
customers and contacts.
of larger broker organisations. As an industry leader,
In addition, the company’s website is used to
provide customers with information and support
the company’s lead generation activities. Franchisees
are also provided their own ‘mini-site’ within the
Mortgage Choice believes it is in a strong position to
benefit from potential acquisitions with compatible
business models. In this regard, the listing of
Mortgage Choice may facilitate future acquisitions.
Mortgage Choice website.
Mortgage Choice’s group office represents a
Information technology
Mortgage Choice currently utilises proprietary
largely fixed cost that can potentially be leveraged
by expanding the range of products distributed
(e.g., to include commercial and personal loans).
software as its core business application. Mortgage
Incremental revenues from ‘add on’ products could
Choice Software (MCS) is used by franchisees to
potentially allow Mortgage Choice to benefit from
record customer information and preferences, pre-
economies of scale, as revenue growth will not be
qualify potential loan applicants and confirm loan
proportionately matched by growth in the cost base.
approval details.
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1.
2.
3.
4.
5.
6.
Board of Directors
1. Peter Ritchie
Non-executive Chairman,
BCom, FCPA, AO
4. Rodney Higgins
Non-executive Director
Rodney is co-founder of Mortgage Choice.
Peter is a director of Seven Network and
Rodney has a background in residential and
University of NSW Foundation, and Chairman
commercial property, sales, leasing and has
of 1800 Reverse. Peter previously served as
been a director of companies involved in
Managing Director of McDonald’s Australia from
manufacturing, wholesaling, importing,
1974 to 1995 and as its Chairman from 1995 to
retailing and finance. Age 50.
2001. Peter was a director of Westpac Banking
Corporation from 1993 to 2002. Age 62.
2. Paul Lahiff
Managing Director,
BSc Agr, FAIM
5. Deborah Ralston
Non-executive Director,
BEcon, Dip Fin Mgt, MEc, PhD,
FAIBF, FAIM, FCPA
Deborah is Professor of Finance and Dean,
Paul has over 20 years experience in the financial
Faculty of Business at the University of the
services industry. This includes roles as Managing
Sunshine Coast. Prior to joining that University
Director of Permanent Trustee and Heritage
in June 2000, Deborah was Associate Professor
Building Society, as well as senior executive
in Finance and Director of the Centre for
roles with Westpac Banking Corporation (in
Australian Financial Institutions at the University
Sydney and London) and the credit union
of Southern Queensland. Deborah is a former
sector. Paul joined Mortgage Choice as Chief
Director of Heritage Building Society. Age 51.
Executive Officer in August 2003 and was
appointed Managing Director in May 2004. He
is responsible for managing company operations
to ensure continued growth and development of
the business. Age 52.
3. Peter Higgins
Non-executive Director
6. Steve Jermyn
Non-executive Director,
FCPA
Steve joined McDonald’s Australia Ltd in 1984
and was appointed Vice President in 1986.
Steve joined the board of directors in 1986 and
was appointed Executive Vice President in 1993.
Peter is co-founder of Mortgage Choice. He
In June 1999, Steve was appointed Deputy
is also a director of a technology company –
Managing Director. Steve has been involved
Power & Data Corporation Pty Ltd. Having been
in all aspects of the development of the
successfully self-employed for over 20 years,
McDonald’s restaurant business in Australia and
Peter has been involved in a number of start-
brings with him significant experience in the
up companies in a diverse range of industries
development of new business and franchising.
covering manufacturing, technology, leasing,
Age 55.
property and finance. Age 44.
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Senior management
Profiles of senior management other than Paul Lahiff
(see facing page), are set out below:
Warren O’Rourke, National Corporate
Affairs Manager
Chris Canty, Chief Operating Officer
Chris is an Agricultural Science graduate with a
Graduate Diploma in Management and has 14 years
sales, marketing and management experience in the
agricultural chemical industry. Chris joined Mortgage
Choice in October 1997 with a master franchise
in South Australia. As Chief Operating Officer,
Chris is responsible for the overall management of
Mortgage Choice operations, with particular focus
Warren holds a Marketing degree from the University
of Technology, Sydney. Warren has 20 years
experience in marketing and communications covering
both corporate and consulting roles. Warren joined
Mortgage Choice as Group Manager, Marketing and
Communications in March 1999. In August 2002,
Warren became National Corporate Affairs Manager
and now is responsible for corporate affairs, public
relations and media issues.
on sales, marketing and lender relationships, and the
Ian Pepper, National Marketing Manager
maintenance of harmonious and effective working
relationships between Mortgage Choice and its
franchisees.
Paul Borg, Chief Financial Officer
Paul Borg developed his financial services expertise
during a seven-year term as Chief Financial Officer (CFO)
of Credit Union Services Corporation (Australia) Limited
(CUSCAL), which provides banking technology and
industry-associated services to Australian credit unions.
Paul joined the company in September 2004. Paul will
direct, control and administer the financial activities
of the organisation as well as providing financial
Ian has a Bachelor of Economics from Macquarie
University and trained to be a Chartered Accountant
with Coopers & Lybrand. Following four years
in London where he worked with Coopers &
Lybrand and Equitas, Ian returned to Australia to
obtain his MBA (specialising in marketing) from
Macquarie School of Management. Ian commenced
with Mortgage Choice in June 2000. As National
Marketing Manager, Ian is responsible for integrated
advertising campaigns, franchisee marketing tools,
referral marketing and brand integrity.
Debra Player, National Lending Manager
assessments and information to ensure planning and
Debra has over 20 years experience in the Finance sector
budgeting activities meet corporate goals.
with more than 15 years in various management roles.
Mark Newton, Chief Information Officer
Mark has over 17 years experience in information
technology, including 11 years in senior management
positions. Mark joined Mortgage Choice in May 2000.
As Chief Information Officer, Mark is responsible
for IT strategy, applications development and
infrastructure management. Mark holds a Diploma in
Computer Programming Technology and a Business
Management Certificate from the Australian Institute
of Management.
Brent McDonald, Group Franchise
Manager
Brent has a Bachelor of Applied Science from
University of Western Sydney. Brent has 17 years
experience in franchising and small business
management, the bulk of this time being spent in
the Australian oil industry. Brent joined Mortgage
Choice in November 1998 and is now responsible for
the management and development of the Mortgage
Choice franchise system and the training of new
franchisees and loan consultants.
As National Lending Manager, Debra is responsible
for the development and communication of lender
strategy and product offering, management of lender
performance, co-ordination of lender interaction with
the franchise network and monitoring of industry trends
and representation on industry bodies. Debra joined
Mortgage Choice in July 2004 and holds a Graduate
Diploma in Finance and Bank Management and is a
Fellow of the Australian Institute of Bankers and Fellow
and Councillor for the Institute of Financial Services.
David Hoskins, Company Secretary
David commenced with Mortgage Choice in June
2000. He has a Bachelor of Commerce from the
University of NSW and is a CPA and a member of
Chartered Secretaries Australia, from which he has
a Graduate Diploma in Corporate Management.
As Company Secretary, David is responsible for
implementing and monitoring corporate governance
practices, compliance and corporate standards,
administrating board and shareholder matters, and
co-ordinating legal counsel.
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11
Corporate governance
Mortgage Choice has in place corporate governance practices to ensure the company is effectively directed and managed,
risks are monitored and assessed, and appropriate disclosures are made.
A description of the company’s main corporate governance practices is set out below. These practices were adopted during
the year in preparation for the company’s listing on the Australian Stock Exchange Limited (ASX).
The company considers that it now substantially complies with the ASX Corporate Governance Council’s Principles of Good
Corporate Governance and Best Practice Recommendations, with the following exceptions:
■ compliance with the requirement that the board comprise a majority of independent non-executive directors is expected
within 24 months of the company’s listing on the ASX;
■
a formal compliance program is currently being implemented.
The board
The board comprises Mortgage Choice’s Managing Director, two non-executive directors and three independent
non-executive directors including the Chairman. To prepare for its public listing, Peter Ritchie, Steve Jermyn and Deborah
Ralston were appointed as additional non-executive directors. These individuals brought a long history of public company,
operational and franchising experience with them and will assist in overseeing the corporate governance of Mortgage
Choice. Details of the directors’ experience, expertise, qualifications, term of office and independent status are set in the
directors’ report under the heading ‘Information on directors’.
Responsibility for day-to-day management and administration of the company is delegated by the board to the Managing
Director and the executive team.
The board operates in accordance with the broad principles set out in its charter, which is available in the Shareholder
Centre section of the company’s website at www.mortgagechoice.com.au.
Board size, composition and independence
The Charter states that:
■
There must be a minimum of five directors, and a maximum of seven directors.
■ The board must comprise:
– a majority of independent non-executive directors with this to be achieved within 24 months of the company’s listing
on the ASX;
– directors with an appropriate range of skills, experience and expertise;
– directors who can understand and competently deal with current and emerging business issues; and
– directors who can effectively review and challenge the performance of management and exercise independent
judgment.
■ The nomination committee is responsible for recommending candidates for appointment to the board.
■
Each director is appointed by a formal letter of appointment setting out the key terms and conditions of their
appointment to ensure that each director clearly understands the company’s expectations of him or her.
Role and responsibilities
The board acts on behalf of shareholders and is accountable to shareholders for the overall direction, management and
corporate governance of the company.
The board is responsible for:
■ overseeing the company, including its control and accountability systems;
■ appointing and removing the Managing Director;
■
monitoring the performance of the Managing Director;
■ monitoring senior management’s implementation of strategy, and ensuring appropriate resources are available;
■ reporting to shareholders;
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■ providing strategic advice to management;
■
approving management’s corporate strategy and performance objectives;
■ determining and financing dividend payments;
■
approving and monitoring the progress of major capital expenditure, capital management, acquisitions and divestitures;
■ approving and monitoring financial and other reporting;
■ reviewing and ratifying systems of risk management, internal compliance and control, and legal compliance to ensure
appropriate compliance frameworks and controls are in place;
■
reviewing and overseeing the implementation of the company’s corporate code of conduct and code of conduct for
directors and senior executives;
■ approving charters of board committees;
■
monitoring and ensuring compliance with legal and regulatory requirements and ethical standards and policies; and
■
monitoring and ensuring compliance with best practice corporate governance requirements.
Director independence
The board Charter sets out specific principles in relation to director independence.
These state that an independent non-executive director is one who is independent of management and:
■ is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial
shareholder of the company;
■
within the last three years has not been employed in an executive capacity by the company or another group member,
or been a director after ceasing to hold any such employment;
■
within the last three years has not been a principal of a material professional adviser or a material consultant to the
company or another group member, or an employee materially associated with the service provided;
■ is not a material supplier or customer of the company or other group member, or an officer of, or otherwise associated
directly or indirectly with, a material supplier or customer;
■
has no material contractual relationship with the company or another group member other than as a director of
the company;
■
has not served on the board for a period that could, or could reasonably be perceived to, materially interfere with the
director’s ability to act in the best interests of the company; and
■
is free from any interest in any business or other relationship that could, or could reasonably be perceived to, materially
interfere with the director’s ability to act in the best interests of the company.
All directors are required to complete an independence questionnaire.
Independent professional advice
Board committees and individual directors may seek independent external professional advice for the purposes of proper
performance of their duties.
Performance assessment
The performance of the board, the directors and key executives will be reviewed annually.
The nomination committee is responsible for reviewing:
■ the board’s role;
■ the processes of the board and board committees;
■ the board’s performance; and
■
each director’s performance before the director stands for re-election.
The process for performance evaluation of the board, its committees and individual directors, and key executives
has been adopted by the board and is available in the Shareholder Centre section of the company’s website at
www.mortgagechoice.com.au.
Due to the recent changes in the composition of the board, a performance assessment was not conducted during the year.
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13
Corporate governance continued
Board committees
Mortgage Choice has three board committees comprising the remuneration committee, the audit committee and the
nomination committee. These committees serve to support the functions of the board and will make recommendations to
directors on issues relating to their area of responsibility.
The remuneration committee
The remuneration committee is responsible for determining and reviewing compensation arrangements for the directors
and senior management team. The remuneration committee comprises Peter Ritchie and Rodney Higgins.
The objective of the remuneration committee is to help the board achieve its objective of ensuring the company:
■
has coherent remuneration policies and practices to attract and retain executives and directors who will create value for
shareholders;
■
observes those remuneration policies and practices; and
■
fairly and responsibly rewards executives and other employees having regard to the performance of the company, the
performance of the executive or employee and the general and specific remuneration environment.
Non-executive directors are not entitled to retirement benefits with the exception of statutory superannuation.
The remuneration committee charter is available in the Shareholder Centre section of the company’s website at
www.mortgagechoice.com.au.
The audit committee
The audit committee provides advice and assistance to the board in fulfilling the board’s responsibilities relating to:
■ financial reporting;
■ the application of accounting policies;
■ business policies and practices;
■
■
legal and regulatory compliance; and
internal risk control and management systems.
The audit committee comprises Steve Jermyn (Chairman), Peter Higgins and Deborah Ralston. The objective of the audit
committee is to:
■
maintain and improve the quality, credibility and objectivity of the financial accountability process; and
■
provide a forum for communication between the board and senior financial and compliance management.
The audit committee charter is available in the Shareholder Centre section of the company’s website at
www.mortgagechoice.com.au.
The nomination committee
The objective of the nomination committee is to help the board achieve its objective of ensuring the company has a board
of an effective composition, size and commitment to adequately discharge its responsibilities and duties. The nomination
committee is responsible for evaluating the board’s performance. The nomination committee comprises Peter Ritchie and
Rodney Higgins.
The nomination committee charter is available in the Shareholder Centre section of the company’s website at
www.mortgagechoice.com.au.
Codes of conduct
The company has adopted a corporate code of conduct setting out its legal and other obligations to all legitimate
stakeholders including shareholders, franchisees, employees, customers and the community.
The company has also adopted a code of conduct for directors and senior executives setting out required standards of
behaviour, for the benefit of all shareholders.
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The purpose of this code of conduct is to:
■
articulate the high standards of honest integrity, ethical and law-abiding behaviour expected of directors and senior
executives;
■
encourage the observance of those standards to protect and promote the interests of shareholders and other
stakeholders (including franchisees, employees, customers, suppliers and creditors);
■
guide directors and senior executives as to the practices thought necessary to maintain confidence in the company’s
integrity; and
■
set out the responsibility and accountability of directors and senior executives to report and investigate any reported
violations of this code or unethical or unlawful behaviour.
The company requires that its directors and senior executives adhere to a share trading policy that restricts the purchase
and sale of company securities to three six-week periods following the release of the half-yearly and annual financial
results to the market, and the Annual General Meeting.
Copies of the Corporate Code of Conduct, the Code of Conduct for Directors and Senior Executives and the Share Trading
Policy are available on the website.
Corporate reporting
The Managing Director and Chief Financial Officer have made the following certifications to the board:
■
that the company’s financial reports are complete and present a true and fair view, in all material respects, of the
financial condition and operational results of the company and are in accordance with relevant accounting standards;
and
■
that the above statement is founded on a sound system of risk management and internal compliance and control, and
which implements the policies adopted by the board, and that the company’s risk management and internal compliance
and control is operating efficiently and effectively in all material respects.
Continuous disclosure
The company has adopted a market disclosure protocol. The objective of this protocol is to:
■
ensure the company immediately discloses all price-sensitive information to ASX in accordance with the ASX Listing
Rules and the Corporations Act 2001 (Cth);
■
ensure officers and employees are aware of the company’s continuous disclosure obligations; and
■ establish procedures for:
– the collection of all potentially price-sensitive information;
– assessing if information must be disclosed to ASX under the ASX Listing Rules or the Corporations Act 2001 (Cth);
– releasing to ASX information determined to be price-sensitive information and to require disclosure; and
– responding to any queries from ASX (particularly queries under Listing Rule 3.1B).
The protocol is carried out through a market disclosure group comprised of management representatives. The market
disclosure group is responsible for:
■
ensuring compliance with continuous disclosure obligations;
■
establishing a system to monitor compliance with continuous disclosure obligations and this protocol;
■
monitoring regulatory requirements so that this protocol continues to conform with those requirements;
■
monitoring movements in share price and share trading to identify circumstances where a false market may have
emerged in company securities; and
■
making decisions about trading halts.
All relevant information provided to ASX will be posted immediately on the company’s website at www.mortgagechoice.com.au,
in compliance with the continuous disclosure requirements of the Corporations Act and ASX Listing Rules.
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15
Corporate governance continued
Communication to shareholders
The board aims to ensure that shareholders are informed of all major developments affecting the company’s state of affairs.
The board will:
■
communicate effectively with shareholders;
■
give shareholders ready access to balanced and understandable information about the company and its corporate goals;
and
■
make it easy for shareholders to participate in general meetings.
Information is communicated to shareholders through ASX announcements, the company’s annual report, annual general
meeting, half and full year results announcements and the company’s website at www.mortgagechoice.com.au.
The board has adopted a communications strategy to facilitate and promote effective communication with shareholders and
encourage participation at general meetings. Arrangements the company has to promote communication with shareholders
are set out in the Shareholder Centre section of the company’s website at www.mortgagechoice.com.au.
External auditor
The company has adopted procedures for the selection and appointment of the external auditor, which are set out in the
Shareholder Centre section of the company’s website at www.mortgagechoice.com.au.
The audit committee will regularly review the performance of the external auditor and consider any ongoing appointment.
The external auditor should rotate the senior audit partner and the audit review partner every five years with suitable
succession planning to ensure consistency.
The external auditor should not place itself in a position where its objectivity may be impaired or where a reasonable
person might conclude that its objectivity has been impaired. This requirement also applies to individual members of
an audit team. The credibility and integrity of the financial reporting process is paramount. The company has adopted
guidelines on external auditor independence. These guidelines help to ensure a consistent approach to the appointment
and review of external auditors.
The company will not give work to the external auditor likely to give rise to a ‘self review threat’ (as defined in Australian
Professional Statement F1, Professional Independence, The Institute of Chartered Accountants in Australia and CPA Australia
2002). It is the policy of the external auditors to provide an annual declaration of their independence to the audit committee.
The external auditor is requested to attend the annual general meeting of the company.
Compliance and risk management
The company has adopted and endorsed a compliance policy. The policy is a commitment to:
■ promote a culture of compliance throughout the company and franchise network;
■ create an understanding of the relevant laws at all levels;
■ minimise the possibility of a contravention of the law and manage any legal risk;
■ enhance the company’s corporate image and customer service; and
■
market, promote and sell the company’s services in a way that is competitive, ethical, honest and fair, and in compliance
with the law.
The company is developing a compliance program. The aim of this compliance program will be to promote a culture
of compliance through a number of measures including staff training, compliance procedures, support systems and the
appointment of a team of people responsible for compliance.
The company expects its employees, franchisees and representatives to actively support its compliance program. It is
each employee, franchisee and representative’s responsibility to make use of the training systems and support offered by
Mortgage Choice. Non-compliance with the law or failure to comply with the compliance program will not be tolerated
and could result in disciplinary action.
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Mortgage Choice Limited and its controlled entities.
Financial report
ACN 009 161 979. Financial report – 30 June 2004
Contents
Directors’ report
Statements of financial performance
Statements of financial position
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent audit report to members
of Mortgage Choice Limited
Shareholder information
Directory
18
26
27
28
29
51
52
54
56
This financial report covers Mortgage Choice Limited as an
individual entity and the consolidated entity consisting of
Mortgage Choice Limited and its controlled entities.
Mortgage Choice Limited is a company limited by shares,
incorporated and domiciled in Australia. Its registered office
and principal place of business is:
Mortgage Choice Limited
Level 7, 182 – 186 Blues Point Road
North Sydney NSW 2060
A description of the nature of the company’s operations
and its principal activities is included in the directors’ report.
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17
Directors’ report
Your directors present their report on the consolidated entity consisting of Mortgage Choice Limited and the entities
it controlled at the end of, or during, the year ended 30 June 2004, referred to hereafter as ‘Mortgage Choice’,
‘the Mortgage Choice group’ or ‘the group’.
Directors
The following persons were directors of Mortgage Choice Limited during the whole of the financial year and up to the
date of this report:
P G Higgins
R G Higgins
P D Ritchie was a director from his appointment on 5 April 2004 and continues in office at the date of this report.
P A Lahiff was a director from his appointment on 24 May 2004 and continues in office at the date of this report.
S G Jermyn was a director from his appointment on 24 May 2004 and continues in office at the date of this report.
D E Ralston was a director from her appointment on 24 May 2004 and continues in office at the date of this report.
R Prowse was a director from the beginning of the financial year until his resignation on 5 April 2004. P G Clare was a
director from the beginning of the financial year until his resignation on 24 June 2004.
Principal activities
During the year the principal activity of the Mortgage Choice group was mortgage broking. This activity involves:
■ the provision of assistance in determining the borrowing capacities of intending residential mortgage borrowers;
■ the assessment, at the request of those borrowers, of a wide range of home loan products; and
■ the submission and approval of loan applications on behalf of intending borrowers.
Operating results
The net profit of the group after providing for income tax amounted to $9,962,000 (2003 – $6,285,000). Further details of
the results for the year are set out in the Review of Operations (page 6).
Dividends
Dividends paid to members during the financial year were as follows:
■
interim dividend of $2,526,000 (2.3 cents per fully paid share) was declared out of profit of the company for the year
ended 30 June 2003 and paid on 31 July 2003;
■
final ordinary dividend of $1,922,000 (1.75 cents per fully paid share) was declared out of profit of the company for the
year ended 30 June 2003 and paid on 28 November 2003;
■
interim ordinary dividend of $2,197,000 (2 cents per fully paid share) was declared out of profit of the company for the
half-year ended 31 December 2003 and paid on 18 December 2003; and
■
interim ordinary dividend of $2,416,000 (2.2 cents per fully paid share) was declared out of general reserve and paid on
1 July 2004.
In addition to the above dividends, subsequent to the end of the financial year an interim dividend of $3,921,000
(3.5 cents per fully paid share) was declared out of the general reserve of the company on 2 August 2004 and paid
on 5 August 2004.
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Earnings per share
Basic earnings per share
Diluted earnings per share
2004
Cents
9.1
9.1
2003
Cents
5.7
5.7
Significant changes in the state of affairs
Except for the matters disclosed in the Operating results (see facing page) and Review of operations section (page 6) of
this report there have been no significant changes in the state of affairs of the consolidated entity.
Matters subsequent to the end of the financial year
During July 2004, 2,196,600 shares were issued for 98.8 cents each resulting from the exercise of options prior to transfer
and allotment of shares under the Initial Public Offering.
An interim dividend of $3,921,000 or 3.5 cents per share was declared out of the general reserve of the company on
2 August 2004 and paid on 5 August 2004.
A capital reduction of $8,962,000 was paid on 6 August 2004 by returning 8 cents per share in cash to the existing
shareholders.
On 4 August 2004, issue of 5.5 million ordinary shares to franchisees, employees and other persons raising $5.37 million
(net of issue costs of $405,000) and listing of the company on the ASX.
On 9 August 2004, an offset by share capital reduction, of accumulated losses of $6.780 million against contributed
equity, occurred 3 business days after the transfer and allotment of Shares under the Offer.
Except for the matters disclosed above and in the Review of operations section (page 6) of this report or set out below, no
other matter or circumstance has arisen since 30 June 2004 that has significantly affected, or may significantly affect:
(a) the consolidated entity’s operations in future financial years; or
(b) the results of those operations in future financial years; or
(c) the consolidated entity’s state of affairs in future financial years.
Likely developments and expected results of operations
Further information on likely developments in the operations of the consolidated entity and the expected results of
operations have not been included in this report because the directors believe it would be likely to result in unreasonable
prejudice to the consolidated entity.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under a law of the Commonwealth or of
a State of Territory in respect of its activities.
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19
Particulars of directors’
interests in shares
ordinary shares
–
–
Directors’ report continued
Information on directors
Director
Experience
Special responsibilities
Chairman – non-executive
Peter Ritchie,
Peter is a director of Seven Network
Chairman.
BCom, FCPA, AO
and University of NSW Foundation
Member of nomination
and Chairman of 1800 Reverse.
committee.
Peter previously served as Managing
Member of remuneration
Director of McDonald’s Australia
committee.
Executive director
Paul Lahiff,
BSc Agr, FAIM
from 1974 to 1995 and as its
Chairman from 1995 to 2001.
Peter was a director of Westpac
Banking Corporation from 1993 to
2002. Age 62.
Paul has over 20 years experience
Managing Director.
in the financial services industry.
This has included roles as Managing
Director of Permanent Trustee and
Heritage Building Society, as well as
senior executive roles with Westpac
Banking Corporation (in Sydney and
London) and the credit union sector.
Paul joined Mortgage Choice as Chief
Executive Officer in August 2003 and
was appointed Managing Director
in May 2004. He is responsible for
managing the operations of the
company to ensure the continued
growth and development of the
business. Age 52.
Non-executive directors
Peter Higgins
Peter is co-founder of Mortgage
Member of audit
36,959,950
Choice. He is also a director of a
committee.
technology company – Power & Data
Corporation Pty Ltd. Having been
successfully self-employed for over
20 years, Peter has been involved in
a number of start-up companies in a
diverse range of industries covering
manufacturing, technology, leasing,
property and finance. Age 44.
Rodney Higgins
Rodney is co-founder of Mortgage
Member of remuneration
38,515,000
Choice. Rodney has a background in
committee.
residential and commercial property,
sales, and leasing and has been a
director of companies involved in
manufacturing, wholesaling,
importing, retailing and finance.
Age 50.
Member of nomination
committee.
20
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Director
Experience
Special responsibilities
Deborah Ralston,
Deborah is Professor of Finance and
Member of audit
BEcon, Dip Fin Mgt,
Dean, Faculty of Business at the
committee.
MEc, PhD, FAIBF, FAIM,
University of the Sunshine Coast.
FCPA
Prior to joining that University in
June 2000, Deborah was Associate
Professor in Finance and Director of
the Centre for Australian Financial
Institutions at the University of
Southern Queensland. Deborah is a
former Director of Heritage Building
Society. Age 51.
Steve Jermyn,
Steve joined McDonald’s Australia
Chairman of audit
FCPA
Ltd in 1984 and was appointed Vice
committee.
Particulars of directors’
interests in shares
ordinary shares
–
–
President in 1986. Steve joined the
board of directors in 1986 and was
appointed Executive Vice President
in 1993. In June 1999, Steve was
appointed Deputy Managing
Director. Steve has been involved
in all aspects of the development
of the McDonald’s restaurant
business in Australia and brings with
him significant experience in the
development of new business and
franchising. Age 55.
Meetings of directors
The numbers of meetings of the company’s board of directors and of each board committee held during the year ended
30 June 2004, and the numbers of meetings attended by each director were:
Peter Ritchie
Peter Clare
Peter Higgins
Rodney Higgins
Paul Lahiff
Steve Jermyn
Robert Prowse
Deborah Ralston
Meetings of directors
held whilst a director
Meetings attended
by directors
4
14
15
15
2
2
11
2
4
10
15
14
2
1
10
2
A meeting of the remuneration committee was held on 10 March 2004, the meeting was attended by Peter Higgins and
Rodney Higgins.
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21
Directors’ report continued
Retirement, election and continuation in office of directors
In accordance with the Constitution, Peter Ritchie ceases to hold office at the Annual General Meeting of the company
and, being eligible, offers himself for re-election; Steve Jermyn ceases to hold office at the Annual General Meeting of the
company and, being eligible, offers himself for re-election; Deborah Ralston ceases to hold office at the Annual General
Meeting of the company and, being eligible, offers herself for re-election; and Rodney Higgins retires by rotation and,
being eligible, offers himself for re-election.
Remuneration report
Principles used to determine the nature and amount of remuneration
The objective of the company’s executive reward framework is to ensure reward for performance is competitive and
appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and
the creation of value for shareholders, and conforms with market best practice for delivery of reward. The board ensures
that executive reward satisfies the following key criteria for good reward governance practices:
■ competitiveness and reasonableness;
■ acceptability to shareholders;
■ performance linkage/alignment of executive compensation;
■ transparency; and
■ capital management.
In consultation with external remuneration consultants, the company has structured an executive remuneration framework
that is market competitive and complimentary to the reward strategy of the organisation.
Alignment to shareholders’ interests:
■ has economic profit as a core component of plan design;
■ focuses on sustained growth in share price and delivering constant return on assets as well as focusing the executive on
key non-financial drivers of value; and
■ attracts and retains high calibre executives.
Alignment to program participants’ interests:
■ rewards capability and experience;
■ reflects competitive reward for contribution to shareholder growth;
■ provides a clear structure for earning rewards; and
■ provides recognition for contribution.
The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. As executives gain
seniority with the group, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards.
Non-executive directors
Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the
directors. The remuneration committee reviews non-executive directors’ fees and payments annually. The board has also
obtained the advice of independent remuneration consultants to ensure non-executive directors’ fees and payments,
including those of the Chairman, are appropriate and in line with the market. Non-executive directors do not receive share
options. Non-executive directors may opt each year to receive a percentage of their remuneration in Mortgage Choice
Limited shares pursuant to the Employee Share Purchase Plan.
Directors’ fees
The current base remuneration was last reviewed on 19 February 2004 and is based on the recommendations of
independent remuneration consultants. Directors do not receive additional remuneration for representation on board
committees. Peter Higgins and Rodney Higgins each received an additional amount of $25,000 in the year ended 30 June
2004 by way of a representation allowance.
Shareholders in General Meeting on 5 April 2004 agreed to initially set the maximum aggregate remuneration of the board
(excluding the Managing Director and any executive director) at $750,000.
Retirement allowances for directors
Non-executive directors do not receive retirement allowances. Superannuation contributions in accordance with relevant
superannuation guarantee legislation is paid on non-executive directors’ remuneration.
22
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Executive pay
The executive pay and reward framework has four components:
■ base pay and benefits;
■ short-term performance incentives;
■
long-term incentives through participation executive and employee share plans; and
■ other remuneration such as superannuation.
The combination of these comprises the executive’s total remuneration. The company has introduced long-term
equity-linked performance incentives specifically for executives during the year ending 30 June 2005 at the time of the
listing of the company on the ASX.
Base pay
Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial
benefits at the executive’s discretion.
Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External
remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable
role. Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market.
An executive’s pay is also reviewed on promotion.
There are no guaranteed base pay increases fixed in any senior executives’ contracts.
Benefits
Executives do not receive any benefits in addition to the remuneration identified in this note 20.
Retirement benefits
Retirement benefits are delivered under the Mortgage Choice Employees’ Superannuation Fund. This Fund is an
accumulation fund and provides benefits based on contributions made to the fund during the period of service. Other
retirement benefits may be provided directly by the company if approved by shareholders.
Short-term incentives
Should the company achieve a pre-determined profit target set by the remuneration committee then a pool of Short-
Term Incentive (STI) is available for executives for allocation during the annual review by the remuneration committee.
Cash incentives (bonuses) are payable in cash on or around 30 September each year. Using a profit target ensures variable
reward is only available when value has been created for shareholders and when profit is consistent with the business plan.
The incentive pool is leveraged for performance above the threshold to provide an incentive for executive outperformance.
Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisation or
business unit performance. For senior executives the normal maximum STI target bonus opportunity is 30% of total base
salary. However, from time to time for special projects and circumstances, bonuses outside of this structure are provided.
Each year, the remuneration committee considers the appropriate targets and Key Performance Indicators (KPIs) to link
the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan, and
minimum levels of performance to trigger payment of STI.
For the year ended 30 June 2004, the KPIs linked to short-term incentive plans were based on group, individual business
and personal objectives. The KPIs required performance in achieving specific profit objectives as well as other key,
non-financial measures linked to drivers of performance in the current and future reporting periods.
The short-term bonus payments may be adjusted up or down in line with under or over achievement against the target
performance levels. This is at the discretion of the remuneration committee.
The STI target annual payment is reviewed annually.
Details of remuneration
Details of the remuneration of each director of Mortgage Choice Limited and each of the five executives with greatest
authority for the strategic direction and management of the entity (specified executives) of the consolidated entity,
including their personally-related entities, are set out in the following tables.
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23
Directors’ report continued
Directors of Mortgage Choice Limited
2004
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
P D Ritchie
(from 5 April 2004 – 30 June 2004)
P A Lahiff*
P G Higgins
R G Higgins
R Prowse
(from 1 July 2003 – 5 April 2004)
P G Clare
(from 1 July 2003 – 24 June 2004)
S C Jermyn
(from 24 May 2004 – 30 June 2004)
D E Ralston
(from 24 May 2004 – 30 June 2004)
Total
23,611
438,294
102,500
102,500
41,253
50,000
5,108
5,108
768,374
–
–
–
–
–
–
–
–
–
–
2,125
7,330
39,446
24,231
8,487
–
–
–
–
9,225
9,225
–
4,500
460
460
40,048
65,441
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,736
485,070
135,956
120,212
41,253
54,500
5,568
5,568
873,863
* P A Lahiff was appointed a director on 24 May 2004. Before this appointment he was the company’s Chief Executive Officer. Amounts
shown above include all Mr Lahiff’s remuneration during the reporting period, whether as a director or as Chief Executive Officer. Amounts
received in his position as a director amounted to $56,652, made up of cash salary and fees of $51,075, non-monetary benefits of $980
and superannuation of $4,597.
Other executives of Mortgage Choice Limited
2004
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
C P Canty
(Chief Operating Officer)
E G Macgregor (Chief Financial
Officer)
M C Newton
(Chief Information Officer)
D M Hoskins
(Company Secretary)
I C Pepper
(National Marketing Manager)
221,196
236,667*
19,993
36,647
218,526
66,435
191,025
22,306
174,956
25,000
158,623
35,379
–
–
–
–
35,646
19,200
15,746
17,460
Total
964,326
385,787
19,993
124,699
–
–
–
–
–
–
–
–
–
–
–
–
514,503
320,607
232,531
215,702
211,462
1,494,805
* C P Canty’s bonus included $95,000 higher duties allowances as acting CEO and other one-off payments relating to his terms and
conditions at that particular time.
24
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Shares under option
Unissued ordinary shares of Mortgage Choice Limited under option at 30 June 2004 are as follows:
Date options granted
10 December 2001
Expiry date
Issue price
of shares
Number
under option
10 December 2004
$0.988
2,196,600
No option holder has any right under the options to participate in any other share issue of the company or of any
other entity.
Shares issued on the exercise of options
The following ordinary shares of Mortgage Choice Limited have been issued since 30 June 2004. No amounts are unpaid
on any of the shares.
Date options granted
20 July 2004
27 July 2004
Insurance of officers
Issue price
of shares
Number
under option
$0.988
1,098,300
$0.988
1,098,300
2,196,600
Insurance premiums were paid for the year ended 30 June 2004 in respect of directors’ and officers’ liability and legal
expenses for directors and officers of the company and all controlled entities. The insurance contract prohibits disclosure of
the premium paid. The insurance premiums relate to:
■
costs and expenses incurred by relevant directors and officers in defending any proceedings; and
■
other liabilities that may arise from their position, with the exception of conduct, involving dishonesty, wrongful acts, or
improper use of information or position to gain personal advantage.
Since the end of the previous financial year, the company has not indemnified or made a relevant agreement for
indemnifying against a liability any person who is or has been an officer or auditor of the company.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking
responsibility on behalf of the company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237
of the Corporations Act 2001.
Rounding of amounts
The company is of a kind referred to in Class Order 98/0100 issued by the Australian Securities & Investments Commission,
relating to the ‘rounding off’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off
in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
Auditor
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of the directors.
Peter Ritchie
Director
Sydney
21 September 2004
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25
Statements of financial
performance
As at 30 June 2004
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
Notes
Revenue from ordinary activities
2
102,889
76,394
103,087
76,387
Expenses from ordinary activities
Sales
Technology
Marketing
Finance
Corporate
Borrowing costs
Profit from ordinary activities before
income tax expense
Income tax expense
Net profit attributable to the members
of Mortgage Choice Limited
Basic earnings per share
Diluted earnings per share
(69,255)
(50,674)
(69,255)
(50,555)
(3,492)
(5,016)
(3,492)
(5,016)
(7,231)
(4,645)
(7,231)
(4,645)
(1,930)
(1,796)
(1,930)
(1,875)
(6,575)
(5,100)
(6,772)
(5,100)
(5)
–
(5)
–
3
4
14,401
9,163
14,402
9,196
(4,439)
(2,878)
(4,439)
(2,912)
9,962
6,285
9,963
6,284
Cents
Cents
9.1
9.1
5.7
5.7
The above statements of financial performance should be read in conjunction with the accompanying notes.
26
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Statements of financial position
As at 30 June 2004
Current assets
Cash
Receivables
Other
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Current tax liabilities
Other
Total current liabilities
Non-current liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Accumulated losses
General reserve
Total equity
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
Notes
5
6
7
8
9
10
11
12
13
14
15
11,199
8,577
11,199
8,289
1,223
7,398
138
8,289
1,223
8,577
7,398
138
20,711
16,113
20,711
16,113
–
1,862
1,158
3,020
–
1,628
954
2,582
–
1,862
1,158
3,020
250
1,628
954
2,832
23,731
18,695
23,731
18,945
11,964
8,706
11,964
1,329
3,193
1,598
497
1,329
3,193
8,524
1,583
1,218
16,486
10,801
16,486
11,325
113
270
383
66
549
615
113
270
383
66
276
342
16,869
11,416
16,869
11,667
6,862
7,279
6,862
7,278
16
17
17
8,293
9,611
8,293
9,611
(6,780)
(2,332)
(6,780)
(2,333)
5,349
6,862
–
7,279
5,349
6,862
–
7,278
The above statements of financial position should be read in conjunction with the accompanying notes.
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27
Statements of cash flows
For the year ended 30 June 2004
Cash flows from operating activities
Receipts from customers
(inclusive of goods and services tax)
Payments to suppliers and employees
(inclusive of goods and services tax)
Interest received
Borrowing costs
Income taxes paid
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
Notes
111,699
75,668
111,917
75,435
(95,618)
(65,898)
(96,086)
(65,974)
16,081
9,770
15,831
9,461
533
–
342
(50)
533
–
340
(50)
(4,897)
(2,687)
(4,897)
(2,221)
Net cash inflow (outflow) from operating activities
28
11,717
7,375
11,467
7,530
Cash flows from investing activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Proceeds from redemption of FAC units
(1,134)
(360)
(1,134)
(360)
2
–
11
–
2
250
11
–
Net cash outflow from investing activities
(1,132)
(349)
(882)
(349)
Cash flows from financing activities
Payment for capital reduction
Dividends paid
(1,318)
–
(1,318)
–
(6,645)
(4,942)
(6,645)
(4,942)
Net cash inflow (outflow) from financing activities
(7,963)
(4,942)
(7,963)
(4,942)
Net increase (decrease) in cash held
Cash at the beginning of the financial year
2,622
8,577
2,084
6,493
2,622
8,577
Cash at the end of the financial year
5
11,199
8,577
11,199
2,239
6,338
8,577
The above statements of cash flows should be read in conjunction with the accompanying notes.
28
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Notes to the financial statements
Note 1
Summary of significant accounting policies
This general purpose financial report has been prepared in accordance with Accounting Standards, other authoritative
pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the
Corporations Act 2001.
It is prepared in accordance with the historical cost convention. Unless otherwise stated, the accounting policies adopted
are consistent with those of the previous year.
Information about how the transition to Australian equivalents to International Financial Reporting Standards (IFRS) is being
managed, and the key differences in accounting policies that are expected to arise, is set out in note 1(q).
(a)
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Mortgage
Choice Limited (‘parent entity’) as at 30 June 2004 and the results of all controlled entities for the year then ended.
Mortgage Choice Limited and its controlled entities together are referred to in this financial report as the consolidated
entity. The effects of all transactions between entities in the consolidated entity are eliminated in full.
(b)
Income tax
Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial
performance is matched with the accounting profit after allowing for permanent differences. The future tax benefit
relating to tax losses is not carried forward as an asset unless the benefit is virtually certain of realisation. Income
tax on cumulative timing differences is set aside to the deferred income tax liability or the future income tax benefit
accounts at the rates which are expected to apply when those timing differences reverse.
(c)
Revenue recognition
The consolidated entity provides loan origination services and receives origination commission on the settlement of a
home loan. Revenue is recognised on the settlement of the loans. Additionally the lender will normally pay a trailing
commission over the life of the loan. The consolidated entity also earns income from the sale of franchises and
franchise services.
Revenue from sale of services is recognised as follows:
(i)
Origination commissions
Origination commissions are recognised as revenue on loan settlement.
(ii) Trailing commissions
Trailing commissions are recognised as they become due and payable by lenders over the life of a loan.
(iii) Franchise fee income
Franchise fee income is derived from the sale of franchises by the consolidated entity and comprises licence fees
and contributions for training and franchise consumables. Licence fees are partially repayable should franchisees
terminate their franchise agreement in accordance with a repayment schedule as defined in the agreement.
Licence fee income is recognised over a four year period in accordance with this schedule. Contributions
for training and consumables are recognised as revenue on receipt. Licence fees which remain repayable to
franchisees at balance sheet date are included in liabilities.
(iv) Redeemable units in Franchise Advisory Council Trust.
Contributions from franchisees for redeemable units in the Franchise Advisory Council Trust, a controlled entity,
are partially repayable should franchisees terminate their agreement in accordance with a repayment schedule
as defined in the franchise agreement. Redeemable units which are forfeited by franchisees in accordance with
the franchise agreement repayment schedule are recognised as revenue over a three year period in accordance
with this schedule. Redeemable units which remain redeemable by franchisees at balance date are included in
liabilities in the consolidated entity. The Franchise Advisory Council Trust ceased issuing such redeemable units
to franchisees recruited after 31 March 2002, all units were redeemed in December 2003 and the Franchise
Advisory Council Trust ceased to exist as at 24 December 2003.
From 30 June 2002, all contributions received from franchisees are received by the parent entity and recognised
as revenue in accordance with (iii) above.
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29
Notes to the financial statements continued
(d)
Acquisition of assets
The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments
or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities
undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Where equity
instruments are issued in an acquisition, the value of the instruments is their market price as at the acquisition date,
unless the notional price at which they could be placed in the market is a better indicator of fair value. Transaction
costs arising on the issue of equity instruments are recognised directly in equity.
(e)
Receivables
Trade debtors are recognised in accordance with the revenue recognition policy outlined in note 1(c).
Collectibility of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectible are
written off. A provision for doubtful debts is raised when some doubt as to collection exists.
(f)
Recoverable amount of non-current assets
The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows
and outflows arising from its continued use and subsequent disposal. The expected net cash flows included in
determining the recoverable amounts of non-current assets are not discounted.
(g)
Change in depreciation policy for the depreciation of plant and equipment
The depreciation method for plant and equipment was changed to calculate depreciation on a straight line basis to
write off the net cost amount of each item of plant and equipment over its expected useful life to the consolidated
entity as the directors considered this a more appropriate methodology to reflect the pattern of useful life of the
assets. The change was adopted with effect from 1 July 2003. The previous policy was to calculate depreciation on
a reducing balance basis. This change in accounting policy does not have a material financial effect in the current or
previous financial period.
Office equipment
Computer equipment
Furniture and fittings
Purchased software
5-10 years
3-4 years
5 years
3 years
(h)
Software development
Costs incurred on software development are expensed except to the extent that they are expected beyond any
reasonable doubt to be recoverable, in which case they are capitalised and amortised on a reducing balance basis
over the period during which the related benefits are expected to be realised.
(i)
Leasehold improvements
The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease
or the estimated useful life of the improvement to the consolidated entity, whichever is the shorter. Leasehold
improvements held at the reporting date are being amortised over four years.
(j)
Leased non-current assets
A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially
all the risks and benefits incident to ownership of leased non-current assets, and operating leases under which the
lessor effectively retains substantially all such risks and benefits.
Operating lease payments are charged to the statement of financial performance in the periods in which they are
incurred, as this represents the pattern of benefits derived from the leased assets.
(k)
Trade and other creditors
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.
(l)
Dividends
Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on
or before the end of the financial year but not distributed at balance date.
30
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(m)
Employee benefits
(i) Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave expected to be
settled within 12 months of the reporting date are recognised in other creditors in respect of employees’ services
up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
The liability for annual leave is recognised in the provision for employee benefits and is measured at the amounts
expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised
when the leave is taken and measured at the rates paid or payable.
(ii) Long service leave
The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in
the provision for employee benefits and is measured in accordance with (i) above. The liability for long service
leave expected to be settled more than 12 months from the reporting date is recognised in the provision for
employee benefits and measured as the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. Consideration is given to expected future wage and
salary levels, experience of employee departures and periods of service. Expected future payments are discounted
using market yields at the reporting date on national government bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash outflows.
(iii) Employee benefit on-costs
Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and
costs when the employee benefits to which they relate are recognised as liabilities.
(iv) Profit sharing and bonus plans
A liability for employee benefits in the form of profit sharing and bonus plans is recognised in other creditors
when there is no realistic alternative but to settle the liability and at least one of the following conditions is met:
■ there are formal terms in the plan for determining the amount of the benefit;
■ the amounts to be paid are determined before the time of completion of the financial report; or
■ past practice gives clear evidence of the amount of the obligation.
Liabilities for profit sharing and bonus plans are expected to be settled within 12 months and are measured at
the amounts expected to be paid when they are settled.
(n)
Borrowing costs
Borrowing costs are recognised as expenses in the period in which they are incurred.
Borrowing costs include:
interest on bank overdrafts and borrowings;
■
■ finance lease charges; and
■
interest accrued on other amounts payable.
(o)
Cash
For purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on
hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts.
(p)
Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined by dividing net profit after income tax attributable to members 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, adjusted for bonus elements in ordinary shares issued
during the year.
(ii) 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.
MORT2276 Annual 2004 FINAL.indd 31
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31
Notes to the financial statements continued
(q)
International Financial Reporting Standards (IFRS)
The Australian Accounting Standards board (AASB) is adopting IFRS for application to reporting periods beginning
on or after 1 January 2005. The AASB will issue Australian equivalents to IFRS, and the Urgent Issues Group
will issue abstracts corresponding to IASB interpretations originated by the International Financial Reporting
Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian
equivalents to IFRS will be first reflected in the consolidated entity’s financial statements for the half-year ending
31 December 2005 and the year ending 30 June 2006.
Entities complying with Australian equivalents to IFRS for the first time will be required to restate their comparative
financial statements to amounts reflecting the application of IFRS to that comparative period. Most adjustments
required on transition to IFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004.
The consolidated entity has conducted a high level scoping exercise to identify key IFRS impacts on the financial
statements as part of the management of transition to Australian equivalents to IFRS for the financial year ended
30 June 2005. To date the consolidated entity has analysed most of the Australian equivalents to IFRS and has
identified a number of accounting policy changes that will be required. In some cases choices of accounting policies
are available, including elective exemptions under Pending Accounting Standard AASB 1 First-time Adoption of
Australian Equivalents to International Financial Reporting Standards. Some of these choices are still being analysed
to determine the most appropriate accounting policy for the consolidated entity.
Major changes identified to date that will be required to the consolidated entity’s existing accounting policies include
the following:
(i) Income tax
Under the Australian equivalent to IAS 12 Income Taxes, deferred tax balances are determined using the balance
sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and
liabilities in the statement of financial position and their associated tax bases. In addition, current and deferred
taxes attributable to amounts recognised directly in equity are also recognised directly in equity.
This will result in a change to the current accounting policy, under which deferred tax balances are determined
using the income statement method, items are only tax-effected if they are included in the determination
of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be
recognised directly in equity.
(ii) Equity-based compensation benefits
Under the Australian equivalent to IFRS 2 Share-based Payment, equity-based compensation to employees will be
recognised as an expense in respect of the services received.
This will result in a change to the current accounting policy, under which no expense is recognised for
equity-based compensation.
The above should not be regarded as a complete list of changes in accounting policies that will result from the
transition to Australian equivalents to IFRS, as not all standards have been analysed as yet, and some decisions
have not yet been made where choices of accounting policies are available. For these reasons it is not yet
possible to quantify the impact of the transition to Australian equivalents to IFRS on the consolidated entity’s
financial position and reported results.
(r)
Rounding of amounts
The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments
Commission, relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have
been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the
nearest dollar.
32
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Note 2 Revenue
Revenue from operating activities
Services
Revenue from outside the operating activities
Interest
Revenue from sale of non-current assets
Trust distribution income
Other
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
101,727
75,727
101,707
75,545
533
2
–
627
1,162
342
11
–
314
667
533
2
218
627
1,380
340
11
177
314
842
Revenue from ordinary activities
102,889
76,394
103,087
76,387
Note 3 Profit from ordinary activities
Net gains and expenses
Profit from ordinary activities before income tax expense includes
the following specific net (gains) and expenses:
Expenses:
Borrowing costs
Interest charges
Net loss on disposal of non-current assets
Plant and equipment
Depreciation
Plant and equipment
Amortisation
Leasehold improvements
Other provisions
Employee entitlements
Doubtful debts
Rental expense relating to operating leases
Note 4
Income tax
The income tax expense for the financial year differs from the amount
calculated on the profit before tax. The differences are reconciled as follows:
Operating profit before income tax
Income tax calculated @ 30%
Tax effect of permanent differences:
Sundry items
Income tax adjusted for permanent differences
Under/(over) provision from prior years
Income tax attributable to operating profit
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
5
4
–
2
5
4
–
2
825
802
825
802
69
47
–
816
166
104
–
739
69
47
–
816
166
104
78
739
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
14,401
9,163
14,402
4,320
2,749
4,320
9,196
2,759
125
169
114
169
4,445
2,918
4,434
2,928
(6)
(40)
5
(16)
4,439
2,878
4,439
2,912
No part of the future income tax benefit shown in note 10 is attributable to tax losses.
33
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Notes to the financial statements continued
Tax consolidation legislation
Mortgage Choice Limited and its wholly-owned Australian subsidiaries implemented the tax consolidation legislation as
of 1 July 2002. As a consequence, Mortgage Choice Limited, as the head entity in the tax consolidated group, recognises
current and deferred tax amounts relating to transactions, events and balances of the controlled entities in this group as
if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in
relation to its own transactions, events and balances.
Note 5 Current assets – cash
Cash at bank and on hand
Deposits at call
Deposits at call
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
216
255
216
10,983
11,199
8,322
10,983
8,577
11,199
2003
$’000
255
8,322
8,577
The deposits are bearing interest rates between 4.48% and 5.35% (2003 – 4.48% and 4.58%).
Note 6 Current assets – receivables
Trade debtors1
Receivable from controlled entities
Less: Provision for doubtful debts
Franchisee receivables
Other debtors
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
8,076
7,053
8,076
–
–
–
116
97
–
–
–
107
238
–
–
–
116
97
7,053
1,518
(1,518)
–
107
238
8,289
7,398
8,289
7,398
1. Subject to a limited charge in favour of The Loan Book Security Trust (refer to note 11).
Other debtors
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
Note 7 Current assets – other
Prepayments
IPO costs1
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
165
1,058
1,223
138
–
138
165
1,058
1,223
138
–
138
1. Costs paid in the year relating to Mortgage Choice Limited’s Initial Public Offering have been deferred as they are expected to be fully
recovered from the company’s selling shareholders, net of new share issue costs of $405,000, following completion of the offer. New
share issue costs will be offset against capital raised from the offer.
34
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Note 8 Non-current assets – investments
Other (non-traded) investments
Shares in controlled entities – at cost
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
–
–
–
–
–
–
250
250
Further information relating to shares in controlled entities is set out in note 26.
Note 9 Non-current assets – property, plant and equipment
Leasehold improvements
Leasehold improvements – at cost
Less: Accumulated amortisation
Total leasehold improvements
Plant and equipment
Plant and equipment – at cost
Less: Accumulated depreciation
Total property, plant and equipment
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
927
(563)
364
720
(494)
226
927
(563)
364
720
(494)
226
4,682
3,795
4,682
3,795
(3,184)
(2,393)
(3,184)
(2,393)
1,498
1,862
1,402
1,628
1,498
1,862
1,402
1,628
Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the
current financial year are set out below:
Consolidated entity
Carrying amount at 1 July 2003
Additions
Disposals
Depreciation/amortisation expense
Carrying amount at 30 June 2004
Parent entity
Carrying amount at 1 July 2003
Additions
Disposals
Depreciation/amortisation expense
Carrying amount at 30 June 2004
Leasehold
improvements
Plant and
equipment
Total
$’000
$’000
$’000
226
207
–
(69)
364
1,402 1,628
927 1,134
(6)
(6)
(825)
(894)
1,498 1,862
Leasehold
improvements
Plant and
equipment
Total
$’000
$’000
$’000
226
207
–
(69)
364
1,402 1,628
927 1,134
(6)
(6)
(825)
(894)
1,498 1,862
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35
Notes to the financial statements continued
Note 10 Non-current assets – deferred tax assets
Future income tax benefit
Note 11 Current liabilities – payables
Trade creditors
Other creditors
Loan Book Security Trust
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
1,158
954
1,158
954
Consolidated
Parent entity
2004
$’000
8,025
3,939
11,964
2003
$’000
6,055
2,651
8,706
2004
$’000
8,025
3,939
11,964
2003
$’000
6,055
2,469
8,524
The loan book bonus is a commission payable based on the outstanding balances of loans introduced by Mortgage
Choice franchisees. The Loan Book Security Scheme provides security for the loan book bonus payable to certain eligible
franchisees based on certain performance criteria. Mortgage Choice Limited has granted two charges in favour of a trustee
company on behalf of the eligible franchisees. At this time the trustee is a controlled entity of Mortgage Choice Limited.
The first charge is over a specified percentage of the company’s trailing commission income. The purpose of this charge is
to be the first source of funds available to eligible franchisees for the payment of loan book bonus payments in the event
that administration or liquidation occurs. The charge will crystallise and can be enforced by eligible franchisees in the event
of liquidation or administration of Mortgage Choice Limited.
As at 30 June 2004, the amount subject to charge resulting from applying the specified percentage to the trailing commission
income due to Mortgage Choice Limited is $1,763,297 (2003 – $1,062,253). This is included as part of the balance of trade
creditors at 30 June 2003 and is subject to charge until disbursed to the eligible franchisees. The amount subject to the
charge will vary dependent on trailing commission receipts held by Mortgage Choice Limited from time to time.
The second charge is a floating charge over all of the assets of Mortgage Choice Limited. It is limited in the powers it
allows the security trustee company to exercise prior to liquidation. Its primary purpose is to ensure that the loan book
security structure need not be subject to the moratorium arising if an administrator were to be appointed to Mortgage
Choice Limited. Only after liquidation does this charge confer comprehensive mortgagee powers on the security trustee.
Note 12 Current liabilities – current tax liabilities
Income tax
Note 13 Current liabilities – other
Redeemable units in controlled trust
Licence fees repayable
Unsecured loans from controlled entities1
Dividend payable (note 18)
1. The unsecured loans bear no interest.
36
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
1,329
1,598
1,329
1,583
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
–
777
–
2,416
3,193
42
455
–
–
497
–
777
–
2,416
3,193
–
455
763
–
1,218
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Note 14 Non-current liabilities – provisions
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
Employee entitlements (note 24)
113
66
113
66
Note 15 Non-current liabilities – other
Redeemable units in controlled trust
Licence fees repayable
Note 16 Contributed equity
(a)
Contributed equity
Ordinary shares – fully paid
(b) Movements in ordinary share capital
Date
1 July 2003
1 December 2003
30 June 2004
Details
Opening balance
Capital reduction
Balance
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
–
270
270
273
276
549
–
270
270
–
276
276
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
109,830
109,830
8,293
9,611
Number
of shares
Transaction
price
109,830,000
$’000
9,611
–
$ 0.012*
(1,318)
109,830,000
8,293
* On 1 December 2003, the company reduced the value of the ordinary shares by returning 1.2 cents per share to each shareholder of the
company.
(c)
Options
On 10 December 2001, 2,196,600 share options were issued to former non-executive directors in accordance with
shareholder approval. The options were granted free of charge and carry no dividend or voting rights. These options
may be exercised at any time prior to 10 December 2004. The subscription price for a share the subject of these
options is 98.8 cents per share.
These share options were exercised after the balance date and prior to the Initial Public Offering. Details are set out in
note 30.
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11/10/04 1:10:40 PM
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37
Notes to the financial statements continued
Note 17 Reserves and retained profits/(accumulated losses)
(a) General reserve
General reserve at beginning of the financial year
Transfer from retained profits/(accumulated losses)*
Dividend provided for out of general reserve
General reserve at end of the financial period
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
–
7,765
(2,416)
5,349
–
–
–
–
–
7,765
(2,416)
5,349
–
–
–
–
* The general reserve contains amounts of retained profits that have been set aside by the directors so as not to be tainted by prior period
losses. This reserve may be used to pay dividends.
(b) Retained profits/(accumulated losses)
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
Accumulated losses at the beginning of the financial period
(2,332)
(3,675)
(2,333)
(3,675)
Net profit for period
Dividends paid out of profit (note 18)
9,962
6,285
9,963
6,284
(6,645)
(4,942)
(6,645)
(4,942)
Transfer of residual profits for the year ended 30 June 2004 to general reserve
(7,765)
–
(7,765)
–
Accumulated losses at the end of the financial period
(6,780)
(2,332)
(6,780)
(2,333)
38
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11/10/04 1:10:40 PM
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Note 18 Dividends
Ordinary shares
Interim dividend declared out of profits of the company for the year ended 30 June 2003 of
2.3 cents per fully paid share paid on 31 July 2003 and final dividend of 1.75 cents per fully paid
share paid on 28 November 2003
Fully franked based on tax paid @ 30%
2.3 cents per share
1.75 cents per share
Interim dividend declared out of profits of the company for the half-year ended
31 December 2003 of 2 cents per fully paid share paid 18 December 2003
Fully franked based on tax paid @ 30%
2 cents per share
Interim dividend declared out of general reserve of 2.2 cents per fully paid share paid 1 July 2004
Fully franked based on tax paid @ 30%
2.2 cents per share
Interim dividend declared out of profits of the company for the year ended 30 June 2003 of
1.5 cents per fully paid share paid on 10 April 2003
Fully franked based on tax paid @ 30%
1.5 cents per share
Interim dividend declared out of profits of the company for the year ended 30 June 2002 of
1.5 cents per fully paid share paid on 15 July 2002
Fully franked based on tax paid @ 30%
3 cents per share
Dividends not recognised at year end
Parent entity
2004
$’000
2003
$’000
2,526
1,922
2,197
2,416
–
–
–
1,647
3,295
–
–
9,061
4,942
In addition to the above dividends, since year end the directors have recommended the payment
of an interim dividend of 3.5 cents (2003 – 2.3 cents) per fully paid ordinary share, fully franked
based on tax paid at 30%. Aggregate amount of the proposed dividend paid on 5 August 2004
(2003 – 15 July 2003) out of the general reserve of the company, but not recognised as a liability
at year end, is
3,921
2,526
MORT2276 Annual 2004 FINAL.indd 39
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11/10/04 1:10:41 PM
39
Notes to the financial statements continued
Franked dividend
The franked portions of the final dividends recommended after 30 June 2004 will be franked out of existing franking
credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2004.
Franking credits available for subsequent financial years based
on a tax rate of 30%
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
2,599
1,853
2,599
1,853
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a)
franking credits that will arise from the payment of the current tax liability;
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date;
(c)
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and
(d)
franking credits that may be prevented from being distributed in subsequent financial years.
Note 19 Financial instruments
(a)
Credit risk exposures
The credit risk on financial assets of the consolidated entity which have been recognised on the statement of
financial position, other than investments in shares, is generally the carrying amount, net of any provisions for
doubtful debts.
(b)
Interest rate risk exposures
The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate by maturity
periods is set out in the following table. For interest rates applicable to each class of asset or liability refer to
individual notes to the financial statements.
Exposures arise predominantly from assets and liabilities bearing variable interest rates as the consolidated entity intends to
hold fixed rate assets and liabilities to maturity.
2004
Financial assets
Cash and deposits
Receivables
Weighted average interest rate
Financial liabilities
Trade and other creditors
Weighted average interest rate
Net financial assets (liabilities)
Fixed interest maturing in:
Floating
interest
rate
$’000
Notes
1 year
or less
$’000
over 1
to 5 years
$’000
more
than
5 years
$’000
Non-
interest
bearing
$’000
Total
$’000
5
6
11
216
10,983
–
–
216
10,983
3.55%
5.13%
–
–
–
–
216
10,983
–
–
–
–
–
–
–
–
–
–
–
–
–
11,199
8,289
19,488
8,289
8,289
n/a
11,964
11,964
11,964
11,964
n/a
(3,675)
7,524
40
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2003
Financial assets
Cash and deposits
Receivables
Weighted average interest rate
Financial liabilities
Trade and other creditors
Weighted average interest rate
Net financial assets (liabilities)
Fixed interest maturing in:
Floating
interest
rate
$’000
Notes
1 year
or less
$’000
over 1
to 5 years
$’000
more
than
5 years
$’000
Non-
interest
bearing
$’000
5
6
11
255
–
255
8,322
–
8,322
3.50%
4.34%
–
–
–
–
255
8,322
–
–
–
–
–
–
–
–
–
–
–
–
Total
$’000
8,577
7,398
15,975
8,706
8,706
–
7,398
7,398
n/a
8,706
8,706
n/a
(1,308)
7,269
Reconciliation of net financial assets to net assets
Net financial assets as above
Non-financial assets and liabilities
Property, plant and equipment
Deferred tax assets
Other assets
Provision for employee benefits
Current tax liabilities
Other liabilities
Net assets per balance sheet
Notes
9
10
7
15
14
13, 15
2004
$’000
$’000
2003
$’000
$’000
7,524
7,269
1,862
1,158
1,223
(113)
(1,329)
(3,463)
6,862
1,628
954
138
(66)
(1,598)
(1,046)
7,279
Note 20 Director and executive disclosures
Directors
The following persons were directors of Mortgage Choice Limited during the financial year:
Chairman – non-executive
P D Ritchie (appointed 5 April 2004)
Executive directors
P A Lahiff, Managing Director (appointed 24 May 2004)
Non-executive directors
P G Higgins
R G Higgins
R Prowse (appointed 1 July 2003; resigned 5 April 2004)
P G Clare (appointed 1 July 2003; resigned 24 June 2004)
S C Jermyn (appointed 24 May 2004)
D E Ralston (appointed 24 May 2004)
Executives (other than directors) with the greatest authority for strategic direction and management
The following persons were the five executives with the greatest authority for the strategic direction and management of
the consolidated entity (‘specified executives’) during the financial year:
41
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Notes to the financial statements continued
Name
Position
C P Canty
Chief Operating Officer
E G Macgregor
Chief Financial Officer
M C Newton
Chief Information Officer
D M Hoskins
Company Secretary
I C Pepper
National Marketing Manager
All of the above persons were also specified executives during the year ended 30 June 2003. E G Macgregor resigned from
the position of Chief Financial Officer on 23 July 2004.
Remuneration of directors and executives
Principles used to determine the nature and amount of remuneration
The objective of the company’s executive reward framework is to ensure reward for performance is competitive and
appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and
the creation of value for shareholders, and conforms with market best practice for delivery of reward. The board ensures
that executive reward satisfies the following key criteria for good reward governance practices:
■ competitiveness and reasonableness;
■ acceptability to shareholders;
■ performance linkage/alignment of executive compensation;
■ transparency; and
■ capital management.
In consultation with external remuneration consultants, the company has structured an executive remuneration framework
that is market competitive and complimentary to the reward strategy of the organisation.
Alignment to shareholders’ interests:
■ has economic profit as a core component of plan design;
■ focuses on sustained growth in share price and delivering constant return on assets as well as focusing the
executive on key non-financial drivers of value; and
■ attracts and retains high calibre executives.
Alignment to program participants’ interests:
■ rewards capability and experience;
■ reflects competitive reward for contribution to shareholder growth;
■ provides a clear structure for earning rewards; and
■ provides recognition for contribution.
The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. As executives gain
seniority with the group, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards.
Non-executive directors
Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the
directors. The remuneration committee reviews non-executive directors’ fees and payments annually. The board has also
obtained the advice of independent remuneration consultants to ensure non-executive directors’ fees and payments,
including those of the Chairman, are appropriate and in line with the market. Non-executive directors do not receive share
options. Non-executive directors may opt each year to receive a percentage of their remuneration in Mortgage Choice
Limited shares pursuant to the Employee Share Purchase Plan.
Directors’ fees
The current base remuneration was last reviewed on 19 February 2004 and is based on the recommendations of
independent remuneration consultants. Directors do not receive additional remuneration for representation on board
committees. Peter Higgins and Rod Higgins each received an additional amount of $25,000 in the year ended 30 June
2004 by way of a representation allowance.
Shareholders in General Meeting on 5 April 2004 agreed to initially set the maximum aggregate remuneration of the board
(excluding the Managing Director and any executive director) at $750,000.
42
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Retirement allowances for directors
Non-executive directors do not receive retirement allowances. Superannuation contributions in accordance with relevant
superannuation guarantee legislation is paid on non-executive directors’ remuneration.
Executive pay
The executive pay and reward framework has four components:
■ base pay and benefits;
■ short-term performance incentives;
■
long-term incentives through participation executive and employee share plans; and
■ other remuneration such as superannuation.
The combination of these comprises the executive’s total remuneration. The company has introduced long-term
equity-linked performance incentives specifically for executives during the year ending 30 June 2005 at the time of the
listing of the company on the ASX.
Base pay
Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial
benefits at the executive’s discretion.
Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External
remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role.
Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market.
An executive’s pay is also reviewed on promotion.
There are no guaranteed base pay increases fixed in any senior executives’ contracts.
Benefits
Executives do not receive any benefits in addition to the remuneration identified in this note.
Retirement benefits
Retirement benefits are delivered under the Mortgage Choice Employees’ Superannuation Fund. This Fund is an
accumulation fund and provides benefits based on contributions made to the fund during the period of service.
Other retirement benefits may be provided directly by the company if approved by shareholders.
Short-term incentives
Should the company achieve a pre-determined profit target set by the remuneration committee then a pool of Short-
Term Incentive (STI) is available for executives for allocation during the annual review by the remuneration committee.
Cash incentives (bonuses) are payable in cash on or around 30 September each year. Using a profit target ensures variable
reward is only available when value has been created for shareholders and when profit is consistent with the business plan.
The incentive pool is leveraged for performance above the threshold to provide an incentive for executive out performance.
Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisation or
business unit performance. For senior executives the normal maximum STI target bonus opportunity is 30% of total
base salary. However, from time to time for special projects and circumstances, bonuses outside of this structure are
provided.
Each year, the remuneration committee considers the appropriate targets and Key Performance Indicators (KPIs) to link
the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan, and
minimum levels of performance to trigger payment of STI.
For the year ended 30 June 2004, the KPIs linked to short-term incentive plans were based on group, individual business
and personal objectives. The KPIs required performance in achieving specific profit objectives as well as other key,
non-financial measures linked to drivers of performance in the current and future reporting periods.
The short-term bonus payments may be adjusted up or down in line with under or over achievement against the target
performance levels. This is at the discretion of the remuneration committee.
The STI target annual payment is reviewed annually.
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43
Notes to the financial statements continued
Details of remuneration
Details of the remuneration of each director of Mortgage Choice Limited and each of the five specified executives of the
consolidated entity, including their personally-related entities, are set out in the following tables.
Directors of Mortgage Choice Limited
2004
Name
P D Ritchie
(from 5 April 2004 – 30 June 2004)
P A Lahiff*
P G Higgins
R G Higgins
R Prowse
(from 1 July 2003 – 5 April 2004)
P G Clare
(from 1 July 2003 – 24 June 2004)
S C Jermyn
(from 24 May 2004 – 30 June 2004)
D E Ralston
(from 24 May 2004 – 30 June 2004)
Total
Cash
salary
and fees
$
23,611
438,294
102,500
102,500
41,253
50,000
5,108
5,108
768,374
Primary
Post-employment
Equity
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
–
–
–
–
–
–
–
–
–
–
2,125
7,330
39,446
24,231
9,225
8,487
9,225
–
–
–
–
–
4,500
460
460
40,048
65,441
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,736
485,070
135,956
120,212
41,253
54,500
5,568
5,568
873,863
* P A Lahiff was appointed a director on 24 May 2004. Before this appointment he was the company’s Chief Executive Officer. Amounts
shown above include all Mr Lahiff’s remuneration during the reporting period, whether as a director or as Chief Executive Officer. Amounts
received in his position as a director amounted to $56,652, made up of cash salary and fees of $51,075, non-monetary benefits of $980
and superannuation of $4,597.
Total remuneration of directors of Mortgage Choice Limited for the year ended 30 June 2003 is set out below. Information
for individual directors is not shown as this is the first financial report prepared since the issue of AASB 1046 Director and
Executive Disclosures by Disclosing Entities.
2003
Total
Primary
Post-employment
Equity
Cash
salary
and fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
322,051
–
23,154
22,834
100,000
–
468,039
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Specified executives of the consolidated entity
2004
Name
C P Canty
(Chief Operating Officer)
E G Macgregor
(Chief Financial Officer)
M C Newton
(Chief Information Officer)
D M Hoskins
(Company Secretary)
Primary
Post-employment
Equity
Cash
salary
and fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
221,196
236,667*
19,993
36,647
218,526
66,435
191,025
22,306
174,956
25,000
–
–
–
–
35,646
19,200
15,746
17,460
–
–
–
–
–
–
–
–
–
–
–
–
514,503
320,607
232,531
215,702
211,462
1,494,805
I C Pepper
(National Marketing Manager)
158,623
35,379
Total
964,326
385,787
19,993
124,699
* C P Canty’s bonus included $95,000 higher duties allowances as acting CEO and other one-off payments relating to his terms and
conditions at that particular time.
Total remuneration of specified executives for the year ended 30 June 2003 is set out below. Information for individual
specified executives is not shown as this is the first financial report prepared since the issue of AASB 1046 Director and
Executive Disclosures by Disclosing Entities.
2003
Total
Share holdings
Primary
Post-employment
Equity
Cash
salary
and fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
866,747
182,803
17,084
101,246
–
–
1,167,880
The numbers of shares in the company held directly, indirectly or beneficially during the financial year by each director of
Mortgage Choice Limited and each of the five specified executives of the consolidated entity, including their personally-
related entities, are set out below.
Name
Directors of Mortgage Choice Limited
Ordinary shares
P G Higgins
R G Higgins
Balance at the
start of the year
Received during
the year on the
exercise of options
Other changes
during the year
Balance at the
end of the year
36,959,900
38,415,000
–
–
50
36,959,950
100,000
38,515,000
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45
Notes to the financial statements continued
Note 21 Remuneration of auditor
During the year the auditor of the parent entity and its related practices
earned the following remuneration:
PricewaterhouseCoopers Australian firm
Statutory audit of financial reports of the
entity or any entity in the consolidated entity
Other assurance services
Total audit and other assurance services
Taxation services
Initial Public Offering services
Total remuneration
Consolidated
Parent entity
2004
$
2003
$
2004
$
2003
$
89,500
90,000
89,500
90,000
108,155
45,000
108,155
45,000
197,655
135,000
197,655
135,000
92,609
179,540
92,609
179,540
391,510
–
391,510
–
681,774
314,540
681,774
314,540
Note 22 Contingent liabilities and contingent assets
Contingent liabilities
The parent entity and consolidated entity had contingent liabilities at 30 June 2004 in respect of:
Guarantees
Australian and New Zealand (ANZ) bank guarantee of $387,000 (2003 – $387,000).
Contingent claims
During the year, the company became aware of a possible liability in relation to claims from customers as a result of
advertising and promotional statements made by the company over the period from October 2002 to February 2004 in
which the company claimed its advice was unbiased. After taking into account the risks and uncertainties that surround
the circumstances of each possible claim, the directors consider that it is not possible to reliably estimate the potential
financial impact of any such claims.
The directors consider that the financial impact on the company of any such claims is unlikely to be material and will be
dependent on the number, amount and validity of any such claims which might be made against the company.
No material losses are anticipated in respect of any of the above contingent liabilities.
Contingent asset
At 30 June 2004, the company was aware of a possible settlement in relation to legal actions taken by the company
against a supplier for non-performance of contractual obligations. The contingent asset has not been recognised as a
receivable at 30 June 2004 as the amount of the settlement is dependent on final negotiations of a settlement and cannot
be reliably measured at this stage.
46
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Note 23 Commitments for expenditure
Operating leases
Operating lease expenditure contracted for at the reporting date but not
recognised as liabilities payable:
Within one year
Later than one year but not later than five years
Note 24 Employee benefits
Employee benefit and related on-cost liabilities
Included in other liabilities – current (note 11)
Provision for employee entitlements
– non-current (note 14)
Aggregate employee benefit and related
on-costs liabilities
Employee Numbers
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
706
1,970
2,676
723
2,437
3,160
706
1,970
2,676
723
2,437
3,160
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
503
113
616
454
66
520
503
113
616
454
66
520
2004
Number
2003
Number
2004
Number
2003
Number
Average number of employees during the financial year
91
88
91
87
Mortgage Choice Limited Employees’ Superannuation Fund
Most of the employees of the company are entitled to benefits on retirement, disability or death from the Mortgage
Choice Limited Employees’ Superannuation Fund. This Fund provides benefits based on defined contributions during an
employee’s years of service. Some employees have arrangements with other superannuation providers.
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47
Notes to the financial statements continued
Note 25 Related parties
Directors and specified executives
Disclosures relating to directors and specified executives are set out in note 20.
Wholly-owned group
The wholly-owned group consists of Mortgage Choice Limited and its wholly-owned controlled entities. Ownership
interests in these controlled entities are set out in note 26.
Transactions between Mortgage Choice Limited and other entities in the wholly-owned group during the years ended
30 June 2004 and 2003 consisted of:
(a)
loans advanced to Mortgage Choice Limited;
(b)
loans repaid by Mortgage Choice Limited;
(c)
loans repaid to Mortgage Choice Limited;
(d)
application for shares in subsidiary by Mortgage Choice Limited; and
(e)
distribution to Mortgage Choice Limited from a controlled trust.
All transactions between Mortgage Choice Limited and other controlled entities were made on normal commercial terms
and conditions, unless otherwise stated.
Note 26 Investments in controlled entities
Name of entity
Country of
incorporation
Class of shares
Equity holding
Cost of parent
entity’s investment
2004
%
2003
%
2004
$
2003
$
Finance Australia Pty Ltd
(trustee for MC Operations Trust)
MC Franchise System Pty Ltd
(trustee for MC Franchise Systems Trust)
FAC Pty Ltd
(trustee for Franchise Advisory Council Trust)
MC Operations Trust
MC Franchise Systems Trust
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia Ordinary units
Australia Ordinary units
Franchise Advisory Council Trust
Australia Ordinary units
MC Loan Book Security Pty Limited
(established 27 March 2002)
Mortgage Choice Insurance Broker Pty Ltd
Mortgage Choice (W.A.) Pty Limited
Redeemable
‘B’ units
Australia
Ordinary
Australia
Australia
Ordinary
Ordinary
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
2
2
2
10
10
10
250,000
2
2
100
100
100
250,140
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Note 27 Segment information
The Mortgage Choice group of companies operates predominantly in Australia and in one segment, the mortgage
broking industry.
Note 28 Reconciliation of operating profit after income tax to net cash Inflow from
operating activities
Operating profit after income tax
Depreciation and amortisation
Net (gain)/loss on sale of non-current assets
Change in operating assets and liabilities,
net of effects from purchase of controlled entity:
(Increase)/decrease in trade and other debtors
(Increase)/decrease in future income tax benefit
Decrease/(increase) in other assets
(Decrease)/increase in payables and other liabilities
Increase in provision for income taxes payable
Increase in other provisions
Non-cash transfer of fixed assets
Consolidated
Parent entity
2004
$’000
2003
$’000
2004
$’000
2003
$’000
9,962
6,285
9,963
6,284
894
4
968
(2)
894
4
(891)
(204)
(1,085)
3,259
(269)
47
–
(1,022)
536
64
788
(347)
105
–
(892)
(204)
(1,085)
2,994
(254)
47
–
968
(2)
(933)
536
(138)
640
6
520
(351)
Net cash inflow from operating activities
11,717
7,375
11,467
7,530
Note 29 Non-cash financing and investing activities
Transfer of plant and equipment from related parties to parent entity
Consolidated
Parent entity
2004
$’000
–
–
2003
$’000
–
–
2004
$’000
2003
$’000
–
–
351
351
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49
Notes to the financial statements continued
Note 30 Events occurring after reporting date
Matters subsequent to the end of the financial year:
(a)
Share issue
During July 2004, 2,196,600 shares were issued for 98.8 cents each resulting from the exercise of options prior to
transfer and allotment of shares under the Initial Public Offering.
(b)
Dividend payment
An interim dividend of $3,921,000 or 3.5 cents per share was declared out of the general reserve of the company
on 2 August 2004 and paid on 5 August 2004.
(c)
Reduction in capital
A capital reduction of $8,962,000 was paid on 6 August 2004 by returning 8 cents per share in cash to the existing
shareholders.
(d)
Initial Public Offering
On 10 August 2004, issue of 5.5 million ordinary shares to franchisees, employees and other persons raising
$5.37 million (net of issue costs of $405,000) and listing of the company on the ASX.
(e)
Accumulated losses offset by share capital reduction
On 9 August 2004, an offset by share capital reduction, of accumulated losses of $6.780 million against contributed
equity, occurred three business days after the transfer and allotment of Shares under the Offer.
The financial effect of the above transactions has not been reflected in the financial results or balances for the year ending
on 30 June 2004.
Note 31 Earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
2004
Cents
2003
Cents
9.1
9.1
5.7
5.7
Consolidated
2004
Number
2003
Number
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share and alternative basic earnings per share
109,830,000 109,830,000
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share and alternative diluted earnings per share
109,966,189 109,830,000
Options
Options which are considered to be potential ordinary shares and have been included in the determination of diluted
earnings per share. The options have not been included in the determination of basic earnings per share. Details relating to
the outstanding options at 30 June 2004 are set out in note 16.
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Directors’ declaration
The directors declare that the financial statements and notes set out on pages 26 to 50:
(a)
comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
(b)
give a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2004 and of
their performance, as represented by the results of their operations and their cash flows, for the financial year
ended on that date.
In the directors’ opinion:
(a)
the financial statements and notes are in accordance with the Corporations Act 2001; and
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become
due and payable.
This declaration is made in accordance with a resolution of the directors.
Peter Ritchie
Director
Sydney
21 September 2004
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51
Independent audit report to members of Mortgage Choice
Limited
PricewaterhouseCoopers
ABN 52 780 433 757
Darling Park Tower 2
201 Sussex Street
GPO BOX 2650
SYDNEY NSW 1171
DX 77 Sydney
Australia
www.pwcglobal.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
Audit opinion
In our opinion, the financial report of Mortgage Choice Limited:
(cid:120)
(cid:120)
gives a true and fair view of the financial position of Mortgage Choice Limited and Mortgage Choice Group
at 30 June 2004, and of their performance for the year ended on that date, and
is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory
financial reporting requirements in Australia.
This opinion must be read in conjunction with the rest of our audit report.
Scope
The financial report and directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement
of cash flows, accompanying notes to the financial statements, and the directors’ declaration for both Mortgage
Choice Limited (the company) and Mortgage Choice Group (the consolidated entity), for the year ended 30 June
2004. The consolidated entity comprises both the company and the entities it controlled during that year.
The directors of the company are responsible for the preparation and true and fair presentation of the financial
report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of
adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for
the accounting policies and accounting estimates inherent in the financial report.
Audit approach
We conducted an independent audit in order to express an opinion to the members of the company. Our audit
was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to
whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such
as the use of professional judgement, selective testing, the inherent limitations of internal control, and the
availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material
misstatements have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly, in
accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting
requirements in Australia, a view which is consistent with our understanding of the company’s and the
consolidated entity’s financial position, and of their performance as represented by the results of their operations
and cash flows.
Liability is limited by the Accountant's Scheme under the Professional Standards Act 1994 (NSW)
52
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We formed our audit opinion on the basis of these procedures, which included:
(cid:120)
(cid:120)
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in
the financial report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of
significant accounting estimates made by the directors.
When this audit report is included in an Annual Report, our procedures include reading the other information
in the Annual Report to determine whether it contains any material inconsistencies with the financial report
While we considered the effectiveness of management’s internal controls over financial reporting when
determining the nature and extent of our procedures, our audit was not designed to provide assurance on
internal controls.
Our audit did not involve an analysis of the prudence of business decisions made by directors or
management.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional
ethical pronouncements and the Corporations Act 2001.
PricewaterhouseCoopers
Wayne Andrews
Partner
21 September 2004
Sydney
Liability is limited by the Accountant's Scheme under the Professional Standards Act 1994 (NSW)
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Shareholder information
The shareholder information set out below was applicable as at 13 September 2004.
A. Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Class of equity security
Ordinary Shares
Shares
Options
Conditional
entitlements
30
214
162
257
52
715
1
2
3
13
13
There were 10 holders of less than a marketable parcel of ordinary shares.
B. Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
R G Higgins
P G Higgins
Ochoa Pty Ltd
Basscave Pty Limited
National Nominees Limited
Perpetual Trustee Company Limited
AMP Life Limited
Thorney Holdings Pty Limited
Australian National Credit Union Limited
Credit Union Australia Limited
UBS Private Clients Australia Nominees Pty Ltd
ANZ Nominees Limited
Cogent Nominees Pty Limited
Citicorp Nominees Pty Limited
Australian Central Credit Union Limited
J P Morgan Nominees Australia Limited
SCJ Pty Ltd atf Jermyn Family Trust
Caledonia Investments Limited
Madasar Pty Limited
HSBC Custody Nominees (Australia) Limited
Ordinary Shares
Number held
Percentage of
issued shares
17,216,583
15,761,534
14.64
13.40
9,620,000
9,520,000
8,962,380
4.768,118
3,457,500
3,038,095
3,000,000
3,000,000
2,794,619
2,246,944
2,044,500
2,036,766
2,000,000
1,902,088
1,500,000
1,417,915
1,391,949
1,326,557
8.18
8.10
7.62
4.05
2.94
2.58
2.55
2.55
2.38
1.91
1.74
1.73
1.70
1.62
1.28
1.21
1.18
1.13
97,005,598
82.49
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Unquoted equity securities
Options issued under the Executive Performance Option Plan
Conditional entitlements over ordinary shares pursuant to the
Performance Share Plan
C. Substantial holders
Substantial holders in the company are set out below:
Ordinary shares
R G Higgins and Ochoa Pty Ltd
P G Higgins and Basscave Pty Limited
AMP Limited
Number
on Issue
Number
of holders
517,400
422,300
3
13
Number held
Percentage
26,841,583
25,286,534
7,370,000
22.83
21.50
6.27
D. Voting rights
The voting rights attaching to each class of equity securities are set out below:
(a)
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share shall have one vote.
(b)
Options
No voting rights
(c)
Conditional entitlements
No voting rights
E. Voluntary escrow arrangements
52,128,117 ordinary shares in the capital of the company are subject to voluntary escrow. These restrictions will end on the
date on which ASX receives the company’s preliminary final report under the ASX Listing Rules for the financial year ending
30 June 2005.
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55
Directory
Directors
Secretary
P D Ritchie
Chairman
P A Lahiff
Managing Director
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
D M Hoskins
Senior management
Chief Operating Officer
C P Canty
Chief Financial Officer
P V Borg
Chief Information Officer
M C Newton
National Marketing Manager
I C Pepper
Group Franchise Manager
M B McDonald
National Corporate Affairs Manager
W J O’Rourke
National Lending Manager
D A Player
Notice of annual
general meeting
The annual general meeting of Mortgage Choice Limited
will be held at: PricewaterhouseCoopers
Level 10
Darling Park Tower 2
201 Sussex Street
Sydney NSW
time:
11:00 am
date:
18 November 2004
A formal notice of meeting is enclosed.
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Principal registered office
in Australia
Level 7
182 – 186 Blues Point Road
North Sydney 2060
(02) 8907 0444
Share and debenture
register
ASX Perpetual Registrars Limited
Level 8, 580 George Street
Auditor
Solicitors
Bankers
Sydney 2000
1800 054 388
PricewaterhouseCoopers
Chartered Accountants
Darling Park Tower 2
201 Sussex Street
Sydney 1171
Minter Ellison
Aurora Place, 88 Phillip Street
Sydney 2000
ANZ Banking Group Limited
116 Miller Street
North Sydney 2000
Stock exchange listings
Mortgage Choice Limited shares are listed on the Australian Stock Exchange.
Website address www.mortgagechoice.com.au
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