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C O N T E N T S
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C h a i r m a n ’ s R e p o r t
M a n a g i n g D i r e c t o r ’ s O v e r v i e w
F i n a n c i a l H i g h l i g h t s
R e v i e w o f O p e r a t i o n s
S t r a t e g y a t a G l a n c e
O u t l o o k
B o a r d o f D i r e c t o r s
S e n i o r M a n a g e m e n t
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C o r p o r a t e G o v e r n a n c e N o t e
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F i n a n c i a l R e p o r t
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D i r e c t o r s ’ R e p o r t
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C H A I R M A N ’ S R E P O R T
In Mortgage Choice’s first year as a listed company we saw
an unsettled housing market influenced by uncertainty
around interest rates and house prices in some states,
a declining residential property investment market in NSW and
an increasingly competitive mortgage broking marketplace.
Despite these challenging competitive market
Franchise growth was slower than expected
conditions nationally, Mortgage Choice has
this financial year, with Franchise numbers
achieved another strong year of growth.
rising from 399 to 407. The current state of the
The continued commitment of our Franchise
network to high levels of customer satisfaction,
plus the support and commitment of the group
office and state office teams, were central to
our success.
The financial result for the year to 30 June 2005
was a net profit after tax of $12.7 million, up
28% on the previous period and a more positive
result than our Prospectus forecasts for FY2005.
The Board has declared a second half fully
franked dividend of 6.0 cents per share, bringing
the total dividend for the year to 9.8 cents per
share. This represents a payout ratio of 90%, a
little higher than the Prospectus forecast of 89%.
employment market, the competition for new
Franchisees and a conscious decision to target
quality over quantity made this a particularly
challenging year for recruitment.
This business is built on a series of partnerships.
Central to our success is the partnership with
our Franchise network, a team of committed,
independent businessmen and businesswomen
who put enormous energy into meeting their
customers’ needs and, as a result, grow their
own businesses.
Our lender partners are also critical as they
provide us with the products and services
demanded by customers, and become
increasingly attuned to changes in those
Central to our success is the
demands.
partnership with our Franchise network.
Earnings per share were 10.9 cents per share
compared to 9.1 cents per share in FY2004.
Housing loan approvals during the financial year
to 30 June 2005 were broadly in line with the
Prospectus forecast at $9.26 billion. Our loan
book has grown to $21.7 billion at year’s end,
23% up on the previous year end. The weighted
average life of loans has extended to 3.8 years
from 3.4 years over that period.
To our staff, my heartiest congratulations.
Managing Director Paul Lahiff has led the team
through a challenging and successful year.
As one of Australia’s leading mortgage brokers,
we enter a new financial year well positioned to
compete and grow. The Directors believe that
we can continue to exceed our stakeholders
expectations next year and beyond.
I look forward to continuing to work alongside
a motivated team of high achieving Franchisees
and their staff, successful lending partners and a
talented management team and staff.
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1
M A N A G I N G
D I R E C T O R ’ S O V E R V I E W
Mortgage Choice, and the mortgage industry in which it operates,
never stands still. After 25 years in financial services, I remain
impressed at the twists and turns the industry encounters and
at the same time its resilience and success in addressing them.
The Housing Finance Market
However, this did not reflect a more unsettled
Throughout the year there was much written
and discussed about the housing property
housing market, particularly in New South Wales
(NSW).
market and the direction of housing finance. We
The chart below shows the trend in residential
took the view in our forecast for the financial
housing loan approvals over time, together
year to 30 June 2005, that there would be a
with interest rates. There is a strong correlation
downturn in demand but not a crash.
between the lower interest rate band
Based on current ABS data, the number of new
commencing in 1998 and the upward and
loans written overall remains relatively stable.
sustained demand for residential housing finance.
Housing Finance Market and Mortgage Interest Rates 1984 – 2005
(cid:18)(cid:18)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)
(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:83)
(cid:78)
(cid:79)
(cid:73)
(cid:76)
(cid:76)
(cid:73)
(cid:77)
(cid:172)
(cid:4)
(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:9)
(cid:5)
(cid:8)
(cid:172)
(cid:77)
(cid:85)
(cid:78)
(cid:78)
(cid:65)
(cid:172)
(cid:82)
(cid:69)
(cid:80)
(cid:172)
(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:69)
(cid:71)
(cid:65)
(cid:71)
(cid:84)
(cid:82)
(cid:79)
(cid:77)
(cid:69)
(cid:66)
(cid:65)
(cid:73)
(cid:82)
(cid:65)
(cid:86)
(cid:172)
(cid:172)
(cid:76)
(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:18)(cid:16)(cid:16)(cid:21)
(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:84)(cid:79)(cid:172)(cid:19)(cid:16)(cid:172)(cid:42)(cid:85)(cid:78)(cid:69)
Source: RBA & ABS Data.
2
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In March 2005, the Reserve Bank of Australia
Performance
increased the cash rate to 5.5%. In the months
leading up to this decision, there was a strong
shift towards fixed rate loans, reflecting consumer
unease with the possible direction of interest
rates. Since that time this trend has abated, which
suggests consumers are more confident about the
stability of interest rates going forward.
While loan approvals have only slightly reduced,
system growth – the growth in outstanding
“stock” of housing loans – continues to record
a steady growth of around 14.7% annualised*
although this is down from a peak of 21% in
February 2003.
The year under review for Mortgage Choice has
been very pleasing. The strength and reputation
of our business model and the Franchise network
have been recognised through a number of
industry accolades.
These include:
■ Australian Banking & Finance Magazine –
Best Mortgage Broker (an award also won
in 2004);
■ Mortgage Industry Association of Australia
– Originator of the Year (30+ staff);
■ Australian Mortgage Awards –
Best Branding and Most Effective Internet
*Source – Revised RBA Data 31 August 2005.
Presence; and
Housing Credit (incl securitisations)
(cid:8)(cid:4)(cid:66)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:9)
(cid:51)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:172)(cid:71)(cid:82)(cid:79)(cid:87)(cid:84)(cid:72)
(cid:17)(cid:21)(cid:14)(cid:16)(cid:5)
(cid:22)(cid:23)(cid:20)(cid:14)(cid:23)
(cid:22)(cid:19)(cid:20)(cid:14)(cid:19)
(cid:21)(cid:24)(cid:22)(cid:14)(cid:23)
(cid:51)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:172)(cid:71)(cid:82)(cid:79)(cid:87)(cid:84)(cid:72)
(cid:17)(cid:25)(cid:14)(cid:21)(cid:5)
(cid:21)(cid:20)(cid:18)(cid:14)(cid:20)
(cid:20)(cid:25)(cid:16)(cid:14)(cid:24)
■ Australian Mortgage Awards –
Franchise Operation of the Year 2004.
The work undertaken to enhance our Franchise
induction training module, which now includes
Certificate IV in Financial Services (Finance &
Mortgage Broking) – a minimum entry-level
education requirement for loans consultants with
less than two years mortgage broking experience –
is testimony to our commitment to the professional
development of our Franchise network, both
new and existing. It is pleasing to note that, at
year end, over 200 existing loan consultants have
commenced the course and already in excess of
(cid:42)(cid:85)(cid:78)(cid:172)(cid:16)(cid:19)
(cid:36)(cid:69)(cid:67)(cid:172)(cid:16)(cid:19)
(cid:42)(cid:85)(cid:78)(cid:172)(cid:16)(cid:20)
(cid:36)(cid:69)(cid:67)(cid:172)(cid:16)(cid:20)
(cid:42)(cid:85)(cid:78)(cid:172)(cid:16)(cid:21)
50 have completed it.
Source – Revised RBA Data 31 August 2005.
Partnerships
Regulation
Regulation of the mortgage broking industry
remains a critical part of Mortgage Choice’s
agenda. In November 2004, the NSW Department
of Fair Trading released a Discussion Paper on a
proposal for National Uniform Regulation. We were
happy with the overall thrust of the paper and are
keen to see it progress to legislation.
One area of disappointment however, was the
The relationship with our Franchise partners is
of paramount importance. The principal vehicle
through which high-level discussion takes place is
through our Franchise Advisory Council (FAC). The
FAC continues to be highly effective and provides a
valuable bridge between Franchisor and Franchisee.
A pleasing validation of the success of the team
is the continued high ratings customers give to
our Franchise owners and their staff. A survey is
conducted each month of 200 recent customers
Discussion Paper recommendations allowing States
and in two very important areas of potential for
and Territories to “opt out” of a licensing regime. If
repeat and referral business, Mortgage Choice
“positive licensing” is viewed as the most desirable
consistently scores in the high 80 percentile and
approach to adopt (which we believe it is), such
over. Indeed, for July 2005 in these two areas we
an initiative must be implemented across all areas
achieved a rating of 94%.
uniformly so as to ensure all brokers follow the
Naturally, the results we detail in the following pages
same standards, irrespective of their location. This
require two further effective partnerships:
is surely in the best interests of all consumers.
the constant innovation and flexibility of our lender
As part of our continued push for greater
panel and the enthusiasm and dedication of our staff.
consumer protection, Mortgage Choice lodged
Finally, I want to acknowledge the support of the
a comprehensive response. A regulatory impact
Board throughout the past year. Their wise counsel
statement is expected later this year.
and commitment to the vision and ideals of the
Company have made a profound contribution.
I look forward with confidence to the year ahead.
MORT3019 Report 05 Fa6b.indd 3
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3
■ Record net profit after tax $12.7 million, up
■ Mortgage Choice handled $9.26 billion in
28% on FY2004 $9.96 million.
housing loan approvals during FY2005.
■ Total operating revenue $110.5 million, up
■ Loan book now stands at $21.7 billion,
7.4% on previous period and 3.3% above
23% up on FY2004, this compares to system
Prospectus forecasts.
growth of 14.7% year on year.
■ Earnings per share 10.9 cents per share
■ Franchise network growth slower than
compared to 9.1 cents per share in FY2004.
anticipated but consistent with Franchise
■ Dividend 6.0 cents per share brings FY2005
industry trends.
total to 9.8 cents per share – above Prospectus
■ 94%* of customers indicate a desire to
forecasts.
conduct repeat business with Mortgage Choice.
■ Trailing commission up as % of total income
*Source – Mortgage Choice Customer Satisfaction
to $53.5 million – FY2005 48.4% compared
Survey – July 2005.
with FY2004 40.5%.
F I N A N C I A L H I G H L I G H T S
Mortgage Choice Limited achieved a record
This reflects the strength of the Mortgage
net profit after tax for the year ended 30 June
Choice broker network in the eastern states of
2005 of $12.7 million, up 28% on the previous
Australia where property prices are higher.
corresponding period.
Included in the result is non-recurring other
Total operating revenue for the year to
income of $600,000 arising from settlement of
30 June 2005 was $110.5 million, including
an outstanding legal matter.
total commission income of $106.9 million.
This included $53.4 million derived from new
mortgage origination, marginally down on the
previous year. This was due in part to origination
income being influenced by prevailing market
conditions in 2004, interest rate increases in
late 2003 and a slightly more unsettled housing
market (particularly in NSW). This was offset by
increased trailing commission income of $53.5
million, now marginally more than 50% of total
commission income.
The number of new loans written in the
market overall has remained relatively stable.
The average size of loans written by Mortgage
Choice brokers has continued to increase, and
now stands at $224,100, 6.8% higher than the
ABS average of $209,800.
Net assets at 30 June 2005 were $9.8 million
compared to $6.9 million at 30 June 2004. The
balance sheet is underpinned by $11.5 million in
cash on hand (2004 – $11.2 million).
Cash flow from operating activities during the
year was $14.4 million compared to $11.7 million
in the previous year. Net cash flow was $0.3
million after capital expenditure of $1.9 million
and net cash out flows for financing activities
of $12.2 million, being dividends, capital
distributions and net of proceeds from the issue
of shares under the Prospectus and options
exercised.
4
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R E V I E W O F O P E R A T I O N S
Competitive advantage
Mortgage Choice believes that the combination
of the fundamental components of its business
model provide it with competitive advantages
over other brokers in the marketplace:
■ high quality service: Mortgage Choice
continually aims to provide a high level of
support to its Franchisees;
‘The Franchise Advisory Council
■ Franchise business model: Mortgage
continues to be highly effective and
Choice operates through a national network
of Franchisees. The relationship between the
Franchisees and the Company is underpinned
by the Franchisees being incentivised to grow
their business whilst valuing the services and
policies provided by the Company;
provides a valuable bridge between
Franchisee and Franchisor’
■ brand: Mortgage Choice is recognised as a
Mortgage Choice assists customers in the
leading consumer brand and has been built
selection of a mortgage from a complex range
upon a proposition of being the advocate of
of products available via its lender panel by
A complex marketplace
the customer;
■ 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;
■ strength of lender relationships:
Mortgage Choice generates significant loan
volumes for lenders and this places it in a
strong position to shape key operational
relationships with lenders; and
■ economies of scale: Mortgage Choice’s
loan book is 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.
identifying the most suitable loan, based on
an individual’s particular needs. Customers are
provided a choice across a broad range of over
300 housing loan products offered by a panel
of 28 of Australia’s leading lenders, representing
each major category of lender.
Mortgage Choice brokers use the Company’s
proprietary software system to compare the
customer’s loan requirements with the products
offered by the lender panel. The system
generates a list showing which lenders would
approve the customer’s application according
to details given. Based upon the customer’s
circumstances, the broker then uses the system
to analyse features of loan products to identify
those most suitable to the customer.
Completed loan application forms are
submitted and followed up 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.
5
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Electronic lodgement
Electronic lodgement allows faster turnaround time
for loan applications by taking data input direct
■ efficiency: A broker’s familiarity and experience
with each lender’s process can increase the efficiency
of the lodgement and settlement process.
from the broker to the lender’s underwriting system.
A review of Mortgage Choice’s Commercial Lending
Mortgage Choice submitted its first loans
electronically in May 2004. In FY2005, almost
$1 billion in new loans was lodged electronically.
To date, eight lenders are participating. With an
expected increase in participating lenders over the
next twelve months, we anticipate there will be
an appreciable increase in the volumes submitted
through this platform.
Drastically reduced approval times are already being
experienced, and the end beneficiary of this service
is the consumer.
Lender partners
Mortgage Choice recognises the importance
of developing and nurturing the relationships
between broker and lender. Dedicated staff oversee
the operational relationship the Company and
program was instigated in March 2005, with the
revised program being launched in July 2005.
The new Commercial Property Lending program
provides a number of positive changes for
Franchisees, including an expanded lender panel and
availability to the entire Franchise network.
Franchise operations
Mortgage Choice licenses the use of the Mortgage
Choice name and business systems to its Franchise
network. Accredited loan writers (mortgage brokers)
comprise Franchisees and their loans consultants.
The relationship between Mortgage Choice and its
Franchisees is governed by a Franchise Agreement
and an Operations Manual that sets out the
Company’s policies and procedures, including
minimum performance standards.
its Franchisees have with the lender panel. This
Franchisees may grow their businesses by acquiring
team provides lenders with structured access to
other Franchises. Franchisees who own more than
the Franchise network and promotes operational
one Franchise are called Multiple Franchise Owners
effectiveness by working with lender partners to
(MFOs).
improve service and processing efficiencies.
Mortgage Choice restricts the number of
The addition of the Newcastle Permanent Building
Franchisees it recruits in each geographic region
Society during the year increased the number of
under its broker resource model, which segments
Mortgage Choice lender panel members to 28.
the market into postcode defined marketing areas.
Mortgage Choice is currently the only mortgage
This model analyses the number of households and
broker with access to Newcastle Permanent’s range
the residential lending market size (based on Census
of highly competitive products.
The panel includes Australia’s leading lenders,
data) in each postcode, and allocates Franchises
based on target market share in each area.
providing a cross-section of products that Mortgage
Mortgage Choice Franchisees come from a variety
Choice considers to be a representative and wide
of backgrounds and the Company believes that sales
ranging spread of available, quality housing loans.
ability, inter-personal skills, commitment, energy and
Mortgage Choice believes the benefits enjoyed by
ambition are usually more important than previous
lenders include:
■ volume: Brokers provide incremental mortgage
business that would not necessarily be generated
through the lender’s branch or other networks;
■ cost flexibility: By outsourcing an element of
their origination business, lenders attract new
business on a variable cost basis;
■ education: Aided by specialist skills and product
knowledge, brokers educate consumers on the
industry experience.
Learning and development
Mortgage Choice is committed to deliver the most
knowledgeable, competent and ethical mortgage
brokers in the industry, by providing a continuous
and powerful learning and development program
that is respected by lenders, competitors and
professional associations. The learning program
involves the delivery of skills, knowledge and tools
full range of mortgage products offered by
to enable our network to be the best they can be at
lenders on the Company’s panel;
what they do.
■ geographic expansion: Brokers have facilitated
low cost geographic expansion for lenders into
On joining Mortgage Choice, all Franchisees undertake
comprehensive training (which is accredited by the
areas where branch networks are less extensive
MIAA), lender accreditation and an in-the-field
or do not exist;
■ profitability: By originating mortgages of a
higher average loan size, broker sourced business
can be as or more profitable than business sourced
through the branch or other networks; and
mentoring program that is formally conducted on a
Franchise to Franchise basis. Once the initial training is
completed, brokers receive regular updates and support
from the state office infrastructure and at conferences.
6
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Franchisee support services
Mortgage Choice works closely with its Franchisees
in growing their businesses through assistance in
lead generation, training, brand and marketing
support, field support, regulatory compliance,
information systems and other ongoing support
services. These services are provided by group
office staff located in Sydney (e.g. lender panel
Group office engages in national and statewide
marketing that generates leads through the
Mortgage Choice Customer Service Centre, and aims
to build a trustworthy brand that may be leveraged
by Franchisees in their local area marketing.
Customer Service Centre leads are distributed
by Group office to the Franchise network on an
equitable basis by marketing area.
negotiations and payment reconciliations) and state
Mortgage Choice also facilitates referral marketing
offices that also provide a number of administrative
activities, designed to assist Franchisees in
support processes. Mortgage Choice aims to
generating referrals from their local network of
continually improve the support, resources and
customers and contacts.
training offered to the Franchise network to make
their businesses as efficient as possible.
Franchise consultation
Mortgage Choice realises that without Franchise
support for its initiatives, they will not be as effective
as planned. To this end, the Company continues to
ensure there is adequate consultation on key national
projects. In FY2005, key projects such as the new
payments system, the strategy review process, and
marketing and brand differentiation initiatives involved
extensive consultation and review by Franchisees.
The Franchise Advisory Council, a democratically
elected group of representative Franchise owners,
formally meets bi-monthly with senior management
to discuss matters of strategic and operational
interest.
Branding, marketing and promotion
Over a number of years, Mortgage Choice has
created a trusted and recognisable brand through its
marketing activities and a long-term brand strategy
built upon Mortgage Choice’s consumer advocacy.
Mortgage Choice’s marketing activities incorporate
two elements:
■ national and state-wide marketing, managed by
group office; and
■ local marketing activities, managed by
Franchisees.
National campaigns are developed regularly and full
marketing support is provided to all Franchisees. This
is complemented by a well planned, proactive public
relations strategy designed to build and maintain a
positive profile for Mortgage Choice by articulating
company and industry understanding to consumers
through media coverage on every level from local to
national outlets.
In addition, the Company recently launched an
enhanced website with a re-engineered platform
designed to provide customers with easier access
to information and support its lead generation
activities. Franchisees are also provided with their
own ‘mini-site’ within the Mortgage Choice website
so that they can profile their business and its people,
with the purpose of attracting customers.
Brand differentiation workshops were held with
the Franchise network in each state. The outcome
was the further development and implementation
of a differentiation strategy built around trust and
transparency, to create a solid marketing foundation
for the Company in FY2006.
Information technology
Mortgage Choice currently utilises proprietary
software as its core business application. Mortgage
Choice Software (MCS) is used by Franchisees to
record customer information and preferences,
pre-qualify potential loan applicants and confirm
loan approval details.
During the past year, the first two modules of the
Company’s new Enterprise Information System were
implemented. The Franchise Management module
was implemented in November 2004, followed by the
Supplier Management module in May 2005. Another
four modules will be implemented during calendar
year 2005, followed by the final module during the
first half of calendar year 2006.
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S T R A T E G Y A T A G L A N C E
During the year Mortgage Choice embarked on a wide-ranging
and highly consultative strategic planning process. As a sales
organisation, the acronym “S.A.L.E.S.” was an appropriate
outcome from a joint review by Franchisees and staff.
Strong Marketing means:
■ effort and substantial incremental investment in
differentiated branding; and
■ maintaining current activity to maintain business
leads – even in unsettled market conditions.
Add-ons means:
■ complementary diversification.
Lender Partnership means:
■ recognition of quality and professionalism.
Efficiency means:
■ boosting current network productivity, not just
network size;
■ deploying our staff where we get best value
from them;
■ seamless project implementation and execution;
and
■ a listening partnership.
Shop Growth means:
■ create a supportive infrastructure;
■ ‘best practice’ development;
■ access quality information; and
■ facilitate Franchisee growth where appropriate.
Over the last twelve months, the strong growth
retail as a profitable growth strategy for their
in the number of retail premises has continued.
business. Locating Mortgage Choice outlets
Franchisees are choosing, where appropriate,
close to other complementary businesses and
to relocate their offices or opening new
increasing the presence in local communities
shop-fronts, kiosks or heavily branded offices
continues to bring new and repeat customers to
in high street retail strips and shopping
Mortgage Choice.
centres. The retail network grew by 39 to 163
permanent outlets as at 30 June 2005.
The benefits to customers from a larger retail
footprint, of greater channel choice and
The ongoing growth in the retail footprint
strengthening the Mortgage Choice brand,
is being driven by Franchisees, supported by
will ensure the growth in the number of retail
Mortgage Choice, who see the move into
premises continues.
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O U T L O O K
Mortgage Choice operates as a residential mortgage specialist
and this has facilitated consistent growth via a focused approach
and a refinement of expertise.
Mortgage Choice intends to remain focused on
Mortgage Choice expects some consolidation
the residential mortgage broking market for the
to occur in the mortgage broking industry.
foreseeable future. The Company believes that,
A number of factors could potentially act
given the relative immaturity of the broking
as catalysts, including a stricter regulatory
sector, the overall size of the housing finance
environment, economies of scale in marketing,
market and the attraction of the broking
support and administration, and a preference by
proposition to consumers, there remains strong
lenders to deal with a smaller number of larger,
potential for brokers as a whole to increase their
high quality broker organisations.
share of mortgage origination and for Mortgage
Choice to increase its market share within the
Summary
broking sector.
Mortgage Choice intends to
remain focused on the residential
mortgage broking market for the
foreseeable future.
Mortgage Choice is confident that it is well
placed to achieve profitable growth in the
coming year, albeit at a more modest level.
Tight expense control, improved broker
recruitment and the ability to scale up the
business with minimal additional cost will
continue to be important going forward.
Mortgage Choice believes this focus on its core
competency represents a low risk, high potential
growth strategy.
Incremental revenues from ‘add on’ products
such as Insurance and Commercial Property
Lending should allow Mortgage Choice to
benefit from economies of scale, as revenue
growth will not be proportionately matched by
growth in the cost base.
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9
B O A R D O F D I R E C T O R S
Peter Ritchie, AO
Non-executive Chairman
Chairman of Nomination and Remuneration Committees
BCom, FCPA
Peter is a Director of Seven Network and University of NSW Foundation, and Chairman of 1800
Reverse. Peter previously served as Managing Director of McDonald’s Australia from 1974 to 1995
and as its Chairman from 1995 to 2001. Peter was a Director of Westpac Banking Corporation
from 1993 to 2002 and Solution 6 Holdings from 2000 to 2002. Age 63.
Paul Lahiff
Managing Director
BSc Agr, FAIM
Paul has over 25 years experience in the financial services industry. This includes roles as Managing
Director of Permanent Trustee Limited from 1999 to 2002 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 company operations to
ensure continued growth and development of the business. Age 53.
Peter Higgins
Non-executive Director
Member of Audit Committee
Peter is co-founder of Mortgage Choice. He is also a Director of a technology company – Power
& Data Corporation Pty Ltd. 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 45.
Rodney Higgins
Non-executive Director
Member of Nomination and Remuneration Committees
Rodney is co-founder of Mortgage Choice. He has a background in residential and commercial
property, sales, leasing and has been a Director of companies involved in manufacturing,
wholesaling, importing, retailing and finance. Age 51.
Deborah Ralston
Non-executive Director
Member of Audit Committee
PhD, FAIBF, FAIM, FCPA
Deborah is Professor of Finance and Dean, Faculty of Business at the University of the Sunshine
Coast. 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 52.
Steve Jermyn
Non-executive Director
Chairman of Audit Committee
FCPA
Steve joined McDonald’s Australia Ltd in 1984 and was appointed Vice President in 1986.
He joined the Board of Directors in 1986, was appointed Executive Vice President in 1993 and
in June 1999 was appointed Deputy Managing Director. Steve has been involved in all aspects
of the development of McDonald’s in Australia and brings with him significant experience in the
development of new business and franchising. Age 56.
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S E N I O R M A N A G E M E N T
Profiles of senior management other than Paul Lahiff follow:
This area has major responsibilities in the management,
Tony Crossley
Chief Operating Officer
Tony has over 15 years experience in senior financial roles
within the financial services industry, including from early
development and support of the Mortgage Choice Franchise
system. Brent has extensive involvement with the Franchise
Council of Australia (FCA), and is the current NSW FCA State
Chapter President and a member of the FCA Board. Brent
has a Bachelor of Applied Science from the University of
2000, three years as CFO and then CEO of Mortgage Choice.
Western Sydney.
After a period as CFO of Macquarie Bank’s Securitised
Lending Division, where he had responsibility for the funding
and risk management activities of its mortgage operations,
Warren O’Rourke
National Corporate Affairs Manager
Tony returned to Mortgage Choice in early 2005. Tony is
Warren holds a Marketing degree from the University
responsible for effective working relationships between
of Technology, Sydney. He has over 20 years experience
Mortgage Choice and its Franchisees as well as operations,
in financial services in marketing and communications,
sales and lender relationships.
Adam Fraser
Chief Financial Officer
Adam holds an Economics degree from the University of
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,
Nottingham and is a qualified accountant, with over 12
communications and media issues.
years experience in accounting, corporate finance and
private equity roles in the UK and Australia. His role involves
directing and controlling the organisation’s financial activities
Ian Pepper
National Marketing Manager
plus providing financial assessments and information to
Ian has a Bachelor of Economics from Macquarie University
ensure planning and budgeting activities meets corporate
and trained to be a Chartered Accountant with Coopers
goals. Adam joined Mortgage Choice in March 2003.
& Lybrand. Following four years in London with Coopers
Mark Newton
Chief Information Officer
Mark has over 18 years experience in information
technology, including 12 years in senior management
& 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
positions. Mark joined Mortgage Choice in May 2000. As
marketing tools, referral marketing and brand integrity.
Chief Information Officer, Mark is responsible for IT strategy,
applications development and infrastructure management.
Mark holds a Diploma in Computer Programming
Debra Player
National Lending Manager
Technology and a Business Management Certificate from the
Debra has over 20 years experience in the finance sector.
Australian Institute of Management.
As National Lending Manager, she is responsible for the
David Hoskins
Company Secretary
development and communication of lender strategy,
co-ordination of lender interaction with the Franchise
network and monitoring of industry trends. Debra joined
David commenced with Mortgage Choice in June 2000. He
Mortgage Choice in July 2004. She holds a Graduate
has a Bachelor of Commerce from the University of NSW,
Diploma in Finance and Bank Management, is a Fellow of
is a CPA and a member of Chartered Secretaries Australia,
the Australian Institute of Banking and Finance and Fellow
from which he received a Graduate Diploma in Corporate
and Councillor for the Institute of Financial Services.
Management. David has over 20 years experience in
accounting and company secretarial functions, primarily in
the finance and insurance industries. As Company Secretary,
Michael Writer
National Human Resources Manager
he implements and monitors corporate governance practices,
Formerly National Manager Leadership and Talent
compliance and corporate standards, administers Board and
Development with Deloitte and having worked previously
Shareholder matters, and co-ordinates legal counsel.
at AMP Bank, Aussie Home Loans and Westpac, Michael’s
Brent McDonald
Group Franchise Operations Manager
experience covers line management positions as well as
organisational development activity. Michael is responsible
for the planning, development and implementation of Group
Brent has over 20 years experience in franchising and small
Office HR practices, ensuring policies and procedures are
business management. He joined Mortgage Choice in
effective and met by staff.
November 1998 and is responsible for Franchise Operations.
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C O R P O R A T E G O V E R N A N C E N O T E
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.
The Company considers that it substantially complies with the ASX Corporate Governance Council’s Principles of Good
Corporate Governance and Best Practice Recommendations, with the following exception:
■ compliance with the requirement that the Board comprise a majority of independent non-executive Directors.
T H E BOA RD
The Board comprises Mortgage Choice’s Managing Director, two non-executive Directors and three independent non-
executive Directors including the Chairman. Peter Ritchie, Steve Jermyn and Deborah Ralston were appointed as non-
executive Directors in the period to the Company’s listing on the ASX . These individuals bring a long history of public
company, operational and franchising experience with them and assist in overseeing the corporate governance of
Mortgage Choice. Details of the Directors’ experience, expertise, qualification, term of office and independent status are
set out in the section headed ‘Board of Directors’ on page 10.
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;
– 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.
The Board is not presently comprised of a majority of independent non-executive Directors. At this time the view of the
Board is that the present skills and experience of the Directors has provided an operationally effective board without the
expense of an additional Director. However, the Board will continue to give consideration to increasing the number of
Directors to seven by the appointment of an additional non-executive Director if it is considered that the skills and
experience brought by the individual supplement those of the existing Board.
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;
■ providing strategic advice to management;
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■ 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.
Directors’ independence
The Board Charter sets out specific principles in relation to Directors’ 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 which 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 which 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 relatively short tenure of the present Board, a performance assessment has not been conducted at this stage.
A review of the Board is planned for the first half of the financial year ended 30 June 2006.
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13
Corporate governance continued
BOA RD CO MM I T T EES
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.
CO DES O F CO N DUCT
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. 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);
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■ 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.
CORP OR AT E REP ORT I NG
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.
CO N T I N UOUS DISCLOSU RE
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,
www.mortgagechoice.com.au, in compliance with the continuous disclosure requirements of the Corporations Act 2001
(Cth) and ASX Listing Rules.
CO M M U N I C AT I O N TO SH A REHO L DER S
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.
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15
Corporate governance continued
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, 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.
E X T ERN A L AU DI TOR
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.
CO MPL I A N CE A N D RISK M A N AGEMEN T
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 has developed and implemented a compliance program. The aim of the program is to promote a culture of
compliance through a number of measures including staff and Franchise network training, compliance procedures,
support systems and the appointment of staff responsible for compliance.
The centrepiece of the program is a web based compliance education and evaluation tool. A self paced system, it covers
the key legislative and regulatory obligations applicable to the business. Each major regulatory area (Trade Practices,
Privacy, Equal Opportunity, Occupational Health and Safety, Technology, Franchising, Credit Code) is covered. All current
staff have completed all modules and must do so a minimum of once per annum. New staff must complete the program
within two months of commencing employment. The Board is presently completing all modules. Plans are well advanced
for rolling out the program to the Franchise network from late October 2005, with all network staff being expected to
complete those modules relevant to their roles within six months.
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 2005
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
32
33
34
35
55
56
58
60
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
D I R E C T O R S ’ R E P O R T
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 2005, referred to hereafter as ‘Mortgage Choice’,
‘the Mortgage Choice group’ or ‘the group’.
1. DI RECTOR S
The following persons were Directors of Mortgage Choice Limited during the whole of the financial year and up to the
date of this report:
PD Ritchie
PA Lahiff
PG Higgins
RG Higgins
SC Jermyn
DE Ralston
2. PRI N CI PA L ACT I V I T I ES
During the year the principal continuing 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.
3. O PER AT I NG RESU LT S
The net profit of the group after providing for income tax amounted to $12,743,000 (2004 – $9,962,000). Further details
of the results for the year are set out in the Review of Operations (Page 5).
4. DI V I DEN DS
Dividends paid to members during the financial year were as follows:
An 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.
An interim ordinary 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.
An interim ordinary dividend of $4,469,000 (3.8 cents per fully paid share) was declared out of the general reserve of the
Company, and to the extent that it may be required, out of profits of the Company for the half-year ended 31 December
2004 and paid on 29 April 2005.
A final ordinary dividend of $7,056,000 (6.0 cents per fully paid share) was declared out of profits of the Company for
the year ended 30 June 2005 on 24 August 2005 and paid on 19 September 2005.
5. E A RN I NGS PER SH A RE
Basic earnings per share
Diluted earnings per share
2005
Cents
2004
Cents
10.9
10.9
9.1
9.1
6. SIG N I FI C A N T CH A NGES I N T H E S TAT E O F A FFA I R S
Except for the matters disclosed in the Operating Results and Review of Operations section of this Report there have been
no significant changes in the state of affairs of the consolidated entity.
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7. MAT TERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
Except for the matters disclosed in the Review of Operations section of this Report or set out below, no other matter or
circumstance has arisen since 30 June 2005 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.
8. L IK ELY DE V ELOPMEN T S A N D E X PECT ED
RESU LT S O F O PER AT I O NS
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.
9. EN V I RO N MEN TA L REGU L AT I O N
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.
10. I N F ORM AT I O N O N DI RECTOR S
Details of the Directors of the Company in office during or since the end of the financial year, and each Director’s
qualifications, age, experience and special responsibilities are included on page 10 of this Annual Report.
Director
Peter Ritchie
Paul Lahiff
Peter Higgins
Rodney Higgins
Deborah Ralston
Steve Jermyn
Particulars of Directors’
interests in shares and options
Ordinary shares
297,297 shares.
100,000 shares.
Conditional entitlement to 97,000 shares under PSP *.
323,200 options granted under EPOP **.
18,436,534 shares
19,991,583 shares
50,000 shares.
4,000,000 shares
*PSP – Performance Share Plan as detailed in the remuneration report.
** EPOP – Executive Performance Option Plan as detailed in the remuneration report.
11. CO M PA N Y SECRE TA RY
Details of the secretary of the Company in office during or since the end of the financial year, and the secretary’s
qualifications, experience and special responsibilities are included on page 11 of this Annual Report.
MORT3019 Report 05 Fa6b.indd 19
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19
Directors’ report continued
12. MEE T I NGS O F DI RECTOR S
The numbers of meetings of the Company’s board of Directors and of each board committee held during the year ended
30 June 2005, and the numbers of meetings attended by each Director were:
Full meetings of Directors
Number of
meetings held
Number of meetings
attended
11
11
11
11
11
11
10
9
10
11
10
10
Committee Meetings
Audit Committee
Remuneration Committee
Number of
meetings held
Number of
meetings attended
Number of
meetings held
Number of
meetings attended
n/a
3
n/a
3
3
n/a
1
n/a
3
3
3
n/a
3
n/a
n/a
3
n/a
3
n/a
n/a
Peter Ritchie
Peter Higgins
Rodney Higgins
Paul Lahiff
Steve Jermyn
Deborah Ralston
Peter Ritchie
Peter Higgins
Rodney Higgins
Steve Jermyn
Deborah Ralston
No Nomination Committee meetings were held during the year ended 30 June 2005.
13. RE T I REMEN T, EL ECT I O N A N D CO N T I N UAT I O N
I N O FFI CE O F DI RECTOR S
In accordance with the Constitution, Peter Higgins retires by rotation and, being eligible, offers himself for re-election.
14. REM U N ER AT I O N REP ORT
The remuneration report is set out under the following main headings:
A
B
C
D
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service Agreements
Share-based compensation.
A 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 governance practices:
■ competitiveness and reasonableness
■ acceptability to Shareholders
■ performance linkage / alignment of executive compensation
■ transparency
■ capital management
20
MORT3019 Report 05 Fa6b.indd 20
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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
■ 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
■ 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.
The overall level of executive reward takes into account the performance of the consolidated entity over a number of
years, with greater emphasis given to the current and prior year. As the Company listed on 10 August 2004 the past
5 years comparatives are not available. Compared to 2004, however, the consolidated entity’s profit from ordinary
activities after income tax has grown 28%, and Shareholder wealth has grown since the date of listing by 15%.
Compared to the year ended 30 June 2004, average executive remuneration has grown by approximately 5%.
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 also 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 base remuneration for the year ended 30 June 2005 was determined 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 2005 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.
Executive pay
The executive pay and reward framework has four components:
■ base pay and benefits
■ short-term performance incentives
■
long-term incentives through participation in executive and employee share plans, and
■ other remuneration such as superannuation.
The combination of these comprises the executive’s total remuneration. The company 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 Australian Stock Exchange.
MORT3019 Report 05 Fa6b.indd 21
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21
Directors’ report continued
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 executives’ 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 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 following the signing of the Financial Report 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 2005, 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.
B Details of remuneration
Amounts of remuneration
Details of the remuneration of each Director of Mortgage Choice Limited and each of the five executives who
received the highest remuneration for the year ended 30 June 2005, together with the continuing Chief Financial
Officer and Chief Operating Officer, are set out in the following tables. The cash bonuses are dependent on the
satisfaction of performance conditions as set out in the section headed Short-term incentives above. The options
and shares do not vest unless performance hurdles are achieved, based on share price and profit, over a three-year
period as set out in the section headed Share-based compensation below. No other elements of remuneration are
directly related to performance.
22
MORT3019 Report 05 Fa6b.indd 22
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Directors of Mortgage Choice Limited
2005
Name
Executive Directors
P A Lahiff
Managing Director
Non-executive Directors
P D Ritchie
Chairman
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Total
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
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Rights &
Options
$
Total
$
443,029
88,767
2,398
48,737
–
63,144
70,602
50,213
50,213
–
–
–
–
–
110,430
9,939
11,807
4,398
–
–
5,683
6,354
4,519
4,519
677,201
88,767
129,033
79,751
–
–
–
–
–
–
–
48,206
631,137
–
–
–
–
–
120,369
80,634
81,354
54,732
54,732
48,206 1,022,958
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
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 superannuation of $4,597.
MORT3019 Report 05 Fa6b.indd 23
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23
Directors’ report continued
Other executives of Mortgage Choice Limited
2005
Name
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Rights &
Options
$
Total
$
M C Newton
Chief Information Officer
C P Canty*
Chief Operating Officer
(From 1/7/2004 to 31/12/2004)
D M Hoskins
Company Secretary
A F Fraser
Corporate Finance & Strategy
I C Pepper
National Marketing Manager
D S Bayes
Chief Operating Officer
(From 4/1/2005)
A D Crossley
Chief Financial Officer
(From 14/2/2005)
Total
198,384
50,322
–
22,384
125,409
116,666
10,509
20,858
182,360
40,000
155,000
53,667
164,091
32,049
89,523
79,636
–
–
–
–
–
–
–
20,012
18,780
17,653
8,057
7,167
994,403
292,704
10,509
114,911
*C P Canty resigned on 31 December 2004.
–
–
–
–
–
–
–
–
13,738
284,828
–
273,442
6,846
249,218
2,362
229,809
6,159
219,952
8,839
106,419
4,840
91,643
42,784 1,455,311
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)
I C Pepper
(National Marketing Manager)
Total
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Options
$
Total
$
221,196
218,526
236,667*
66,435
19,993
–
191,025
22,306
174,956
25,000
158,623
35,379
–
–
–
36,647
35,646
19,200
15,746
17,460
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.
Cash bonuses, options and performance shares
For each cash bonus, grant of options and offer of performance shares included in the above tables, the percentage of
available bonus, grant or offer that was paid, or that vested, in the financial year, and the percentage that was forfeited
because the person did not meet the service and performance criteria is set out below. No part of the bonuses or grants
of options are payable in future years.
Name
P A Lahiff
M C Newton
C P Canty *
D M Hoskins
A F Fraser
I C Pepper
D S Bayes
A D Crossley
Cash bonus
Options
Performance shares
Paid
%
Forfeited
%
Vested
%
Forfeited
%
Vested
%
Forfeited
%
100
100
n/a
100
100
100
n/a
n/a
–
–
n/a
–
–
–
n/a
n/a
0
0
–
0
0
0
0
0
–
–
100
–
–
–
–
–
0
0
–
0
0
0
0
0
–
–
100
–
–
–
–
–
* Shares and options have been forfeited as part of termination of employment.
24
MORT3019 Report 05 Fa6b.indd 24
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C Service Agreements
Remuneration and other terms of employment for the Managing Director and the specified executives are set out
in their respective letters of employment. The employment letters do not prescribe the duration of employment for
executives. The periods of notice required to terminate employment are set out below:
■ The employment of Messrs Lahiff, Bayes and Crossley is terminable by either the Company or the executive
giving three month’s notice.
■ The employment of Messrs Hoskins, Pepper and Fraser is terminable by either the Company or the executive
giving four week’s notice.
■ The employment of Mr Newton is terminable by either the Company or Mr Newton giving one month’s notice.
Except as noted below, no provision is made for termination payments other than amounts paid in respect of
notice of termination.
Mr Lahiff’s employment terms provide that in the event of the sale of the Company’s business or corporate
restructure, subject to certain conditions relating to length of service, Mr Lahiff will become entitled to a severance
payment equivalent to 12 months salary, less any amounts paid in respect of notice of termination under the terms
of his employment.
D Share-based Compensation
Executive Performance Option Plan (EPOP)
The Executive Performance Option Plan may be offered on an annual basis to a limited number of the most senior
executives within the Company. The issue of Options has been confined to the Managing Director and the
Company’s three most senior executives, being the Chief Financial Officer, Chief Operating Officer and Chief
Information Officer. Participation in the EPOP provides one component of the market-based long-term incentive
available to the selected executives within their aggregate remuneration package.
Under the terms of the EPOP, Options (each over one Share) are granted to senior executives identified by the
Board. Any Options offered and granted to the executives have an exercise price based on the market value of the
Company’s Shares at the time of offer. Market value will be the trade-weighted average price of the Company’s
Shares over the one-week period immediately preceding the date of offer.
The Options offered to executives under the EPOP are subject to performance conditions set by the Board. Offers
have a three-year performance period. In relation to Options offered during the year ended 30 June 2005, the
performance requirement will be based on the total Shareholder return (TSR) of the Company compared to the
TSRs of a comparator group of companies. TSR is the percentage increase in the Company’s Share price plus
reinvested dividends, expressed as a percentage of the initial investment, and reflects the increase in value
delivered to Shareholders over the period.
The Company’s TSR will be compared to the TSRs of companies in a comparator group comprised of selected S & P
ASX Top 300 companies, being entities of broadly similar size to that of Mortgage Choice, but excluding mining
and resource companies, property trust companies or trusts and investment companies or trusts, over the
performance period. The comparator companies have been drawn from a group within an approximate range of
40% to 200% of the market capitalisation of Mortgage Choice at the time of listing.
The companies comprising the comparator group are iiNET Limited, Invocare Limited, Clough Limited, Programmed
Maintenance Services Limited, Rebel Sport Limited, Sunland Group Limited, Globe International Limited, Psivida
Limited, Village Life Limited, Capral Aluminium Limited, Brazin Limited, Peptech Limited, AAV Limited, Hpal Limited,
SDI Limited, Gribbles Group Limited (The), ERG Limited, Schaffer Corporation Limited, Nylex Limited, Silex Systems
Limited, Volante Group Limited, Technology One Limited, SAI Global Limited, Henry Walker Eltin Group Limited,
Cellestis Limited, Villa World Limited, Boom Logistics Limited, Sirtex Medical Limited, Vision Systems Limited,
Collection House Limited, Maxitrans Industries Limited, Keycorp Limited, Symex Holdings Limited, Virotec
International Limited, SMS Management & Technology Limited, UXC Limited, Norwood Abbey Limited, Institute Of
Drug Technology Australia Limited, Macmahon Holdings Limited, Tempo Services Limited, Agenix Limited, Unitract
Limited, Genetic Technologies Limited, Atlas Group Holdings Limited, Circadian Technologies Limited, Peppercorn
Investment Fund, Primelife Corporation Limited, Kresta Holdings Limited, Coffey International Limited, Orbital
Engine Corporation Limited, Citect Corporation Limited and Multimedia Limited.
MORT3019 Report 05 Fa6b.indd 25
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25
Directors’ report continued
If any of the companies in the comparator group ceases to exist in its current form for any reason other than its
liquidation, or if the Board determines in its discretion that a company should no longer be in the comparator
group because of an anomaly, distortion or other event that is not directly related to the financial performance of
that company, that company will cease to form part of the comparator group.
Options will not become exercisable unless Mortgage Choice’s TSR is above the 50th percentile of the comparator
group at the end of the performance period. Above the 50th percentile, Options will vest and become exercisable
in accordance with a vesting scale.
For example:
Company Performance (TSR Percentile Ranking)
Percentage of offered Options allocated
At or below the 50th percentile
At the 51st percentile
75th percentile or above
0%
52%
100%
Between the 51st percentile and 75th percentiles, an additional 2% of Options will vest for every percentile
increase in TSR ranking.
The rules of the EPOP permit the Company to issue new Shares or to purchase Shares on-market for the purposes
of satisfying the exercise of Options. The terms of the offers during the financial year require that the Company
issue new Shares rather than acquire the Shares on-market.
Any Options which do not become exercisable following the application of the performance condition and vesting
scale will lapse. An Option that has become exercisable but is not exercised will lapse on the earlier of:
■ 10 years after the date of offer;
■ three months, or such other period determined by the Board, after the participant ceases employment for a
reason other than a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, and any other
reason determined by the Board); and
■ 12 months, or such other period determined by the Board, after the participant ceases employment for a
‘qualifying reason’.
Where a participant ceases to be employed by the Company other than because of a ‘qualifying reason’, any
Options that have not become exercisable will lapse. However, in the event of a change of control of the Company
or if there is cessation of employment due to a ‘qualifying reason’, the Board may determine that some or all of the
Options may vest.
If the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of
harassment or discrimination, is in serious breach of any duty to Mortgage Choice, or, in the Board’s reasonable
opinion, has brought Mortgage Choice into serious disrepute, any Options held by the participant will lapse.
The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as
follows:
Grant Date
Expiry Date
Exercise Price
Value per option
at grant date
Date exercisable
10 August 2004
10 August 2007
4 January 2005
4 January 2008
24 February 2005
24 February 2008
$1.05
$0.91
$1.08
$0.315 From 11 August 2007 to 10 August 2014
$0.270 From 5 January 2008 to 4 January 2015
$0.320 From 25 February 2008 to 24 February 2015
Further details relating to options are set out below.
Name
P A Lahiff
M C Newton
C P Canty *
D S Bayes
A D Crossley
A
Remuneration
consisting of
options
B
Value at grant
date
$
C
Value at
exercise date
$
D
Value at lapse
date
$
E
Total of
columns B-D
$
22.6%
15.0%
15.0%
15.0%
15.0%
101,808
29,043
32,130
34,020
26,176
–
–
–
–
–
–
–
–
–
–
101,808
29,043
32,130
34,020
26,176
* Options have been forfeited as part of termination of employment.
26
MORT3019 Report 05 Fa6b.indd 26
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Performance Share Plan (PSP)
The PSP permits eligible senior managers identified by the Board to be offered conditional entitlements to Shares.
The Shares allocated to those employees are subject to the achievement of performance requirements specified by
the Board. The PSP is designed to provide the long-term incentive component of remuneration for senior
managers, in line with the Company’s overall reward strategy, which aims to attract, motivate and retain
high-performing managers.
Participation in the PSP is offered on an annual basis. Eligible senior managers are offered Shares to a value
determined by reference to the Company’s reward policy and market practice with regard to long-term incentive
arrangements provided by peer organisations. The actual number of Shares allocated to participants depends on
Mortgage Choice’s performance against the performance criteria. Any conditional entitlements that participants do
not become entitled to at the end of the performance period (i.e. as the performance condition has not been met
in full), will lapse.
The performance requirements and vesting scale applicable to the offers under the PSP during the year ended
30 June 2005 are identical to those specified for the initial offer under the Executive Performance Option Plan.
The rules of the PSP permit the Company to issue new Shares or to purchase Shares on-market if the performance
requirements are satisfied at the end of the three-year performance period. The terms of the offers during the year
ended 30 June 2005 require that the Company issue new Shares rather than acquire the Shares on-market.
Participants will not be required to pay for any Shares that may be allocated to them under the PSP. Until the
Shares are released from the PSP, they will remain subject to the PSP rules and to the ‘holding lock’ applied
pursuant to those rules, and the participant will be restricted in his or her ability to deal in those Shares.
Shares will not be released from the PSP and will remain subject to a holding lock until a Notice of Withdrawal,
that has been approved by the Board, is lodged with the Plan Administrator in respect of them. Once a Notice of
Withdrawal is accepted, the Plan Administrator will release the holding lock in respect of the Shares which are the
subject of that Notice.
A Notice of Withdrawal may be lodged by a participant following the earlier of:
■ 1 July in the year (being a period commencing 1 July and ending 30 June) that is 10 years after the year in
which the offer is made and is accepted by the participant;
■ the participant ceasing to be an employee of the Company;
■ a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the Company)
occurring; and
■ the date upon which the Board gives its written consent to the lodgement of a Notice of Withdrawal by the
participant.
While Shares remain subject to the PSP rules, participants will, in general, enjoy the rights attaching to those Shares
(such as voting or dividend rights etc). These rights are not available to participants prior to the performance
requirements being met.
Where a participant ceases to be employed by Mortgage Choice prior to the end of the performance period, other
than because of a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, and any other reason
determined by the Board), any conditional entitlements to receive Shares will lapse. However, in the event of a
change in control of the Company or if there is cessation of employment due to a ‘qualifying reason’, the Board
may determine that some or all of the Shares may be allocated to the participant.
If the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of
harassment or discrimination, is in serious breach of any duty to Mortgage Choice, or, in the Board’s reasonable
opinion, has brought Mortgage Choice into serious disrepute, any Shares to which the participant may have
become entitled at the end of the performance period, and any Shares held by the participant under the PSP are
forfeited by the participant.
MORT3019 Report 05 Fa6b.indd 27
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27
Directors’ report continued
The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as
follows:
Offer Date
10 August 2004
4 January 2005
24 February 2005
Value per performance share at offer date
Vesting Date
$1.05
10 August 2007
$0.91
4 January 2008
$1.08
24 February 2008
Further details relating to performance shares are set out below:
Name
P A Lahiff
M C Newton
C P Canty *
D M Hoskins
A F Fraser
I C Pepper
D S Bayes
A D Crossley
A
Remuneration
consisting of
performance
shares
B
Value at offer
date
$
C
Value at
entitlement
date
$
D
Value at lapse
date
$
E
Total of
columns B-D
$
22.6%
15.0%
15.0%
20.0%
20.0%
20.0%
15.0%
15.0%
101,850
28,980
32,130
35,595
22,477
32,025
34,404
26,460
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
101,850
28,980
32,130
35,595
22,477
32,025
34,404
26,460
* Shares have been forfeited as part of termination of employment.
Share options granted and performance shares offered to Directors and the most highly remunerated officers
Options over unissued ordinary shares of Mortgage Choice Limited granted and performance shares offered during or
since the end of the financial year to any of the Directors or the 5 most highly remunerated officers of the Company as
part of their remuneration were as follows:
Director
P A Lahiff – Managing Director
323,200
10 August 2004
97,000
10 August 2004
Options
Performance Shares
Number
Date Granted
Number
Date Offered
Other Executives
M C Newton
C P Canty *
D M Hoskins
A F Fraser
I C Pepper
D S Bayes
A D Crossley
92,200
102,000
n/a
n/a
n/a
10 August 2004
27,600
10 August 2004
10 August 2004
30,600
10 August 2004
n/a
n/a
n/a
33,900
24,700
30,500
10 August 2004
4 January 2005
10 August 2004
126,000
4 January 2005
37,807
4 January 2005
81,000
24 February 2005
24,500
24 February 2005
* Shares and options have been forfeited as part of termination of employment.
The options were granted under the Executive Performance Option Plan and the performance shares were offered under
the Performance Share Plan.
Shares issued on the exercise of options
The following ordinary shares of Mortgage Choice Limited were issued in the year ended 30 June 2005. No amounts are
unpaid on any of the shares.
Date options granted
10 December 2001
10 December 2001
28
Date Options
Exercised
20 July 2004
27 July 2004
Issue
price of shares
Number of
shares issued
$0.988
$0.988
1,098,300
1,098,300
2,196,600
MORT3019 Report 05 Fa6b.indd 28
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15. I NSU R A N CE O F O F F I CER S
Insurance premiums were paid for the year ended 30 June 2005 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.
16. PROCEEDI NGS ON BEHAL F OF THE CO MPA N Y
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.
17. N O N -AU DI T SERV I CES
The company may decide to employ the auditor on assignments additional to their statutory audit duties where the
auditor’s expertise and experience with the Company and/or the consolidated entity are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided
during the year are set out below.
The board of Directors has considered the position and, in accordance with the advice received from the audit committee
is satisfied that the provision of the non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the
auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 as
none of the services undermine the general principles relating to auditor independence as set out in Professional
Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making
capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards.
A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out
on page 31.
During the year the following fees were paid or payable for services provided by the
auditor of the parent entity, its related practices and non-related audit firms:
Assurance services
1. Audit services
PricewaterhouseCoopers Australian firm:
Audit and review of financial reports and other audit work
under the Corporations Act 2001
Total remuneration for audit services
2.
Other assurance services
PricewaterhouseCoopers Australian firm:
Due diligence services
Other assurance services
Total remuneration for other assurance services
Total remuneration for assurance services
Consolidated
2005
$
2004
$
122,000
122,000
89,500
89,500
40,401
16,000
56,401
178,401
60,000
48,155
108,155
197,655
29
MORT3019 Report 05 Fa6b.indd 29
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Directors’ report continued
Taxation services
PricewaterhouseCoopers Australian firm:
Tax compliance services, including review of company income tax returns
Other tax services
Total remuneration for taxation services
Advisory services
PricewaterhouseCoopers Australian firm:
Initial Public Offering Services
Total remuneration for advisory services
Consolidated
2005
$
2004
$
110,330
10,475
120,805
92,609
–
92,609
115,380
115,380
391,510
391,510
18. ROU N DI NG O F A MOU N T S
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.
19. AU DI TOR
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
20 September 2005
30
MORT3019 Report 05 Fa6b.indd 30
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Auditorsʼ Independence Declaration
PricewaterhouseCoopers
ABN 52 780 433 757
Darling Park Tower 2
201 Sussex Street
GPO BOX 2650
SYDNEY NSW 1171
DX 77 Sydney
Australia
www.pwc.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
As lead auditor for the audit of Mortgage Choice Limited for the year ended 30
June 2005, I declare that to the best of my knowledge and belief, there have
been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Mortgage Choice Limited during the period.
Wayne Andrews
Partner
PricewaterhouseCoopers
Sydney
20 September 2005
Liability is limited by the Accountant's Scheme under the Professional Standards Act 1994 (NSW)
31
MORT3019 Report 05 Fa6b.indd 31
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S TAT E M E N T S O F F I N A N C I A L P E R F O R M A N CE
For the year ended 30 June 2005
Revenue from ordinary activities
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
Consolidated
Parent entity
Notes
2005
$’000
2004
$’000
2005
$’000
2004
$’000
2
110,513
102,889
110,513
103,087
(73,831)
(69,255)
(73,831)
(69,255)
(3,824)
(3,492)
(3,824)
(3,492)
(7,648)
(7,231)
(7,648)
(7,231)
(1,836)
(1,930)
(1,836)
(1,930)
(5,141)
(6,575)
(5,141)
(6,772)
(2)
(5)
(2)
(5)
3
4
18,231
14,401
18,231
14,402
(5,488)
(4,439)
(5,488)
(4,439)
12,743
9,962
12,743
9,963
Cents
Cents
10.9
10.9
9.1
9.1
The above statements of financial performance should be read in conjunction with the accompanying notes.
32
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S T A T E M E N T S O F F I N A N C I A L P O S I T I O N
As at 30 June 2005
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
Consolidated
Parent entity
Notes
2005
$’000
2004
$’000
2005
$’000
2004
$’000
5
6
7
25
8
9
10
11
12
13
14
11,462
11,199
11,462
11,199
9,571
222
8,289
1,223
9,571
222
8,289
1,223
21,255
20,711
21,255
20,711
–
2,934
1,206
4,140
–
1,862
1,158
3,020
–
2,934
1,206
4,140
–
1,862
1,158
3,020
25,395
23,731
25,395
23,731
11,743
11,964
11,743
11,964
3,121
372
1,329
3,193
3,121
372
1,329
3,193
15,236
16,486
15,236
16,486
144
232
376
113
270
383
144
232
376
113
270
383
15,612
16,869
15,612
16,869
9,783
6,862
9,783
6,862
Contributed equity
Retained earnings/(Accumulated losses)
General reserve
Total equity
15
16
16
81
8,293
81
8,293
9,702
(6,780)
9,702
(6,780)
–
9,783
5,349
6,862
–
9,783
5,349
6,862
The above statements of financial position should be read in conjunction with the accompanying notes.
MORT3019 Report 05 Fa6b.indd 33
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33
S T A T E M E N T S O F C A S H F L O W S
For the year ended 30 June 2005
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
Notes
2005
$’000
2004
$’000
2005
$’000
2004
$’000
119,621
111,699
119,621
111,917
(102,080)
(95,618)
(102,080)
(96,086)
17,541
16,081
17,541
15,831
588
(2)
533
–
588
(2)
533
–
(3,744)
(4,897)
(3,744)
(4,897)
Net cash inflow from operating activities
27
14,383
11,717
14,383
11,467
Cash flows from investing activities
Payments for plant and equipment
(1,895)
(1,134)
(1,895)
(1,134)
Proceeds from sale of plant and equipment
Proceeds from redemption of FAC units
12
–
2
–
12
–
2
250
Net cash outflow from investing activities
(1,883)
(1,132)
(1,883)
(882)
Cash flows from financing activities
Proceeds from sale of shares
Payment for capital reduction
Dividends paid
7,531
–
7,531
–
(8,962)
(1,318)
(8,962)
(1,318)
(10,806)
(6,645)
(10,806)
(6,645)
Net cash outflow from financing activities
(12,237)
(7,963)
(12,237)
(7,963)
Net increase in cash held
Cash at the beginning of the financial year
263
11,199
2,622
8,577
263
11,199
2,622
8,577
Cash at the end of the financial year
5
11,462
11,199
11,462
11,199
The above statements of cash flows should be read in conjunction with the accompanying notes.
34
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
30 June 2005
N OT E 1 SU M M A RY O F SIG N I FI C A N T ACCOU N T I NG P O L I CI ES
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.
The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for
application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS
(AIFRS), and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the
International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The
adoption of AIFRS will be first reflected in the Company’s financial statements for the half year ending 31 December 2005
and the year ending 30 June 2006. Information about how the transition to AIFRS is being managed, and the key
differences in accounting policies that are expected to arise, are set out in note 30.
(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 2005 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 4 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) Other income
Other income includes contributions from lenders towards conferences and workshops together with other
non-operating revenues. These are recognised as income in the year the conference or workshop is held.
MORT3019 Report 05 Fa6b.indd 35
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35
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
Note 1 Summary of significant accounting policies (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 cashflows included in
determining the recoverable amounts of non-current assets are not discounted.
(g) Depreciation of property, plant and equipment
Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and
equipment over its expected useful life to the consolidated entity. Estimates of remaining useful lives are made on a
regular basis for all assets, with annual reassessments for major items. The expected useful lives are as follows.
Office equipment
5-10 years
Computer equipment 3-4 years
Furniture and fittings
10-15 years
Software
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 straight line 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.
(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.
36
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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.
(v) Equity-based compensation benefits
Equity-based compensation benefits are provided to employees via the Mortgage Choice Executive
Performance Option Plan, Performance Share Plan and an employee share scheme. Information relating to
these schemes is set out in the Remuneration report and note 23.
No accounting entries are made in relation to the Mortgage Choice Executive Performance Option Plan until
options are exercised, at which time the amounts receivable from employees are recognised in the statement of
financial position as share capital. The amounts disclosed for remuneration of Directors and executives in the
Remuneration report and note 19 include the assessed fair values of options at the date they were granted.
The market value of shares issued to employees for no cash consideration under the employee share scheme is
recognised as a liability and as part of employee benefit costs when the employees become entitled to the shares.
When the shares are issued, their market value is recognised in the statement of financial position as share capital.
(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.
MORT3019 Report 05 Fa6b.indd 37
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37
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
Note 1 Summary of significant accounting policies (continued)
(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.
(q) 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.
N OT E 2 RE V EN U E
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
2005
$’000
2004
$’000
2005
$’000
2004
$’000
108,200
101,727
108,200
101,707
588
12
–
1,713
2,313
533
2
–
627
1,162
588
12
–
1,713
2,313
533
2
218
627
1,380
Revenue from ordinary activities
110,513
102,889
110,513
103,087
N OT E 3 PRO FI T FRO M ORDI N A RY ACT I V I T I ES
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
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
Computer software
Other provisions
Employee entitlements
Doubtful debts
Rental expense relating to operating leases
38
2
12
271
163
366
31
767
5
4
456
69
369
47
–
816
2
12
271
163
366
31
767
5
4
456
69
369
47
–
816
MORT3019 Report 05 Fa6b.indd 38
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N OT E 4 I N CO M E TA X
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
Consolidated
Parent entity
2005
’000
2004
’000
2005
$’000
2004
$’000
18,231
14,401
18,231
14,402
5,469
4,320
5,469
4,320
15
125
15
114
Income tax adjusted for permanent differences
5,484
4,445
5,484
4,434
Under/(over) provision from prior years
4
(6)
4
5
Income tax attributable to operating profit
5,488
4,439
5,488
4,439
No part of the future income tax benefit shown in Note 9 is attributable to tax losses.
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.
N OT E 5 CU RREN T A SSE T S – C A SH
Cash at bank and on hand
Deposits at call
Deposits at call
Consolidated
Parent entity
2005
’000
2004
’000
2005
$’000
2004
$’000
302
216
302
216
11,160
10,983
11,160
10,983
11,462
11,199
11,462
11,199
The deposits are bearing interest rates between 5.38% and 5.56% (2004 – 4.48% and 5.35%).
N OT E 6 CU RREN T A SSE T S – RECEI VA B L ES
Trade debtors (1)
Franchisee receivables
Other debtors
Consolidated
Parent entity
2005
’000
2004
’000
2005
$’000
2004
$’000
9,377
8,076
9,377
8,076
106
88
116
97
106
88
116
97
9,571
8,289
9,571
8,289
(1) Subject to a limited charge in favour of The Loan Book Security Trust (refer to Note 10).
Other debtors
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
MORT3019 Report 05 Fa6b.indd 39
29/9/05 3:31:21 PM
39
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
N OT E 7 CU RREN T A SSE T S – OT H ER
Prepayments
IPO costs (1)
Consolidated
Parent entity
2005
’000
2004
’000
2005
$’000
2004
$’000
222
–
222
165
1,058
1,223
222
–
222
165
1,058
1,223
(1) Costs paid in the year ended 30 June 2004 relating to Mortgage Choice Limited’s Initial Public Offering were deferred as they were
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 were offset against capital raised from the offer.
N OT E 8 N O N - CU RREN T A SSE T S – PRO P ERT Y,
PL A N T A N D EQU I PMEN T
Leasehold improvements
Leasehold improvements – at cost
Less: Accumulated amortisation
Total leasehold improvements
Plant and equipment
Plant and equipment – at cost
Less: Accumulated depreciation
Computer software
Computer software – at cost
Less: Accumulated amortisation
Total Property, plant and equipment
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
1,490
(726)
764
927
(563)
364
1,490
(726)
764
927
(563)
364
3,091
2,855
3,091
2,855
(2,393)
(2,131)
(2,393)
(2,131)
698
724
698
724
2,893
1,827
2,893
1,827
(1,421)
(1,053)
(1,421)
(1,053)
1,472
2,934
774
1,862
1,472
2,934
774
1,862
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 and parent entity
Carrying amount at 1 July 2004
Additions
Disposals
Depreciation/amortisation expense
Carrying amount at 30 June 2005
Leasehold
improvements
$’000
Plant and
equipment
$’000
Computer
software
$’000
Total
$’000
364
563
–
(163)
764
724
267
(22)
(271)
698
774
1,065
(1)
(366)
1,472
1,862
1,895
(23)
(800)
2,934
N OT E 9 N O N - CU RREN T A SSE T S – DEFERRED TA X A SSE T S
Future income tax benefit
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
1,206
1,158
1,206
1,158
40
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N OT E 10 CU RREN T L I A B I L I T I ES – PAYA B L ES
Trade creditors(1)
Other creditors
(1) Loan Book Security Trust.
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
8,478
3,265
8,025
3,939
8,478
3,265
8,025
3,939
11,743
11,964
11,743
11,964
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 2005, the amount subject to charge resulting from applying the specified percentage to the trailing commission
income due to Mortgage Choice Limited is $2,040,674 (2004 - $1,763,297). This is included as part of the balance of trade
creditors at 30 June 2005 and is subject to charge until disbursed to the eligible Franchisees. The amount subject to the charge
will vary dependant 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.
N OT E 11 CU RREN T L I A B I L I T I ES – CU RREN T TA X L I A B I L I T I ES
Income tax
N OT E 12 CU RREN T L I A BI L I T I ES – OT HER
Licence fees repayable
Dividend payable (Note 17)
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
3,121
1,329
3,121
1,329
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
372
–
372
777
2,416
3,193
372
–
372
777
2,416
3,193
N OT E 13 N O N - CU RREN T L I A B I L I T I ES – PROV ISI O NS
Employee entitlements (Note 23)
144
113
144
113
N OT E 14 N O N - CU RREN T L I A B I L I T I ES – OT H ER
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
Licence fees repayable
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
232
232
270
270
232
232
270
270
41
MORT3019 Report 05 Fa6b.indd 41
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Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
N OT E 15 CO N T R I BU T ED EQU I T Y
(a) Contributed Equity
Ordinary shares – fully paid
(b) Movements in ordinary share capital
Date
Details
1 July 2004
Opening balance
20 July 2004
Issue of shares upon exercise of options
27 July 2004
Issue of shares upon exercise of options
4 August 2004
Share issue for no consideration
6 August 2004
Capital reduction
9 August 2004
Offset, by share capital reduction, of accumulated
losses
10 August 2004
Initial Public Offering
10 August 2004
Initial Public Offering – costs associated
30 June 2005
Balance
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
117,593
109,830
81
8,293
Number of
shares
Transaction
price
$’000
109,830,000
1,098,300
1,098,300
74,667
–
–
5,491,500
–
117,592,767
$0.988
$0.988
–
8,293
1,085
1,085
–
$0.08
(8,962)
–
(6,780)
$1.05
–
5,766
(406)
81
■ 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.
■ 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 9 August 2004, an offset by share capital reduction, of accumulated losses of $6.780m against contributed
equity, occurred three business days after the transfer and allotment of Shares under the Offer.
■ On 10 August 2004, issue of 5.5m ordinary shares to Franchises, employees and other persons raising $5.36m
(net of issue costs of $406,000) and listing of the Company on the ASX.
(c) Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, are set out
in note 23.
(d) Options
On 10 December 2001, 2,196,600 share options were issued to former non-executive Directors in accordance with
Shareholder approval. These share options were exercised on 20 July 2004 and 27 July 2004 at 98.8 cents per
share.
Information relating to the Mortgage Choice Executive Performance Option Plan, including details of options
issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year are
set out in the Remuneration report.
42
MORT3019 Report 05 Fa6b.indd 42
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N OT E 16 RESERV ES A N D RE TA I N ED PRO FI T S /
( ACCU M U L AT ED LOSSES)
(a) General reserve
Consolidated entity
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
General reserve at beginning of the financial year
5,349
–
5,349
–
Transfer from retained profits/(accumulated losses) *
–
7,765
–
7,765
Dividends provided for out of general reserve
(5,349)
(2,416)
(5,349)
(2,416)
General reserve at end of the financial period
–
5,349
–
5,349
* The general reserve contained amounts of retained profits that have been set aside by the Directors so as not to be tainted by prior
period losses.
(b) Retained profits/(accumulated losses)
Consolidated entity
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
Accumulated losses at the beginning of the financial period
(6,780)
(2,332)
(6,780)
(2,333)
Offset, by share capital reduction, of accumulated losses
6,780
–
6,780
–
Net profit for period
Dividends paid out of profit (note 17)
Transfer of residual profits for the year ended
30 June 2004 to general reserve
12,743
9,962
12,743
9,963
(3,041)
(6,645)
(3,041)
(6,645)
(7,765)
(7,765)
Retained profits/(accumulated losses) at the end of the financial period
9,702
(6,780)
9,702
(6,780)
MORT3019 Report 05 Fa6b.indd 43
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43
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
N OT E 17 DI V I DEN DS
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 the general reserve of the of
3.5 cents per fully paid share paid on 5 August 2004:
Fully franked based on tax paid @ 30%
3.5 cents per share
Interim dividend declared out of the general reserve and out of profits of the Company for the
half-year ended 31 December 2004 of 3.8 cents per fully paid share paid on 29 April 2005:
Fully franked based on tax paid @ 30%
3.8 cents per share
From general reserve
From profit
Franked dividend
Parent entity
2005
$’000
2004
$’000
2,526
1,922
2,197
2,416
3,921
1,428
3,041
8,390
–
–
9,061
The franked portions of the final dividends recommended after 30 June 2005 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 2006.
Franking credits available for subsequent
financial years based on a tax rate of 30%
Parent entity
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
4,539
2,599
4,539
2,599
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.
44
MORT3019 Report 05 Fa6b.indd 44
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N OT E 18 FI N A N CI A L I NS T RU MEN T S
(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.
2005
Financial assets
Cash and deposits
Receivables
Weighted average interest rate
Financial liabilities
Trade and other creditors
Weighted average interest rate
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
10
302
11,160
–
–
302
11,160
3.90%
5.50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,462
9,571
21,033
11,743
11,743
9,571
9,571
n/a
11,743
11,743
n/a
(2,172)
9,290
Net financial assets (liabilities)
302
11,160
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
10
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
MORT3019 Report 05 Fa6b.indd 45
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45
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
Note 18 Financial instruments (continued)
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 asset per balance sheet
Notes
2005
$’000
2004
$’000
9,290
7,524
8
9
7
13
11
12, 14
2,934
1,206
222
(144)
1,862
1,158
1,223
(113)
(3,121)
(1,329)
(604)
9,783
(3,463)
6,862
N OT E 19 DI RECTOR A N D E X ECU T I V E DISCLOSU RES
Directors
The following persons were Directors of Mortgage Choice Limited during the financial year:
Chairman – non-executive
P D Ritchie
Executive Directors
P A Lahiff, Managing Director
Non-executive Directors
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Executives (other than Directors) with the greatest authority for strategic direction and management
The following persons were the eight executives with the greatest authority for the strategic direction and management
of the consolidated entity (“specified executives”) during the financial year:
Name
Position
C P Canty
D S Bayes
Chief Operating Officer (from 1 July 2004 – 31 December 2004)
Chief Operating Officer (from 4 January 2005)
E G Macgregor
Chief Financial Officer (from 1 July 2004 – 24 September 2004)
P V Borg
A D Crossley
M C Newton
D M Hoskins
I C Pepper
Chief Financial Officer (from 6 September 2004 –18 February 2005)
Chief Financial Officer (from 14 February 2005)
Chief Information Officer
Company Secretary
National Marketing Manager
All of the above persons were also specified executives during the year ended 30 June 2004, except for D S Bayes who
commenced employment with the group on 4 January 2005, PV Borg who commenced employment with the group on 6
September 2004 and ceased employment on 18 February 2005 and A D Crossley who commenced employment with the
group on 14 February 2005.
Remuneration of Directors and executives
Principles used to determine the nature and amount of remuneration
Information relating to the principles used to determine the nature and amount of remuneration is set out in the
Remuneration report.
46
MORT3019 Report 05 Fa6b.indd 46
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Details of remuneration
Details of the remuneration of each Director of Mortgage Choice Limited and each of the five executives who received
the highest remuneration for the year ended 30 June 2005, together with the continuing Chief Financial Officer and Chief
Operating Officer, are set out in the Remuneration report. In addition to these, the former executives set out in the table
below are considered to be specified executives as defined in AASB 1046 Director and Executive Disclosures by Disclosing
Entities.
Remuneration for Directors and specified executives includes, where relevant, remuneration paid to personally-related entities.
Specified executives of the consolidated entity
2005
Name
E G Macgregor
(Chief Financial Officer)
(From 1/7/2004 to 24/9/2004)
P V Borg
(Chief Financial Officer)
(From 6/9/2004 to 18/2/2005)
Total
Service Agreements
Primary
Post-employment
Equity
Cash
salary and
fees
$
Cash
bonus
$
Non-
monetary
benefits
$
Super-
annuation
$
Retirement
benefits
$
Rights &
Options
$
Total
$
66,080
54,212
99,006
–
165,086
54,212
–
–
–
11,762
8,285
20,047
–
–
–
–
–
–
132,054
107,291
239,345
Information relating to service agreements is set out in the Remuneration report.
Share-based Compensation
Information relating to share-based compensation is set out in the Remuneration report.
Option holdings
The numbers of options in the Company held directly, indirectly or beneficially during the financial year by each Director
of Mortgage Choice Limited and each of the specified executives of the consolidated entity, including their personally-
related entities, are set out below.
Name
Executive Directors
P A Lahiff
Managing Director
Non-executive Directors
P D Ritchie
Chairman
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Specified executives
M C Newton
D M Hoskins
C P Canty*
A F Fraser
I C Pepper
D S Bayes
A D Crossley
Balance
at the start
of the year
Granted
during the
year as
remuneration
Exercised
during the
year
Other
changes
during the
year
Balance
at the end
of the year
Vested and
exercisable
at the end
of the year
–
–
–
–
–
–
–
–
–
–
–
–
–
323,300
–
–
–
–
–
92,200
–
102,000
–
–
126,000
81,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(102,000)
–
–
–
–
323,300
–
–
–
–
–
92,200
–
–
–
–
126,000
81,000
–
–
–
–
–
–
–
–
–
–
–
–
–
* Options have been forfeited as part of termination of employment.
47
MORT3019 Report 05 Fa6b.indd 47
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Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
Note 19 Director and executive disclosures (continued)
Share holdings
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 specified executives of the consolidated entity, including their
personally-related entities, are set out below.
Name
Ordinary Shares
Executive Directors
P A Lahiff
Managing Director
Non-executive Directors
P D Ritchie
Chairman
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Specified executives
M C Newton
D M Hoskins
C P Canty
A F Fraser
I C Pepper
D S Bayes
A D Crossley
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
–
–
36,959,950
38,515,000
–
–
–
50
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100,000
100,000
297,297
297,297
(11,673,416)
25,286,534
(11,673,417)
26,841,583
2,000,000
2,000,000
50,000
50,000
–
–
–
–
–
–
50
–
–
11,000
11,000
–
–
–
–
Shareholdings of Directors and specified executives include those that have been disclosed under representation made to
them by the parties within the AASB 1046 Director and Executive Disclosures. The Directors and specified executives have
relied upon the representations made as they have no control or influence over the financial affairs of the personally
related entities to substantiate the shareholdings declared. Where a personally related entity has declined to provide
shareholding details, the shareholding of that personally related entity has been assumed to be nil.
48
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N OT E 20 REM U N ER AT I O N O F AU DI TOR S
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
Consolidated
Parent entity
2005
$
2004
$
2005
$
2004
$
122,000
89,500
122,000
89,500
Other assurance services
56,401
108,155
56,401
108,155
Total audit and other assurance services
178,401
197,655
178,401
197,655
Taxation Services
Initial Public Offering Services
Total remuneration
120,805
92,609
120,805
92,609
115,380
391,510
115,380
391,510
414,586
681,774
414,586
681,774
N OT E 21 CO N T I NGEN T L I A BI L I T I ES A N D CO N T I NGEN T A SSE T S
Contingent liabilities
The parent entity and consolidated entity had contingent liabilities at 30 June 2005 in respect of:
Guarantees
Australian and New Zealand (ANZ) bank guarantee of $630,857 (2004: $387,000).
Contingent claims
From time to time disputes occur between the Company and its Franchisees in the normal course of operation, a number
of which may be unresolved at any point in time. At 30 June 2005 there were no disputes or claims in progress that are
expected to have a material financial impact on the Company.
No material losses are anticipated in respect of any of the above contingent liabilities.
N OT E 22 CO M M I T M EN T S F O R E X P EN DI T U RE
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
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
701
1,451
2,152
706
1,970
2,676
701
1,451
2,152
706
1,970
2,676
MORT3019 Report 05 Fa6b.indd 49
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49
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
N OT E 23 EMPLOY EE BEN EFI T S
Employee benefit and related on-cost liabilities
Included in other creditors (note 10)
Provision for employee entitlements – non- current (note 13)
Aggregate employee benefit and related on-costs liabilities
Employee numbers
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
530
144
674
503
113
616
530
144
674
503
113
616
2005
Number
2004
Number
2005
Number
2004
Number
Average number of employees during the financial year
92
91
92
91
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.
Executive performance option plan
The Executive Performance Option Plan may be offered on an annual basis to a limited number of the most senior executives
within the Company. The issue of Options has been confined to the Managing Director and the Company’s three most
senior executives, being the Chief Financial Officer, Chief Operating Officer and Chief Information Officer. Participation in
the EPOP provides one component of the market-based long-term incentive available to the selected executives within their
aggregate remuneration package. Details relating to this plan are set out in the Remuneration report.
Performance share plan
The PSP permits eligible senior managers identified by the Board to be offered conditional entitlements to Shares. The
Shares allocated to those employees are subject to the achievement of performance requirements specified by the Board.
The PSP is designed to provide the long-term incentive component of remuneration for senior managers, in line with the
Company’s overall reward strategy, which aims to attract, motivate and retain high-performing managers. Details relating
to this plan are set out in the Remuneration report.
Employee share schemes
Two schemes exist under which shares may be purchased by employees on a salary sacrifice basis.
■ The Deferral Plan enables participating employees to defer tax on the value of the shares acquired in accordance with current
tax legislation. The Board has imposed maximum of 25% that an employee can salary sacrifice to purchase shares under the
Deferral Plan. Shares purchased under this plan must not be sold before the tenth anniversary of the offer unless the
participant ceases employment with the Company, the occurrence of a capital event or special dispensation by the Board.
■ The Exemption Plan enables participating employees to acquire up to $1,000 worth of shares in any tax year, free of
tax in accordance with current tax legislation. Shares purchased under this plan must be held for three years or earlier
cessation of employment.
50
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N OT E 24 REL AT ED PA RT I ES
Directors and specified executives
Disclosures relating to Directors and specified executives are set out in note 19.
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 25.
There were no transactions between Mortgage Choice Limited and its wholly-owned controlled entities during the year
ended 30 June 2005.
Transactions between Mortgage Choice Limited and other entities in the wholly-owned group during the year ended 30
June 2004 consisted of:
(a)
(b)
(c)
(d)
(e)
loans repaid by Mortgage Choice Limited
loans repaid to Mortgage Choice Limited
application for shares in subsidiary by Mortgage Choice Limited
distribution to Mortgage Choice Limited from a controlled trust
redemption of units held in a controlled trust.
All transactions between Mortgage Choice Limited and its wholly-owned controlled entities were made on normal
commercial terms and conditions, unless otherwise stated.
N OT E 25 I N V ES T MEN T S I N CO N T RO L L ED EN T I T I ES
Name of entity
Country of
incorporation
Class of
Shares
Mortgage Choice (W.A.) Pty Limited
MC Loan Book Security Pty Limited
Choice Share Limited *
Finance Australia Pty Ltd *
MC Franchise System Pty Ltd *
FAC Pty Ltd *
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Mortgage Choice Insurance Broker Pty
Ltd *
Australia
Ordinary
* These controlled entities are being deregistered.
N OT E 26 SEGMEN T I N F O RM AT I O N
Equity holding
2005
%
2004
%
100
100
100
100
100
100
100
100
100
–
100
100
100
100
Cost of parent entity’s
investment
2005
$
2004
$
100
100
2
5
2
2
2
2
2
–
2
2
2
2
115
110
The Mortgage Choice group of companies operates predominantly in Australia and in one segment, the mortgage
broking industry.
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51
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
N OT E 27 RECO N CI L I AT I O N O F O PER AT I NG PRO FI T
A F T ER I N CO M E TA X TO N E T C A SH I N FLOW
FROM O PER AT I NG ACT I V I T I ES
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:
Consolidated
Parent entity
2005
$’000
2004
$’000
2005
$’000
2004
$’000
12,743
9,962
12,743
9,963
800
12
894
4
800
12
894
4
(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/(decrease) in provision for income taxes payable
Increase in other provisions
(1,282)
(48)
1,001
(666)
1,792
31
(891)
(204)
(1,085)
3,259
(269)
47
(1,282)
(48)
1,001
(666)
1,792
31
(892)
(204)
(1,085)
2,994
(254)
47
Net cash inflow from operating activities
14,383
11,717
14,383
11,467
N OT E 28 E V EN T S OCCU RRI NG A F T ER REP ORT I NG DAT E
Dividend payment
A final ordinary dividend of $7,056,000 (6.0 cents per fully paid share) was declared out of profits of the Company for
the year ended 30 June 2005 on 24 August 2005 and paid on 19 September 2005.
The financial effects of the above transaction have not been brought to account at 30 June 2005.
Director share holdings
Between the reporting date and the date of signing this Annual Report, Peter Higgins sold 6,850,000 shares. Rodney
Higgins sold 6,850,000 shares and Steve Jermyn purchased 2,000,000 shares.
N OT E 29 E A RN I NGS PER SH A RE
Basic earnings per share
Diluted earnings per share
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
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
Consolidated
2005
Cents
2004
Cents
10.9
10.9
9.1
9.1
Consolidated
2005
Number
2004
Number
116,848,597
109,830,000
117,272,664
109,966,189
The weighted average number of converted potential ordinary shares included in the calculation of diluted EPS is
2,061,193.
52
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Information concerning the classification of securities
(a) Options
Options granted to employees under the Mortgage Choice Executive Performance Option Plan 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 options are set out
in the Remuneration report.
(b)
Rights
Rights to shares issued to employees under the Mortgage Choice Performance Share Plan 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 options are set out
in the Remuneration report.
N OT E 30 I M PAC T S O F A DO P T I N G AUS T R A L I A N EQU I VA L EN T S
TO I FR S
The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for
application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to
IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the
International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These
Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS 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 AIFRS for the first time will be required to restate their comparative financial statements to
amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS
will be made, retrospectively, against opening retained earnings as at 1 July 2004.
The consolidated entity established a project team to manage the transition to AIFRS, chaired by the Chief Financial
Officer and reporting to the audit committee. The project team has analysed all of the AIFRS and has identified the
accounting policy changes that will be required. In some cases choices of accounting policies are available, including
elective exemptions under Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International
Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy
for the consolidated entity.
The known or reliably estimated impacts on the financial report for the year ended 30 June 2005 had it been prepared
using AIFRS are set out below. No material impacts are expected in relation to the statements of cash flows.
Although the adjustments disclosed in this note are based on management’s best knowledge of expected standards and
interpretations, and current facts and circumstances, these may change. For example, amended or additional standards or
interpretations may be issued by the AASB and the IASB. Therefore, until the Company prepares its first full AIFRS
financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted.
Income tax
Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates
temporary differences based on the carrying amount 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.
If the policy required by AASB 112 had been applied during the year ended 30 June 2005, the following would have
resulted:
An increase in current income tax expense and an increase in contributed equity of $98,000 in both the consolidated
and parent entity financial statements to recognise income tax credit in relation to IPO costs directly in equity.
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53
Mortgage Choice Limited and its controlled entities
Notes to the financial statements continued
30 June 2005
Note 30 Impacts of adopting Australian equivalents to IFRS (continued)
Intangible assets
Under AASB 138 Intangible asset, Computer Software will be classified as a class of intangible asset.
This will result in a change in the current accounting policy, under which Computer Software is classified as a class of
Property, Plant and Equipment.
If the policy required by AASB 138 had been applied during the year ended 30 June 2005, consolidated and parent
Property, Plant and Equipment at 30 June 2005 would have been $1,472,000 lower, with a corresponding increase in
Intangible assets.
Equity-based compensation benefits
Under AASB2 Share-based Payment, from 1 July 2004 the group is required to recognise an expense for those options
that were issued to employees under the Executive Performance Option Plan (EPOP) and Performance Share Plan (PSP)
after 7 November 2002 but that had not vested by 1 January 2005.
This will result in a change in accounting policy under which no expense is recognised for equity-based compensation.
If the policy required by AASB 2 had been applied during the year ended 30 June 2005, consolidated and parent entity
retained profits at 30 June 2005, would have been $141,000 lower, with a corresponding increase in the share based
payment reserve. For the year ended 30 June 2005, the consolidated and parent entity employee benefits expense would
have been $141,000 higher, with a corresponding increase in the net movement in the share-based payments reserve.
Revenue disclosure in relation to the sale of non-current assets
Under AIFRS , the revenue recognised in relation to the sale of non-current assets is the net gain on the sale. This is in
contrast to the current Australian GAAP treatment under which gross proceeds from the sale are recognised as revenue
and the carrying amount of the asset sold is recognised as an expense. The net impact on the profit or loss of this
difference is nil.
If the policy required under AIFRS had been applied during the year ended 30 June 2005, the consolidate and parent
entity revenue from ordinary activities would have been $12,000 lower and the consolidated carrying and parent entity
amount of non-current assets sold disclosed as an expense in the statement of financial performance would have been
$12,000 lower.
Financial Instruments
The company will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial
Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: recognition and Measurement only from
1 July 2005. This allows the Company to apply previous Australian generally accepted accounting principles (Australian
GAAP) to the comparative information of financial instruments within the scope of AASB 132 and AASB 139 for the
30 June 2006 financial report.
Under AASB 132, the current classification of the financial instruments issued by the Company would not change.
AASB 139 is likely to have the following impact:
Classification and measurement of financial assets and liabilities
Under AASB 139, financial assets held by the Company will be classified as either at fair value through profit or loss, held-
to-maturity, available for sale or loans and receivables and, depending upon classification, measured at fair value or
amortised cost.
Under AASB 139, investments in:
■ non-traded equity securities and debentures will be classified as available for sale and measured at fair value, with
changes in fair value recognised directly in equity until the underlying asset is derecognised
■
loans and receivables and financial liabilities classifications will remain unchanged. Measurement of these instruments
will initially be at fair value with subsequent measurement at amortised cost, using the effective interest rate method.
This will result in a change to the current accounting policy, under which financial assets are carried at the lower of cost
and recoverable amount, with changes recognised in profit or loss.
As a result of the application of the exemption referred to above, there would have been no adjustment to classification
or measurement of financial assets or liabilities from the application of AIFRS during the year ended 30 June 2005.
Changes in classification and measurement will be recognised from 1 July 2005.
54
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D I R E C T O R S ’ D E C L A R A T I O N
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 32 to 53 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2005 and
of their performance, as represented by the results of their operations and their cash flows, for the financial
year ended on that date; 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; and
(c) the remuneration disclosures set out on pages 18 to 30 of the Directors’ report comply with Accounting Standard
AASB 1046 Director and Executive Disclosures by Disclosing Entities and the Corporations Regulations 2001 (11) (12).
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Peter Ritchie
Director
Sydney
20 September 2005
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55
Independent audit report to the 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 S ydney
Australia
www.pwc.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
Audit opinion
In our opinion:
1.
the financial report of Mortgage Choice Limited:
• gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the
financial position of Mortgage Choice Limited and the Mortgage Choice Group (defined
below) as at 30 June 2005, and of their performance for the year ended on that date,
• is presented in accordance with the Corporations Act 2001, Accounting Standards and
other mandatory financial reporting requirements in Australia, and the Corporations
Regulations 2001; and
2.
the disclosures contained in the remuneration report in section 14 of the directors’ report
comply with Accounting Standard AASB 1046 Director and Executive Disclosures by
Disclosing Entities (AASB 1046) and the Corporations Regulations 2001.
This opinion must be read in conjunction with the rest of our audit report.
Scope
The financial report, remuneration disclosures 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 the Mortgage Choice
Group (the consolidated entity), for the year ended 30 June 2005. The consolidated entity
comprises both the company and the entities it controlled during that year.
The company has disclosed information about the remuneration of directors and executives
(remuneration disclosures) as required by AASB 1046, under the heading “remuneration report” in
section 14 of the directors’ report, as permitted by the Corporations Regulations 2001.
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. The directors are also responsible for the remuneration disclosures contained in
the directors’ 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
Liability limited by a scheme approved under Professional Standards Legislation
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reasonable assurance as to whether the financial report is free of material misstatement and the
remuneration disclosures comply with AASB 1046 and the Corporations Regulations 2001. 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. For further explanation of an audit, visit our website
http://www.pwc.com/au/financialstatementaudit.
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. We also performed procedures to
assess whether the remuneration disclosures comply with AASB 1046 and the Corporations
Regulations 2001.
We formed our audit opinion on the basis of these procedures, which included:
•
•
examining, on a test basis, information to provide evidence supporting the amounts and
disclosures in the financial report and remuneration disclosures, and
assessing the appropriateness of the accounting policies and disclosures used and the
reasonableness of significant accounting estimates made by the directors.
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
Sydney
20 September 2005
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57
S H A R E H O L D E R I N F O R M A T I O N
The Shareholder information set out below was applicable as at 14 September 2005.
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
82
343
222
202
55
904
2
2
4
19
19
There were 6 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:
Ordinary Shares
National Nominees Limited
R G Higgins
Ochoa Pty Ltd
Basscave Pty Limited
P G Higgins
J P Morgan Nominees Australia Limited
RBC Global Services Australia Nominees Pty Limited
RBC Global Services Australia Nominees Pty Limited
ANZ Nominees Limited
Invia Custodian Pty Limited
Health Super Pty Ltd
SCJ Pty Ltd
SCJ Pty Ltd atf Jermyn Family Trust
Westpac Custodian Nominees Limited
AMP Life Limited
Bass Equities Fund No 1 Pty Limited
RBC Global Services Australia Nominees Pty Limited
Cogent Nominees Pty Limited
Cogent Nominees Pty Limited
Credit Union Australia Limited
58
Number held
16,212,502
10,366,583
9,620,000
9,520,000
8,911,534
8,589,174
7,302,727
7,040,009
5,334,891
2,810,000
2,067,159
2,000,000
2,000,000
1,572,195
1,364,464
1,153,960
1,034,985
995,479
895,161
800,000
Percentage of
issued shares
13.79
8.82
8.18
8.10
7.58
7.30
6.21
5.99
4.54
2.39
1.76
1.70
1.70
1.34
1.16
0.98
0.88
0.85
0.74
0.68
99,590,823
84.69
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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
Number on Issue Number of holders
623,200
556,407
4
19
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
Perpetual Trustees Australia Limited
Renaissance Smaller Companies Pty Ltd
D. Voting rights
Number held
Percentage
19,991,583
18,436,534
14,794,221
9,027,367
17.00
15.68
12.58
7.68
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.
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59
D I R E C T O R Y
Directors
Secretary
Senior Management
Peter Ritchie
Chairman
Paul Lahiff
Managing Director
Peter Higgins
Rodney Higgins
Deborah Ralston
Steve Jermyn
David Hoskins
Tony Crossley
Chief Operating Officer
Adam Fraser
Chief Financial Officer
Mark Newton
Chief Information Officer
Brent McDonald
Group Franchise Operations Manager
Warren O’Rourke
National Corporate Affairs Manager
Ian Pepper
National Marketing Manager
Debra Player
National Lending Manager
Michael Writer
National Human Resources Manager
Notice of annual
general meeting
The annual general meeting of Mortgage Choice Limited
will be held at: The Pavilion
Gallery Level
Star Court – Darling Park
201 Sussex Street
Sydney NSW
time:
11:00 am
date:
15 November 2005
A formal notice of meeting is enclosed.
60
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Principal registered office
in Australia
Mortgage Choice Limited
Level 7
182 – 186 Blues Point Road
North Sydney NSW 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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