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NCC Group08Annual Report
In our 16 years we have helped
more than 200,000 customers
to find their home loan.
Mortgage Choice has always
been on the side of the
customer, ensuring that our
consumer protection initiatives
are of the highest standard.
We were the first broker to
launch a customer charter,
in which we fully disclose
our service, all commissions
paid, our privacy policy and
complaints procedure.
Our high standards mean
we have been recognised by
numerous industry awards and
accolades over the years.
We have grown to be
Australia’s leading mortgage
broker and we are the only
specialist mortgage broker
listed on the Australian
Stock Exchange.
Mortgage Choice
is Australia’s
leading mortgage
broker. We offer
professional advice
to help clients find
a suitable home
loan with one of
Australia’s leading
banks or lenders on
our panel.
Mortgage Choice was
established in 1992 with the
aim of simplifying the whole
process of getting a home loan.
Co-founders Rod and Peter
Higgins had a vision of building
a national Franchise Network
of ethical and professional
residential property
mortgage brokers – that local
communities could trust
with service and who didn’t
‘play favourites’.
Today we provide specialist
home loan advice on over
300 residential home loan
products from a panel of
lenders. As the Australian home
loan market gets bigger every
year, helping make the home
loan process simple becomes
more and more important.
Mortgage Choice Limited
ABN 57 009 161 979
contents
02
03
04
08
12
Financial Highlights
Chairman’s Report
Managing Director’s Overview
Review of Operations
Board of Directors
13
14
18
33
Senior Management
Corporate Governance
Directors’ Report
Financial Report
Key Messages
Q Solid financial performance
in a challenging year
Q Lending environment likely to
remain subdued for at least the first
half of 2008/9
Q Mortgage Choice’s business
model is robust and well
positioned to take opportunities
in a testing twelve months ahead
particularly in relation to our competition
– due to our strong brand,
geographic spread, and industry
leading productivity.
MORTGAGE CHOICE ANNUAL REPORT 2008 /01
Financial Highlights
33,269
29,644
25,696
21,693
17,600
13,107
9,628
6,636
4,193
30 Jun
2000
30 Jun
2001
30 Jun
2002
30 Jun
2003
30 Jun
2004
30 Jun
2005
30 Jun
2006
30 Jun
2007
30 Jun
2008
Mortgage Choice Loanbook
($M)
Q Net profit after
Q Cash received for
tax $19.3 million,
a marginal decrease
on FY2007 of
$19.6 million.
Q Total revenue $161.4
million, up 2.7% on
previous period.
Q Earnings per share
16.4 cents compared
to 16.6 cents per
share in FY2007.
Q A final dividend of
8 cents per share
brings the total out
of FY2008 profits to
14 cents per share.
trailing commission
was $81.5 million
being 55.3% of
total commissions
received for FY2008
compared with
52.4% in FY2007.
Q Mortgage Choice
generated $11
billion in housing
loan approvals
during FY2008 and
continues to achieve
industry high
productivity levels
per broker.
Q The loan book now
stands at $33.27
billion, 12.2% up
on FY2007; this
compares to system
growth of 10.1% year
on year.
Q A total of 64.6%
of commission
revenues was paid
to franchise owners
compared to 66.1%
for the previous
period.
Q Net assets at 30
June 2008 were
$55.1 million
compared to
$52.2 million
in the previous
corresponding
period.
Q Cash flow from
operating activities
during the year
was $17.0 million
compared to $16.7
million in the
previous year.
/02
FINANCIAL HIGHLIGHTs / CHAIRMAN's REPORT
Chairman’s Report
IN ThIS our SIxTEENTh YEAr oF opErATIoN, I AM dELIghTEd
To rEporT ThAT dESpITE ChALLENgINg MArkET CoNdITIoNS
MorTgAgE ChoICE hAS dELIvErEd ANoThEr SoLId rESuLT.
Peter ritChie,
ChAirMAN
“The housing market during
the last financial year has
seen unprecedented upheaval
primarily driven by the US sub-
prime crisis and its subsequent
impact on Australia. While
Mortgage Choice has no
products of its own and
therefore no debt on its balance
sheet, we were not immune to
the impact on local financial
markets of the US situation
and interest rate increases,
which dampened demand for
housing finance.
Whilst the Board is confident
the Company will continue
to be profitable, it will be a
challenging time ahead in
view of a weakened domestic
housing market.
The financial result for the year
to 30 June 2008 was a net
profit after tax (AIFRS) of
$19.3 million.
The Board has declared a
second half fully franked
dividend of 8 cents per share,
bringing the total ordinary
dividend for the year to
14 cents per share.
This represents a payout ratio
of 97% out of AGAAP profits for
the year to 30 June 2008. This
is on par with the dividend paid
out of FY2007 profits.
Earnings per share were 16.4
cents compared to 16.6 cents
per share in FY2007.
Our housing loan approvals
during the financial year to
30 June 2008 totalled $11.0
billion marginally down on the
previous year of $11.1 billion.
Our loan book has grown to
$33.27 billion at year’s end,
12.2% up on the previous year.
The expected average life of
loans has increased to 3.7
years on existing loans. This
is an outstanding result in a
challenging market.
The total broker network
increased to 671 as at 30
June 2008, up from 663 in
the previous year.
Franchise growth improved
marginally on the prior year,
with net franchise numbers
increasing to 447 as at 30
June 2008. The current state
of the employment market,
the competition for new
franchisees and a continuing
and deliberate focus on
quality candidates over
quantity, continues to create
a challenging environment
for recruitment.
The Mortgage Choice
business is built on a series
of partnerships. A critical
partnership is the one we
have with our franchise
network, a team of committed,
entrepreneurial, independent
businesspeople who put
enormous energy and time into
meeting their customers’ needs
and, as a result, grow their
own businesses. I have had
the opportunity to meet many
franchisees and their staff
during my time as Chairman
and I am always impressed
by their drive, energy and
passion for their customers
and their businesses.
Our lender partners are also
critical, as they provide us with
the products and services
demanded by customers.
Our overriding objective is to
work in a mutually beneficial
relationship with our lenders.
To our staff, my warmest
congratulations. Their
commitment to supporting
the franchise network is
unparalleled. Managing
Director Paul Lahiff has again
led the team brilliantly through a
difficult yet successful year.
The Board was delighted the
Company was recognised as
the MFAA 2008 Operator of
the Year (Best in the Mortgage
and Finance industry). This
award is clear recognition of
the standards established
and maintained by all levels
of the Company.
The strategies put in place
to grow the business over
the next twelve months and
beyond fundamentally embrace
generic growth. However, we
must remain vigilant to the
environmental changes facing
the industry. Notwithstanding
this, the Board is of the view
that our strategies will establish
a strong platform to compete
and grow the business.
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, and achieving even
greater success for Mortgage
Choice in future years.
MORTGAGE CHOICE ANNUAL REPORT 2008 /03
Managing Director’s Overview
MorTgAgE ChoICE ANd ITS FrANChISEES hAvE CoNTINuEd
To proMoTE ThE bENEFITS oF A wIdE-rANgINg ChoICE
oF LENdEr ALTErNATIvES.
“
The US led sub-prime crisis
surfaced In August 2007 and
while initial readings were that
it would be largely confined to
the US, it was subsequently
felt in Australia.
It did send shockwaves
through the housing and
finance markets and as a
consequence, the residential
mortgage landscape
underwent a dramatic change
in the period. The non-
banks saw their competitive
advantage weaken; some
lenders withdrew from the
broker channel while others
discontinued their mortgage
divisions; mortgage interest
rates were increased
independently of the Reserve
Bank and mortgage lending
policies were tightened,
all of which had a profound
effect on the Australian
mortgage market.
PAUL LAhiFF, MANAGiNG DireCtOr
strategy in brief
Q ORGANIC GROWTH
Q MAKING THE BUSINESS MODEL EVEN MORE EFFECTIVE
Q EMBRACING ENVIRONMENTAL CHANGES
Q STRATEGIES EVER EVOLVING
/04
Market Forces
and Strategy
In last year’s annual report, we outlined the revamping of our
corporate strategy, focusing on organic growth by Mortgage
Choice in the mortgage broking sector, with increased
investments in lead generation, lead conversion, and
franchisee recruitment, with the objective of achieving
medium term growth in profitability and market share.
Other parts of this report comment on the achievements
created in each of these three key areas, and the Mortgage
Choice Board is satisfied that this approach was both
appropriate and timely.
The world, however, has fundamentally changed over the
past twelve months. The US sub-prime market collapse and
its impact on global credit and equities markets, has clearly
altered the landscape in which Mortgage Choice operates.
MANAGING DIRECTOR's OvERvIEw
which should underpin the
housing market.
The Reserve Bank of Australia
whilst it remains watchful on
inflation has given its strongest
indication yet that official
interest rates might be reduced
in coming months.
Also, with a national problem
of low rental vacancy rates,
increasing rents and an
unstable equities market,
it should augur well for a
resurgent investment
housing market.
“Also, with a national
problem of low
rental vacancy rates,
increasing rents and
an unstable equities
market, it should
augur well for
a resurgent
investment
housing
market.
Also, in the financial year to the
30 June 2008, we saw four
twenty-five basis point official
cash rate increases, the last of
which was in March 2008.
The latest ABS Housing
Finance data (June 2008)
has reported a continued
weakening of demand for both
owner-occupier and investment
housing finance. With house
prices lower in some parts of
Sydney than in 2003, Perth
house price growth stagnating,
and rental vacancy rates
nationally at record lows, it is
a challenging time.
In a difficult market,
the percentage of first
homebuyer participation is still
at solid levels. The Federal
Government’s Budget
contained some incentives
for First Home Buyers and in
particular the introduction of
the First Home Savers Account,
which will come into effect on
1 October 2008. At the same
time, further stamp duty
concessions at state level
were introduced. Any initiative,
which assists the aspiration
of this important category of
borrower, is welcomed.
In the period under review, we
saw fixed rate loan demand
soar in the first six months of
the financial year as concern
about the direction of interest
rates were realised. Fixed
interest rates increased yet
it didn’t dampen demand as
borrowers sought repayment
certainty. The situation eased
in the latter part of the year as
many borrowers were turned
off by the high fixed interest
rates and, the view that the
top of the interest rate cycle
was close.
A sleeper in the housing
finance market is the number
of borrowers who are coming
out of low fixed rates into a
higher interest rate product.
What effect the situation might
have in terms of “mortgage
stress” and/or housing prices
is uncertain. Some relief
was offered with the Federal
Government’s tax cuts,
which came into effect on
1 July 2008.
Ironically, the economic
fundamentals are in place –
sound economy, strong net
migration, low unemployment,
stable wages growth – all of
Significantly, there has been a realignment of mortgage
business between mainstream lenders and non-bank
lenders, although Mortgage Choice and its franchisees have
continued to promote the benefits of a wide-ranging choice
of lender alternatives.
There has also been a realignment of broker commission
structures that are still being finalised. Some lenders have
decided to retain their current commission schedules, while
others have made adjustments. Throughout all of the
discussions with our key lending partners, Mortgage Choice
has emphasised the quality it brings to the table which has
been reflected in the commission structures offered to
Mortgage Choice which are at the highest level available.
Criteria such as electronic lodgement, conversion, and
submission quality are all important parts of our operating
model that franchisees have embraced and which places us
at the forefront of the industry. Hence, recent commission
changes whilst having an impact on income, reinforce
Mortgage Choice’s premier position in the market, and align
with the type of behaviours lenders are wishing to reward.
Finally, the Mortgage Choice Board has noted the recent
slowing of the overall economy, and specifically its impact on
housing loan approval levels. Notwithstanding this easing of
growth, the Company remains confident that it will continue
to generate solid business volumes, given the underlying
robustness of our business model.
MORTGAGE CHOICE ANNUAL REPORT 2008 /05
“Mortgage
Choice was
delighted to
be recognised
as the MFAA
2008 operator
of the Year by
the Mortgage and
Finance Association of
Australia.
NAtiONAL reGULAtiON
Mortgage Choice has been
calling for national uniform
regulation since 2002. The
Federal Government has
announced there will be a
national approach to regulation
with ASIC to have a primary
role in the licensing of
mortgage brokers.
A Financial Services and Credit
Reform Green Paper was
released in May 2008.
In summary, our response to
this paper was:
Q Mortgage Choice supports
uniform regulation of
mortgage brokers on a
national basis.
Q The draft regulatory
provisions proposed as
the second option in the
Green Paper are largely
endorsed.
Q The regulatory framework
proposed in the NSW
Government draft National
Finance Broking Bill of
November 2007 and
referenced is also
supported, with some
exceptions.
Q Regulatory reform needs
to recognise that it is
appropriate that the
person providing mortgage
advice to a consumer be
competent to provide that
advice irrespective of
whether they represent an
Authorised Deposit-taking
institution, a non-deposit
taking institution or a
mortgage broker.
Q It is a misconception to
attribute excess consumer
debt levels to mortgage
brokers. Lenders are
appropriately responsible
for determining the
borrowers capacity to
repay as they assume the
credit risk.
The final point is intended
to address a consistent
theme among many of the
government reviews, which
is that mortgage brokers are
responsible for consumers
incurring more debt than
they can afford to repay.
At every opportunity, we have
argued that it is the lender that
is ultimately responsible for
assessing a customer’s ability
to repay.
Outlook
Strategy inevitably evolves as it must to adapt to differing
circumstances. So too must the Mortgage Choice strategy.
The underlying principles, however, remain constant; a focus
on doing a limited number of initiatives particularly well;
clarity around our strategy; simplicity; and consistency with
past strategy where it’s proven to be effective.
Looking forward, the Company will continue to focus on
increased lead generation, enhanced lead conversion, and
selectively growing the franchisee base.
At the same time, there will be a strong emphasis on helping
franchisees to improve their productivity.
/06
MANAGING DIRECTOR's OvERvIEw CONTINUED
Finally, I want to acknowledge
the support of the Board
throughout the past year.
I look forward to driving the
business to another successful
year for its stakeholders in
FY2009.
PAUL LAhiFF
MANAGiNG DireCtOr
“Their
commitment
to the vision
and ideals
of the
Company
have made
a profound
contribution
to the success
of the Company.
Based on current government
projections, it would appear
a White Paper will issue in
late 2008 and new regulation
introduced in mid/late 2009 or
early 2010.
PrOveN BUsiNess
MODeL
The strength and reputation of
our business model and our
Franchise Network has once
again been recognised through
yet another industry accolade.
Mortgage Choice was
delighted to be recognised
as the MFAA 2008 Operator
of the Year by the Mortgage
and Finance Association of
Australia. This award was
especially significant because it
positions us as the best in the
mortgage and finance Industry.
The relationship with our
franchise partners is of
paramount importance.
The principal vehicle through
which high-level discussion
takes place is through our
democratically elected
Franchise Advisory Council
(FAC). The FAC continues to be
highly effective and provides
a valuable conduit between
franchisor and franchisee.
This important body meets
throughout the year and with
the Board, twice a year.
A pleasing aspect of our
business is the growing number
of franchise owners completing
ten years or more service with
the Company. Considering
the Company commenced
franchising in 1994, this is a
significant achievement.
Naturally, the results we detail
in this report require two
further effective partnerships:
the constant innovation and
flexibility of our lender panel
and the enthusiasm and
dedication of our staff.
Other key parts of the strategy include:
Q
Q
Q
Q
review and realignment of our payments model to
franchisees to incentivise growth and investment;
achievement of the objectives of our new enterprise wide
software system, Discovery;
enhancement of our commercial lending offering, and
the introduction of a personal loan offering to facilitate
franchisees wishing to offer these products to
their clients;
the provision of financial assistance and other tools to
assist nominated franchisees to acquire local mortgage
broking businesses;
If opportunities come up that don’t address or assist the
achievement of these strategic focal points, they will not
be considered.
Summary
Mortgage Choice is confident that it is well placed
to achieve profitable growth in the coming year. Our
approach to business opportunities and a singular focus
on the strategies outlined will clearly assist in this.
MORTGAGE CHOICE ANNUAL REPORT 2008 /07
Review of Operations
MorTgAgE ChoICE IS CoMMITTEd To dELIvErINg ThE MoST
kNowLEdgEAbLE, CoMpETENT ANd EThICAL MorTgAgE
brokErS IN ThE INduSTrY.
LeArNiNG AND
DeveLOPMeNt
Mortgage Choice is committed
to delivering 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 to enable the network
to be the best they can be at
what they do.
On joining Mortgage Choice,
all franchisees and loan
consultants undertake
comprehensive training
(accredited by the MFAA),
which now includes Certificate
IV in Financial Services (Finance
& Mortgage Broking), lender
accreditation and an in-the-field
mentoring program. Once the
initial training is completed,
brokers receive regular updates
and support from the state
office infrastructure and at
conferences.
Our e-Learning platform
delivers ongoing mortgage
origination, sales and office
productivity training for
franchisees and their staff.
FrANChise OPerAtiONs
Mortgage Choice licenses the
use of the Mortgage Choice
brand and business systems to
its Franchise Network.
Accredited mortgage brokers
comprise franchisees, their
loan consultants and staff.
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. We
abide by the Franchising Code
of Conduct, which is regulated
by the ACCC.
Mortgage Choice restricts
the number of franchisees it
recruits in each geographic
region under its broker
resource model, which
segments the market into
postcode-defined marketing
areas.
This model analyses the
number of households and
the residential lending market
size (based on Census data) in
each postcode, and allocates
franchises based on target
market share in each area.
Mortgage Choice franchisees
come from a variety of
backgrounds and the Company
believes that sales ability, inter-
personal skills, commitment,
energy and aspiration are often
more important than previous
industry experience.
rOOkie DeveLOPMeNt
AND MeNtOr PrOGrAM
The Rookie Development
Program has been carefully
designed to guide new
franchisees through their first
twelve months of operation.
The program provides the
rookie with the training,
information, tools and support
they will need to acquire the
competencies necessary
to be successful in their
new business.
The rookies are appointed a
mentor franchisee who is a
selected high performer from
the network. It is mandatory
that every rookie spends
a minimum of nine days
in the mentor’s business.
The objective is to ensure
that all rookies have a basic
understanding of broking and
home loan lending prior to the
two week induction course.
Also, it allows rookies to
develop a collaborative
working relationship with their
mentor and opportunities to
better develop their skills
and knowledge.
A FOCUs ON the
CUstOMer
In 2008 we launched our
BEAGLE Professional Selling
program across the country
to great acclaim and uptake
from the network. It is the first
time many of our franchisees
had participated in such a
program and one specifically
/08
Our Competitive
Advantage
Mortgage Choice believes that the combination of the
fundamental components of its business model provide
it with significant competitive advantages over other
brokers in the marketplace:
operates through a national network of franchises. This
approach delivers leverage within the services industry,
because the people who run the business own the business;
1 FRANCHISE BUSINESS MODEL Mortgage Choice
2 HIGH qUALITy SERVICE The Mortgage Choice model
has been carefully framed to reward both business
volume and quality, which results in efficiency and high
levels of customer satisfaction. Mortgage Choice
continually aims to provide a high level of support to its
franchisees in marketing, training and professional
development, legal and compliance, and technology;
3 BRAND Mortgage Choice is recognised as a leading
consumer brand, which has been built upon a
proposition of knowledgeable people, choice, and
customer advocacy;
REvIEw OF OPERATIONs
4 NO pRODUCT OF ITS OWN Unlike some of its
competitors, Mortgage Choice does not distribute its
own products. This allows it to treat all lenders and
products equally, based upon their particular merits to
the customer;
5 STRENGTH OF LENDER RELATIONSHIpS Mortgage
Choice generates significant volume and quality of loans
for its lenders. This places it in a strong position to
shape key operational relationships with business
partners; and
6 ECONOMIES OF SCALE Mortgage Choice’s business
model is scaleable, allowing it to grow its originations
and loan book without growing its cost base at the same
rate, thus giving Mortgage Choice financial strength
and stability.
designed for our business. The
program seeks to improve
our network’s ability to convert
business from leads to
submission. It introduces tools
and techniques to influence
the customer decision-making
process.
A Sales Management
workshop was introduced to
complement the Professional
Selling program and assists
franchisees in improving their
own and staff performance.
The workshop involves
implementation of a Productive
Activity Tracking System in
franchisees business and
introduces performance
management concepts.
trANsitiON PLANNiNG
Mortgage Choice engaged the
services of external consultants
to provide a tailored program
for franchise owners. The
program was designed to
provide information and
awareness to franchise owners
regarding transition planning;
encourage and demonstrate
the benefits of early planning;
and provide practical ideas
and solutions in the form of
checklists, questionnaires and
an Action plan.
The Transition Planning
workshops have enabled the
participants to identify areas
of risk or weakness in their
businesses and address these,
identify transition options,
formulate their own preferred
plan and seek appropriate
advice from specialists.
kiA tOA – NAtiONAL
LeArNiNG exPerieNCe
Christchurch, New Zealand
was the venue for the eleventh
Mortgage Choice national
conference.
This showcase event held in
January each year, provides
our Franchise Network,
sponsors and a number of
group and state office staff,
the opportunity to further
develop their understanding of
the business from a strategic
perspective as well as on an
individual franchise basis.
Themed – KIA – TOA (Maori
for “to grow, to win, to be a
champion”) – the conference
focused on providing learning
opportunities through
structured plenary, workshop
and roundtable sessions.
Leading keynote speakers
covered topics such as, growth
strategies, the economy and
property market and, insights
into success.
Networking is a vital element of
the conference and the evening
functions provide not only a
basis for casual interaction, but
also fun.
With over 600 in attendance,
the Gala Dinner transformed
the Christchurch Convention
Centre into a galactic
experience. The highlight of the
evening is the national Business
Excellence Awards, which
saw an impressive Western
Australian based franchise
group led by Greg McQueen,
Richard Crommelin, Dennis
Aplin and Michelle Towner
take out National Franchise
of the Year.
Formal delegate feedback
consistently rates the
conference in the 90 percentile
and above in terms of
satisfaction. Sponsors rate it as
the benchmark for the industry.
Planning is well underway for
the 2009 national conference,
which will be held on Denarau
Island, Fiji. The challenge as
always, is to ensure it is better
and brighter each year.
MORTGAGE CHOICE ANNUAL REPORT 2008 /09
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
mortgage specialisation and
consumer advocacy.
Mortgage Choice’s marketing
activities incorporate two
elements:
Q National, state, and
regional marketing,
managed by group office;
and
Q Local marketing activities,
managed by franchisees.
National Brand campaigns are
developed by Group Office
marketing and wide range of
marketing support is provided
to all franchisees, to assist
them in their local marketing
efforts. 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.
Mortgage Choice market
positioning was reviewed and
new campaigns released under
the banner of “Simple Choice,
Mortgage Choice”. This is a
consumer focussed approach
that leverages our specialist
positioning and showcases
the concerns and drivers that
motivate consumers to seek
mortgage advice. In a series of
3 x 30 second TV commercials
and a range of radio and print
advertisements, First Home
Buyers, Refinancers and First
Time Investors were targeted.
Group office engages in
national and statewide
marketing that generates leads
through the Mortgage Choice
customer service centre and
corporate website and aims
to build a trustworthy brand
that may be leveraged by
franchisees in their local area
marketing. Group Office leads
are distributed to the Franchise
Network on an equitable basis
by marketing area.
Off the back of a strong
consumer brand, direct
response TV and radio lead
generation campaigns, using
SMS / mobile phone as the
primary response device have
been used throughout the
year in campaigns designed to
stimulate enquiry.
Last year Mortgage Choice
introduced the phone word
13MORTGAGE as our main
customer service contact
number. This device is now
the lynchpin of all campaigns,
designed to firmly fix that
memorable number into
the minds of those seeking
mortgage information. Now,
13MORTGAGE is regarded as
one of the premier numbers in
the mortgage arena.
Pathways, Mortgage Choice’s
email based nurture facility
for those with an early interest
in the mortgage market,
has proven to deliver strong
conversion results and has
been expanded.
The Mortgage Choice website
was completely redesigned,
using persuasion architecture
as its basic methodology
of information structure to
address the goal of increased
conversion of web leads. In
addition, franchisee web based
“Local Pages” have been
revitalised to increase local
traffic to each franchisee and
to ensure that a common
standard is presented to
the consumer.
Various on-line lead generation
campaigns have been
conducted with real estate
sites. The web space continues
to provide new opportunities to
generate leads with the
main challenge being
conversion, since one of the
essential benefits of the web is
to shop around.
ChOiCe MADe eAsy
Mortgage Choice assists
customers in the selection of
a mortgage from a complex
range of products from its
lender panel by 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 an
extensive panel of Australia’s
leading lenders.
Mortgage Choice brokers use
the Company’s proprietary
software system to compare
the customer’s financial
situation and 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, together
with their own experience and
expertise, to analyse features
of loan products in order to
identify those most suitable for
the customer.
The completed loan application
form is 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 and include
not only the loan application
process but also settlement
and beyond.
eLeCtrONiC
LODGeMeNt
Mortgage Choice submitted its
first loans electronically in May
2004. Since then electronic
lodgement has been a key
focus in the business providing
speedy approvals for our
customers. In addition,
our lender partners benefit
from cost savings and
increased efficiency while
our franchisees benefit from
improved productivity.
Let us shop around for your
next home loan.
Interest rates, fees, features and ‘special’ deals - we’ll compare them to find the home
loan options that suit your needs. In uncertain times, it pays to talk to the specialists.
simple choice
Mortgage
Choice
values
Q
Q
Q
Q
Q
We are honest in all our
interactions.
We provide service
excellence to drive
successful customer
outcomes.
We support the
environment and
communities in which
we live and work.
We support each other
and work as a team
to achieve all our goals.
We treat everyone with
respect and dignity.
/10
“… we continue
to improve
our enterprise
customer
relationship
management
solution… and
have a schedule of
improvements planned
for FY 08/09…
REvIEw OF OPERATIONs CONTINUED
LeNDer PArtNers
Mortgage Choice recognises
the importance of developing
and nurturing the relationships
between broker and lender.
Dedicated specialist staff
oversee the operational
relationships between the
Company and its franchisees
and the lender panel. This
team provides lenders with
structured feedback from
and access to, the Franchise
Network, and promotes
operational effectiveness by
working with lender partners
to improve service and
processing efficiencies.
The panel includes Australia’s
leading lenders, providing a
cross-section of products and
lender types that Mortgage
Choice considers to be a
representative spread of
available, quality housing loans.
Two new lenders in La Trobe
Financial Services and Firstmac
Limited were added to the
panel during the year.
Mortgage Choice believes the
benefits enjoyed by lenders
from dealing with credible
brokers such as Mortgage
Choice 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 full range of mortgage
products offered by lenders on
the Company’s panel;
Geographic expansion
Brokers have facilitated low
cost geographic expansion
for lenders into areas where
branch networks are less
extensive or do not exist;
sourced through the branch or
other networks; and
efficiency A broker’s
familiarity and experience with
each lender’s process can
increase the efficiency of the
lodgement and settlement
process.
Mortgage Choice understands
the importance for customers
to be covered in the event of
death, terminal illness or any
one of 11 serious medical
conditions. Since 2006
Mortgage Choice, through
Australian Life Insurance (ALI),
has provided over $1 billion
in life insurance cover for
our customers.
COMPLiANCe
Mortgage Choice has
maintained its commitment to
ensuring compliance remains
a key priority for the business.
To satisfy the Australian
Standards for compliance,
the Company’s web based
compliance knowledge training
and development tool Ecomply,
is mandatory for all Mortgage
Choice staff and franchisees.
During the year, a complete
internal review of all compliance
reference material was
carried out. The aim of this
exercise was to ensure that
all information available to all
representatives was current,
relevant, easy to access and
easy to understand. Two
comprehensive manuals
were developed, one dealing
specifically with Privacy issues
and the other a general,
all-inclusive Compliance
Handbook. Franchisees and
their staff are now able to
research all major areas of
legislation and regulation on-
line, in a central repository,
reducing the risk of key
information being overlooked
or misunderstood.
iNFOrMAtiON
teChNOLOGy
Profitability By originating
mortgages of a higher average
loan size and potentially of a
longer loan life, broker sourced
business can be as or more
profitable than business
The initiatives being undertaken
in Information Technology are
designed to deliver improved
customer service and
efficiencies to the franchisor,
business partners, franchisees
and their clients and provide
us with a platform from
which to leverage our unique
market position.
In particular, we continue
to improve our enterprise
customer relationship
management solution,
Discovery, and have a schedule
of improvements planned for
FY2009, including enhanced
functionality and end user
training to ensure the most
effective use of the software
is achieved.
In addition, we have performed
ongoing reviews of our
technology with a view to
introducing technologies that
enhance business flexibility,
minimise operational risk
and cost.
These initiatives will provide
a solid foundation for us to
take advantage of market
opportunities as they present
themselves and negotiate the
challenges we face.
MOrtGAGe ChOiCe iN
the COMMUNity
Mortgage Choice recognises
the importance of supporting
those members of the
community who are less
fortunate. As a supporter
of Barnardos, the children’s
charity, and in particular
through its Munch Box
program, management and
staff involve themselves in not
only fund raising, but also the
assembly of the munch boxes.
These go to appreciative, single
young parents.
Events like “City to Surf” in
Sydney and a variety of social
club events provide a focus and
a catalyst to raise funds for
the charity.
Many of our franchisees around
Australia also support local
charities as they also believe
in “giving something back” to
their communities. A number
of Mortgage Choice staff
and franchisees serve
on committees to assist in
raising funds for a variety of
good causes.
MORTGAGE CHOICE ANNUAL REPORT 2008 /11
Board of Directors
Peter ritChie
NON-exeCUtive
ChAirMAN
ChAirMAN OF
NOMiNAtiON AND
reMUNerAtiON
COMMittees
BCom, FCPA, AO
Peter is Deputy Chairman of
Seven Network, Chairman of
Reverse Corp Limited and a
Director of Tennis Australia.
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 66.
/12
PAUL LAhiFF
Peter hiGGiNs
rODNey hiGGiNs
MANAGiNG DireCtOr
Bsc Agr, FAiM
NON-exeCUtive
DireCtOr
NON-exeCUtive
DireCtOr
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. He is a member
of the Board of the Cancer
Council (NSW) and a non-
executive Director of Radio
Rentals Limited. Age 55.
MeMBer OF AUDit
COMMittee
Peter is co-founder of Mortgage
Choice. He is also a Director of
technology company, Power
& Data Corporation Pty Ltd.
Having been successfully self-
employed for over 20 years,
Peter has been involved in
a number of companies in a
diverse range of industries
covering manufacturing,
technology, leasing, property
and finance. Age 48.
MeMBer OF NOMiNAtiON
AND reMUNerAtiON
COMMittees
Rodney is co-founder of
Mortgage Choice. Rodney 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 53.
DeBOrAh rALstON
steve JerMyN
NON-exeCUtive
DireCtOr
MeMBer OF AUDit
COMMittee
PhD, FFin, FAiM, FCPA
Deborah is Professor and Pro
Vice Chancellor Engagement
at the University of Canberra.
Deborah was formerly Director
of the Centre for Australian
Financial Institutions at
the University of Southern
Queensland and a former
Director of Heritage Building
Society. Age 55.
NON-exeCUtive
DireCtOr
ChAirMAN OF AUDit
COMMittee FCPA
Steve joined McDonald’s
Australia Ltd in 1984 and
joined the Board of Directors
in 1986. In June 1999, Steve
was appointed Deputy
Managing Director. He has
been involved in all aspects
of the development of the
McDonald’s restaurant
business in Australia and brings
with him significant experience
in the development of new
business and franchising.
He retired from McDonald’s
Australia in 2005. Steve is also
a Director of Reverse Corp
Limited. Age 59.
BOARD OF DIRECTORs / sENIOR MANAGEMENT
senior Management
NeiLL rOse-iNNes
DeBBie eNNis
wArreN O’rOUrke
tONy CrOssLey
ChieF FiNANCiAL
OFFiCer
Tony has over 15 years
experience in senior financial
roles within the financial
services industry, including
10 years in the international
insurance and reinsurance
industries, and, from early
2000, three years as CFO and
then CEO of Mortgage Choice.
After a period as CFO of
Macquarie Bank’s Securitised
Lending Division, where he had
responsibility for management
of funding, financial and risk
management activities of its
Australian and US mortgage
operations, Tony returned to
Mortgage Choice in early 2005.
Tony is responsible for directing
and controlling the financial
activities of the organisation
as well as providing financial
assessments and information
to ensure planning and
budgeting activities meet
corporate goals.
ChieF iNFOrMAtiON
OFFiCer
Neill has over 20 years
experience in information
technology, including senior
technology and business
leadership positions. After a
period as Chief Information
Officer at RAMS Home Loans,
Neill was Head of Operations
at Greenway Capital, with
responsibility for mortgage
processing, back office
operations and information
technology. Neill has an
extensive background in IT and
management consultancy.
Neill is responsible for
determining and implementing
the enterprise IT strategy,
innovation in respect of
systems and processes
designed to deliver greater
efficiencies across the
business, as well as associated
service functions in support of
franchisee revenue generating
activities.
heAD OF sALes
Debbie has close to 20
years experience in financial
services and small business.
This includes senior positions
in branch management,
human resources and project
management at St.George
Bank. Debbie joined Mortgage
Choice in November 2000 as
Business Analyst. In 2002, she
was appointed to the key role of
State Manager for Victoria and
Tasmania, being responsible
for leadership, sales,
franchise management and
recruitment. In July 2007 she
was appointed to her present
role and is responsible for
providing direction, leadership
and coaching through the
state management teams to
ensure the Franchise Network
continues to develop and
build their sales and business
generation skills. She holds a
Graduate Diploma in Human
Resource Management.
MArk NewtON
DAviD hOskiNs
LyNNe wyAtt
ChieF OPerAtiNG
OFFiCer
Mark has over 20 years
experience in business
and information technology
operations, including 15
years in senior management
positions. Mark joined
Mortgage Choice in May 2000.
His areas of responsibility
include organisational
development and training;
lender relations and
product support; franchisee
recruitment; and management
of franchise regulatory
compliance. Mark is also
chairman of the Company’s
Franchise Advisory Council.
COMPANy seCretAry
heAD OF MArketiNG
Lynne has over 15 years
experience in marketing
financial services, including
experience in providing
marketing support services to
a Franchise Network. Lynne
joined Mortgage Choice in
May 2006 and is responsible
for brand, development of
advertising messages, media
placement and strategic
marketing programs, as well
as delivering a range of sales
support tools.
David commenced with
Mortgage Choice in June
2000. He has a Bachelor of
Commerce from the University
of NSW and is a CPA and
a member of Chartered
Secretaries Australia, from
which he has a Graduate
Diploma in Corporate
Management. David has had
over 25 years experience in
a variety of accounting and
company secretarial functions
primarily in the finance and
insurance industries. As
Company Secretary, David is
responsible for implementing
and monitoring corporate
governance practices,
compliance and corporate
standards, administrating
Board and Shareholder
matters, and co-ordinating
legal counsel.
NAtiONAL COrPOrAte
AFFAirs MANAGer
Warren has over 20 years
experience in financial services
in communications and
marketing, covering corporate,
retail and, consulting roles.
Warren joined Mortgage
Choice in March 1999 and is
responsible for media relations
and issues, public relations,
and communications. Warren
holds a Marketing Degree
from the University of
Technology, Sydney.
DeBrA PLAyer
NAtiONAL LeNDiNG
MANAGer
Debra has over 20 years
experience in the finance
sector. As National Lending
Manager, she is responsible
for the development and
communication of lender
strategy, co-ordination of lender
interaction with the Franchise
Network and monitoring of
industry trends. Debra joined
Mortgage Choice in July
2004. She holds a Graduate
Diploma in Finance and Bank
Management, is a Fellow and
National President for the
Institute of Financial Services.
MiChAeL writer
NAtiONAL hUMAN
resOUrCes MANAGer
Having worked previously at
Deloitte, AMP Bank, Aussie
Home Loans and Westpac,
Michael’s experience covers
line management positions
as well as organisational
development activity.
Michael is responsible for
planning, development
and implementation of the
Franchisor’s HR practices,
ensuring policies and
procedures are effective and
compliance with these.
MORTGAGE CHOICE ANNUAL REPORT 2008 /13
Corporate Governance Note
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:
Q compliance with the
requirement that the Board
comprise a majority of
independent non-executive
Directors.
the BOArD
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 prior 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, qualifications, term of
office and independent status
are set out in the Directors’
report under the heading
‘Board of Directors’ on
page 12.
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:
Q there must be a minimum
of five Directors and a
maximum of seven
Directors.
Q 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
judgement.
Q the nomination committee
is responsible for recom-
mending candidates for
appointment to the Board.
Q 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:
Q overseeing the Company,
including its control and
accountability systems;
Q appointing and removing
the Managing Director;
/14
CORPORATE GOvERNANCE NOTE
Q monitoring the
performance of the
Managing Director;
Q monitoring senior
management’s
implementation of strategy,
and ensuring appropriate
resources are available;
Q reporting to Shareholders;
Q providing strategic advice
to management;
Q approving management’s
corporate strategy and
performance objectives;
Q determining and financing
dividend payments;
Q approving and monitoring
the progress of major
capital expenditure, capital
management, acquisitions
and divestitures;
Q approving and monitoring
financial and other
reporting;
Q reviewing and ratifying
systems of risk
management, internal
compliance and control,
and legal compliance to
ensure appropriate
compliance frameworks
and controls are in place;
Q reviewing and overseeing
the implementation of the
Company’s corporate
code of conduct and code
of conduct for Directors
and senior executives;
Q approving charters of
Board committees;
Q monitoring and ensuring
compliance with legal and
regulatory requirements
and ethical standards and
policies; and
Q 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:
Q is not a substantial
shareholder of the
Company or an officer of,
or otherwise associated
directly with, a substantial
shareholder of the
Company;
Q 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;
Q 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;
Q 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;
Q has no material contractual
relationship with the
Company or another
group member other than
as a Director of the
Company;
the purposes of proper
performance of their duties.
Performance assessment
The performance of the
Board, the Directors and key
executives is reviewed annually.
The nomination committee is
responsible for reviewing:
Q the Board’s role;
Q the processes of the
Board and Board
committees;
Q the Board’s performance;
and
Q 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.
A review of the Board was
conducted by the Chairman
of the nomination committee
in concert with the Company
Secretary during the financial
year ended 30 June 2008.
Q has coherent remuneration
policies and practices to
attract and retain
executives and Directors
who will create value for
Shareholders;
Q observes those
remuneration policies and
practices; and
Q 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:
Q financial reporting;
Q the application of
accounting policies;
Q has not served on the
BOArD COMMittees
Q business policies and
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
Q 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
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:
practices;
Q legal and regulatory
compliance; and
Q 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:
Q maintain and improve the
quality, credibility and
objectivity of the financial
accountability process;
and
Q provide a forum for
communication between
the Board and senior
financial and compliance
management.
MORTGAGE CHOICE ANNUAL REPORT 2008 /15
The audit committee charter
is available in the Shareholder
Centre section of the
Company’s website at www.
mortgagechoice.com.au.
The nomination committee
The objective of the nomination
committee is to help the Board
achieve its objective of ensuring
the Company has a board of
an effective composition, size
and commitment to adequately
discharge its responsibilities
and duties. The nomination
committee is responsible
for evaluating the Board’s
performance. The nomination
committee comprises Peter
Ritchie and Rodney Higgins.
The nomination committee
charter is available in the
Shareholder Centre section
of the Company’s website at
www.mortgagechoice.com.au.
CODes OF CONDUCt
The Company has adopted
a corporate code of conduct
setting out its legal and other
obligations to all legitimate
stakeholders including
Shareholders, franchisees,
employees, customers and the
community.
The Company has also
adopted a code of conduct for
Directors and senior executives
setting out required standards
of behaviour, for the benefit of
all Shareholders. The purpose
of this code of conduct is to:
Q articulate the high
standards of honesty,
integrity, ethical and law-
abiding behaviour
expected of Directors and
senior executives;
Q encourage the observance
of those standards to
protect and promote the
interests of Shareholders
and other stakeholders
(including franchisees,
employees, customers,
suppliers and creditors);
Q guide Directors and senior
Q establish procedures for:
executives as to the
practices thought
necessary to maintain
confidence in the
Company’s integrity; and
Q 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 Mortgage
Choice website.
COrPOrAte rePOrtiNG
The Managing Director and
Chief Financial Officer have
certified 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.
CONtiNUOUs
DisCLOsUre
The Company has adopted a
market disclosure protocol. The
objective of this protocol is to:
Q ensure the Company
immediately discloses all
price-sensitive information
to ASX in accordance with
the ASX Listing Rules and
the Corporations Act 2001
(Cth);
Q ensure officers and
employees are aware of
the Company’s continuous
disclosure obligations; and
– 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:
Q ensuring compliance with
continuous disclosure
obligations;
Q establishing a system to
monitor compliance with
continuous disclosure
obligations and this
protocol;
Q monitoring regulatory
requirements so that this
protocol continues to
conform with those
requirements;
Q monitoring movements in
share price and share
trading to identify
circumstances where a
false market may have
emerged in company
securities; and
Q 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.
/16
CORPORATE GOvERNANCE NOTE CONTINUED
Q having determined these
risks, assessing each of
them to allocate a rating
based upon the likelihood
of occurrence and
consequence of
occurrence;
Q determining what control
measures are in place to
eliminate or reduce the
identified risk – this leads
to allocating each risk a
rating, all of which is
recorded in a risk register;
and
Q executive management
then make decisions as to
how each risk is to be
handled i.e. avoided,
managed, transferred or
accepted. The Risk
Register is a dynamic
document that changes as
business operations vary,
resulting in new risks.
Management have reported
to the Board that risk
management and internal
control systems effectively
manage the Company’s
material business risks.
COMMUNiCAtiON tO
shArehOLDers
The Board aims to ensure that
Shareholders are informed of all
major developments affecting
the Company’s state of affairs.
The Board will:
Q communicate effectively
with Shareholders;
Q give Shareholders ready
access to balanced and
understandable
information about the
Company and its
corporate goals; and
Q make it easy for
Shareholders to participate
in general meetings.
Information is communicated
to Shareholders through
ASX announcements, the
Company’s annual report,
Annual General Meeting,
half and full year results
announcements and the
Company’s website,
www.mortgagechoice.com.au.
The Board has adopted a
communications strategy
to facilitate and promote
effective communication with
Shareholders and encourage
participation at general
meetings. Arrangements the
Company has to promote
communication with
Shareholders are set out in the
Shareholder Centre section
of the Company’s website at
www.mortgagechoice.com.au.
exterNAL AUDitOr
The Company has adopted
procedures for the selection
and appointment of the external
auditor which are set out in the
Shareholder Centre section
of the Company’s website at
www.mortgagechoice.com.au.
The audit committee
will regularly review the
performance of the external
auditor and consider any
ongoing appointment.
The external auditor should
rotate the senior audit partner
and the audit review partner
every five years with suitable
succession planning to ensure
consistency.
The external auditor should
not place itself in a position
where its objectivity may be
impaired or where a reasonable
person might conclude
that its objectivity has been
impaired. This requirement
also applies to individual
members of an audit team. The
credibility and integrity of the
financial reporting process is
paramount. The Company has
adopted guidelines on external
auditor independence. These
guidelines help to ensure a
consistent approach to the
appointment and review of
external auditors.
The Company will not give
work to the external auditor
likely to give rise to a ‘self
review threat’ (as defined in
Australian Professional and
Ethical Standards APES110,
The Institute of Chartered
Accountants in Australia and
CPA Australia). It is the policy of
the external auditors to provide
an annual declaration of their
independence to the audit
committee.
The external auditor is
requested to attend the
Annual General Meeting of
the Company.
COMPLiANCe AND risk
MANAGeMeNt
The Company has adopted and
endorsed a compliance policy.
The policy is a commitment to:
Q promote a culture of
compliance throughout the
Company and Franchise
Network;
Q create an understanding of
the relevant laws at all
levels;
Q minimise the possibility of
a contravention of the law
and manage any legal risk;
Q enhance the Company’s
corporate image and
customer service; and
Q 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 repeat the program at
prescribed intervals. New staff
must complete the program
within a specified period. The
Board is required to complete
all modules. The program is
also being rolled out to the
Franchise Network.
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.
In order to comply with the
Australian standard for risk
management, the Company
has initiated a corporate risk
management plan.
In fundamental terms, this
process involves:
Q analysing all aspects of the
business to determine
what operational risks are
faced, either on a
continuous or isolated
basis;
MORTGAGE CHOICE ANNUAL REPORT 2008 /17
Mortgage Choice Limited and controlled entities
Directors’ Report
For the year ended 30 June 2008
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 2008, referred to hereafter as “Mortgage Choice”, “the Mortgage Choice Group” or “the Group”.
1. DireCtOrs
The following persons were directors of Mortgage Choice Limited during the whole of the financial year and up to the date of this
report:
P D Ritchie
P A Lahiff
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
2.
PriNCiPAL ACtivities
During the year the principal continuing activity of the Mortgage Choice group was mortgage broking. This activity involves:
Q the provision of assistance in determining the borrowing capacities of intending residential mortgage borrowers;
Q the assessment, at the request of those borrowers, of a wide range of home loan products; and
Q the submission of loan applications on behalf of intending borrowers.
3. DiviDeNDs
Dividends paid or payable to members during the financial year were as follows:
A final ordinary dividend of $10.041 million (8.5 cents per fully paid share) was declared out of profits of the Company for the year
ended 30 June 2007 on 22 August 2007 and paid on 18 September 2007.
An interim ordinary dividend of $7.106 million (6.0 cents per fully paid share) was declared out of profits of the Company for the half-year
ended 31 December 2007 and paid on 18 March 2008.
A final ordinary dividend of $9.475 million (8.0 cents per fully paid share) was declared out of profits of the Company for the year ended
30 June 2008 on 20 August 2008 to be paid on 15 September 2008.
4. review OF OPerAtiONs
Information on the operations and financial position of the group and its business strategies and prospects is set out in the Managing
Director's Overview and Review of Operations and activities on pages 4-11 of this annual report.
5.
siGNiFiCANt ChANGes iN the stAte OF AFFAirs
Except for the matters disclosed in the Operating Results and Review of Operations section of this annual report there have been no
significant changes in the state of affairs of the consolidated entity.
6. MAtters sUBseqUeNt tO the eND OF the FiNANCiAL yeAr
No other matter or circumstance has arisen since 30 June 2008 that has significantly affected, or may significantly affect:
(a)
(b)
(c)
the consolidated entity’s operations in future financial years, or
the results of those operations in future financial years, or
the consolidated entity’s state of affairs in future financial years.
7.
LikeLy DeveLOPMeNts AND exPeCteD resULts OF OPerAtiONs
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.
/18
8.
eNvirONMeNtAL reGULAtiON
The consolidated entity is not subject to any significant environmental regulation under a law of the Commonwealth or of a State or
Territory in respect of its activities.
9.
iNFOrMAtiON ON DireCtOrs
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 pages 12 of this annual report.
DIRECTORs' REPORT
director
Peter Ritchie
Paul Lahiff
Peter Higgins
Rodney Higgins
Steve Jermyn
Deborah Ralston
particulars of directors’ interests in shares and options
350,125 ordinary shares
247,000 ordinary shares
Conditional entitlement to 83,300 ordinary shares under PSP *
2,693,600 options over ordinary shares granted under EPOP **
5,822,939 ordinary shares
15,226,215 ordinary shares
2,000,000 ordinary shares
50,000 ordinary shares
*PSP – Performance Share Plan as detailed in the remuneration report
** EPOP – Executive Performance Option Plan as detailed in the remuneration report
10. COMPANy seCretAry
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 13 of this annual report.
11. MeetiNGs OF DireCtOrs
The numbers of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June
2008, and the numbers of meetings attended by each Director were:
Full meetings of directors
Number of
meetings held
Number of
meetings attended
10
10
10
10
10
10
8
9
6
10
8
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
2
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 2008.
12. retireMeNt, eLeCtiON AND CONtiNUAtiON iN OFFiCe OF DireCtOrs
In accordance with the Constitution, Peter Higgins retires by rotation and, being eligible, offers himself for re-election.
MORTGAGE CHOICE ANNUAL REPORT 2008 /19
13. reMUNerAtiON rePOrt
The remuneration report is set out under the following main headings:
A
B
C
D
E
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Share-based compensation
Additional information.
The information provided in this remuneration report has been audited as required by section 308(3C) of Corporations Act 2001.
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:
Q competitiveness and reasonableness;
Q acceptability to Shareholders;
Q performance linkage / alignment of executive compensation;
Q transparency; and
Q capital management.
In consultation with external remuneration consultants, the Company has structured an executive remuneration framework that is
market competitive and complimentary to the reward strategy of the organisation.
Alignment to Shareholders’ interests means:
Q has economic profit as a core component of plan design;
Q focuses on sustained growth in share price; and
Q attracts and retains high calibre executives.
Alignment to program participants’ interests means:
Q rewards capability and experience;
Q reflects competitive reward for contribution to growth in Shareholder value;
Q provides a clear structure for earning rewards; and
Q provides recognition for contribution.
The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. As executives gain
seniority with the group, the balance of this mix shifts to a higher proportion of “at risk” rewards.
Non-executive Directors
Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors.
Non-executive Directors’ fees and payments are reviewed annually by the Board. The Board has also sought independent
research material to ensure non-executive Directors fees and payments, including those of the Chairman, are appropriate and in
line with the market. The Chairman’s fees are determined independently to the fees of non-executive Directors based on
comparative roles in the external 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 2008 was determined on 17 May 2005 and is based on the
recommendations of independent remuneration consultants. Directors do not receive additional remuneration for representation
on Board committees.
Shareholders in a 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.
The following fees have been applied:
Chairman
Other non-executive Directors
/20
From 1 July 2008
$119,900
$65,400
From 1 July 2007
to 30 June 2008
$119,900
$65,400
Retirement allowances for directors
Non-executive Directors do not receive retirement allowances. Superannuation contributions required under the Australian
superannuation guarantee legislation is paid on non-executive Directors’ remuneration.
DIRECTORs' REPORT CONTINUED
Executive pay
The executive pay and reward framework has three components:
Q base pay and benefits, including superannuation;
Q short-term performance incentives; and
Q long-term incentives through participation in executive and employee share plans.
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.
Base pay
Base pay is 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 remuneration report.
Superannuation
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 Board then a pool of short-term incentive (STI) is available
for executives for allocation during the annual review. 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.
Each executive has a target STI opportunity depending on the accountabilities of the role and impact on the organisation or
business unit performance. For senior executives the maximum STI target bonus opportunity ranges from 30% to 70% 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 2008, 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.
Long-term incentives
Long-term incentives are provided to certain employees via the Executive Performance Option Plan (EPOP) and the Performance
Share Plan (PSP), see pages 24-28 for further information.
MORTGAGE CHOICE ANNUAL REPORT 2008 /21
B
Details of remuneration
Amounts of remuneration
Details of the remuneration of the Directors and the key management personnel (as defined in AASB 124 Related Party
Disclosures) are set out in the following tables.
The key management personnel of Mortgage Choice Limited and of the Group are the Directors of Mortgage Choice Limited (see
section 9: Information on Directors) and those executives that report directly to the Managing Director being:
Q A D Crossley – Chief Financial Officer (from 7 July 2007)
Q A J Fraser – Chief Financial Officer (to 6 July 2007)
Q M C Newton – Chief Operating Officer (from 7 July 2007)
Q N C Rose-Innes – Chief Information Officer (from 17 September 2007)
Q D L Ennis – Head of Sales
Q L A Wyatt – Head of Marketing
Q D M Hoskins – Company Secretary
Q W J O’Rourke – National Manager Corporate Affairs
Q M N Writer – Human Resources Manager
A J Fraser resigned from the position of Chief Financial Officer on 6 July 2007. At this time A D Crossley was appointed Chief
Financial Officer and M C Newton was appointed Chief Operating Officer.
D L Ennis, the former state manager for Victoria was appointed Head of Sales on 1 July 2007.
Key management personnel of Mortgage Choice Limited
Short-term benefits
Cash
salary
and fees
$
Non-
monetary
benefits
$
Cash
bonus
$
post-employment
benefits
Long-term
benefits
Equity
Super-
annuation
$
Retirement
benefits
$
Long
service
leave
$
Rights &
options**
$
Total
$
110,000
60,000
60,000
12,000
60,000
–
–
–
–
–
–
–
–
–
–
–
–
9,900
5,400
5,400
53,400
5,400
79,500
Sub-total non-executive directors
302,000
Executive Directors
P A Lahiff
Managing Director
Other key management personnel
A D Crossley*
A J Fraser
M C Newton*
N C Rose-Innes
D L Ennis*
L A Wyatt
D M Hoskins*
W J O’Rourke*
M N Writer
485,821
350,000
16,838
67,500
270,000
108,000
20,524
–
–
–
31,590
6,464
246,304
87,750
4,085
48,208
169,519
50,716
–
181,856
50,782
16,208
174,939
45,900
3,000
186,279
51,660
24,545
112,997
47,583
136,861
38,750
11,197
4,085
14,885
19,903
19,348
22,263
86,257
28,942
Total key management
personnel compensation
2,287,100
831,141
79,958
424,860
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
119,900
65,400
65,400
65,400
65,400
381,500
6,091
413,246 1,339,496
2,154
81,334
493,078
–
(42,420)
(15,432)
10,606
59,344
456,297
–
14,222
249,342
2,336
26,076
297,161
847
20,498
264,532
5,551
6,481
32,075
322,373
29,298
293,813
875
22,447
231,960
34,941
656,120
4,314,120
* Denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001.
** Remuneration in the form of rights and options includes negative amounts for rights and options forfeited during the year.
/22
2008
Name
Non-executive Directors
P D Ritchie
Chairman
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
DIRECTORs' REPORT CONTINUED
Short-term benefits
Cash
salary
and fees
$
Non-
monetary
benefits
$
Cash
bonus
$
post-employment
benefits
Long-term
benefits
Equity
Super-
annuation
$
Retirement
benefits
$
Long
service
leave**
$
Rights &
options
$
Total
$
2007
Name
Non-executive Directors
P D Ritchie
Chairman
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
110,000
60,000
60,000
28,000
60,000
–
–
–
–
–
–
–
–
–
–
–
–
9,900
5,400
5,400
37,400
5,400
63,500
Sub-total non-executive directors
318,000
Executive Directors
P A Lahiff
Managing Director
Other key management personnel
A D Crossley*
A J Fraser*
M C Newton*
D M Hoskins*
W J O’Rourke*
M N Writer
L A Wyatt
464,887
250,000
14,293
91,375
257,500
81,000
212,384
67,500
188,216
67,773
–
2,116
7,536
190,023
40,728
14,441
158,311
36,958
12,720
124,880
33,244
161,312
34,320
3,124
2,380
29,790
23,895
49,806
21,500
28,509
26,295
14,919
Total key management
personnel compensation
2,075,513
611,523
56,610
349,589
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
119,900
65,400
65,400
65,400
65,400
381,500
4,580
190,904
1,016,039
1,378
42,330
411,998
(3,157)
26,446
329,184
5,151
37,221
355,703
4,603
20,363
291,658
5,168
18,507
260,173
384
278
9,442
197,369
5,606
218,815
18,385
350,819
3,462,439
* Denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001.
** Remuneration in the form of long service leave includes negative amounts for entitlements forfeited during the year.
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Fixed remuneration
At risk – STI
At risk – LTI
2008
2007
2008
2007
2008
2007
Executive Directors of Mortgage Choice Limited
P A Lahiff
43%
57%
26%
24%
31%
19%
Other key management personnel of Group
A D Crossley
A J Fraser
M C Newton
N C Rose-Innes
D L Ennis
L A Wyatt
D M Hoskins
W J O’Rourke
M N Writer
62%
–
68%
74%
74%
75%
74%
74%
74%
70%
71%
70%
–
–
82%
79%
79%
78%
22%
–
19%
20%
17%
17%
16%
16%
17%
20%
21%
19%
–
–
16%
14%
14%
17%
16%
–
13%
6%
9%
8%
10%
10%
10%
10%
8%
10%
–
–
3%
7%
7%
5%
MORTGAGE CHOICE ANNUAL REPORT 2008 /23
C
service agreements
On appointment to the Board, all non-executive Directors enter into a service agreement with the Company in the form of a letter
of appointment. The letter summarises the Board policies and terms, including compensation, relevant to the Director.
Remuneration and other terms of employment for the Managing Director and other key management personnel 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:
Q The employment of Messrs Lahiff, Crossley, Newton and Hoskins is terminable by either the Company or the executive
giving three month’s notice.
Q The employment of Messrs Rose-Innes, O’Rourke and Writer, Ms Ennis and Ms Wyatt is terminable by either the Company
or the executive giving four week’s notice.
Except as set out below, no provision is made for termination payments other than amounts paid in respect of notice of
termination:
Q Messrs Crossley, Newton and Hoskins will receive a non-competition termination benefit equal to 6 months base salary
where departure is for any reason other than misconduct.
Q 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 base 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 ordinary 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 2008, 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
and property trust companies or trusts, over the performance period. The comparator companies are drawn from a group within
an approximate range of 40% to 200% of the market capitalisation of Mortgage Choice.
The companies comprising the comparator group for the year ending 30 June 2008 are Aevum Limited, AP Eagers Limited, ARB
Corporation Limited, AVJennings Limited, Biota Holdings Limited, Blackmores Limited, Cardno Limited, Cellestis Limited, Ceramic
Fuel Cells Limited, Coffey International Limited, Devine Limited, DWS Advanced Business Solutions Ltd, Fantastic Holdings Limited,
Fleetwood Corporation Limited, Geodynamics Limited, Hastie Group Limited, Home Building Society Limited, Housewares
International Limited, Independent Practitioner Network Ltd, IWL Limited, McGuigan Simeon Wines Limited, McMillan Shakespeare
Limited, Melbourne IT Limited, Mitchell Communication Group Ltd, MYOB Limited, Nomad Building Solutions Limited, Oaks Hotels &
Resorts Limited, Oakton Limited, Photon Group Limited, Port Bouvard Limited, Prime Television Limited, Redflex Holdings Limited,
Regional Express Holdings Limited, Ridley Corporation Limited, RP Data Ltd, Select Harvests Limited, Servcorp Limited, SMS
Management & Technology Ltd, SP Telemedia Limited, Specialty Fashion Group Limited, Super Cheap Auto Group Limited, Talent2
International Limited, Tassal Group Limited, Technology One Limited, The MAC Services Group Limited, The Reject Shop Limited,
Tower Limited, Trust Company Limited, Village Roadshow Limited, Wide Bay Australia Ltd.
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.
/24
DIRECTORs' REPORT CONTINUED
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.
The vesting scale is as follows:
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.
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:
Q 10 years after the date of offer;
Q 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, or any other reason determined by the
Board); and
Q 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, if there is cessation of employment due to a ‘qualifying reason’, the Board may
determine that some or all of the options may vest. In the event of a change of control of the Company, all options will 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 are as follows:
grant date
date vested and
exercisable
Expiry date
Exercise price
value per option
at grant date
10 August 2004
From 10 August 2007
10 August 2014
24 February 2005
From 24 February 2008
24 February 2015
2 September 2005
From 2 September 2008
2 September 2015
12 December 2006
From 31 August 2009
12 December 2016
31 August 2007
From 31 August 2010
31 August 2017
$1.05
$1.08
$1.43
$2.60
$2.51
$0.32
$0.32
$0.28
$0.67
$0.50
The plan rules contain a restriction on removing the ‘at risk’ aspect of the instruments granted to executives. Plan participants
may not enter into any transaction designed to remove the ‘at risk’ aspect of an instrument before it vests.
Details of options over ordinary shares in the Company provided as remuneration to each director and key management
personnel of Mortgage Choice Limited are set out below. When exercisable, each option is convertible into one ordinary share of
Mortgage Choice Limited. Further information on the options is set out in note 32 to the financial statements.
Name
Directors of Mortgage Choice Limited
P A Lahiff
Other key management personnel
A D Crossley
A J Fraser
M C Newton
Number of options
granted
during the year
Number of options
vested
during the year
2008
2007
2008
2007
1,200,000
746,300
323,200
216,000
109,700
81,800
–
–
45,650
–
97,250
92,200
–
–
–
–
MORTGAGE CHOICE ANNUAL REPORT 2008 /25
The assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables on pages 9 and 10 of this report. Fair values at grant date are
independently determined using a Monte Carlo simulation model utilising a Black-Scholes option pricing model framework that
takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the
non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the
expected dividend yield and the risk-free interest rate for the term of the option.
The model inputs for options granted during the year ended 30 June 2008 included:
(a) options are granted for no consideration, each tranche vests and is exercisable after three anniversaries of the date of grant;
(b) exercise price: $2.51 (2007 – $2.60);
(c) grant date: 31 August 2007 (2007 – 12 December 2006);
(d) expiry date: 31 August 2017 (2007 – 12 December 2016);
(e) share price at grant date: $2.49 (2007 – $2.68);
(f) expected price volatility of the Company’s shares: 30% (2007 – 40%);
(g) expected dividend yield: 6.5% (2007 –5.6%); and
(h)
risk-free interest rate: 5.97% (2007 – 5.76%).
Shares provided on exercise of remuneration options
No shares were issued as a result of the exercise of remuneration options during the year ended 30 June 2008 (2007 – nil).
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 2008 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. 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:
Q 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;
Q the participant ceasing to be an employee of the Company;
Q a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the Company) occurring; or
Q 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
except where the shares have been acquired by the Mortgage Choice Performance Share Plan Trust (refer note 1(b)(ii)).
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.
/26
The terms and conditions of each offer of performance shares affecting remuneration in this or future reporting periods are as follows:
DIRECTORs' REPORT CONTINUED
offer date
10 August 2004
6 September 2004
4 January 2005
24 February 2005
2 September 2005
12 December 2006
31 August 2007
value per performance
share at offer date
$1.05
$1.05
$0.91
$1.08
$1.43
$2.21
$2.20
vesting date
10 August 2007
6 September 2007
4 January 2008
24 February 2008
2 September 2008
31 August 2009
31 August 2010
Details of performance shares in the Company provided as remuneration to each Director and key management personnel of
Mortgage Choice Limited are set out below. Further information on the options is set out in note 32 to the financial statements.
Name
Directors of Mortgage Choice Limited
P A Lahiff
Other key management personnel
A D Crossley
A J Fraser
M C Newton
N C Rose-Innes
D L Ennis
L A Wyatt
D M Hoskins
W J O’Rourke
M N Writer
Number of
performance share
rights granted
during the year
Number of
performance
shares issued
during the year
2008
2007
2008
2007
–
–
–
39,900
29,300
–
–
13,850
–
–
97,000
24,500
–
27,600
–
23,100
12,800
24,000
20,850
14,950
–
23,500
17,700
33,900
21,650
16,100
30,800
17,600
14,000
–
–
–
–
–
–
–
–
–
–
The assessed fair value at grant date of share rights granted to individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently
determined using a Monte Carlo simulation model utilising a Black-Scholes option pricing model framework that takes into
account the term of the rights, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the rights,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free
interest rate for the term of the share rights.
The model inputs for performance shares granted during the year ended 30 June 2008 included:
(a) share rights are granted for no consideration, each tranche vests and is exercisable after three anniversaries
of the date of grant;
(b) grant date: 31 August 2007 (2007 – 12 December 2006);
(c) expiry date: 31 August 2017 (2007 – 12 December 2016);
(d) share price at grant date: $2.49 (2007 – $2.68);
(e) expected price volatility of the Company’s shares: 30% (2007 – 40%);
(f) expected dividend yield: 6.5% (2007 – 5.6%); and
(g)
risk-free interest rate: 5.97% (2007 – 5.76%).
MORTGAGE CHOICE ANNUAL REPORT 2008 /27
Shares provided on vesting of performance share entitlements
Details of shares issued in the Company as a result of the vesting of performance share entitlements during the year ended
30 June 2008 are set out below.
Name
Vesting date
2008
2007
Number of ordinary
shares issued
on vesting of
share rights
Directors of Mortgage Choice Limited
P A Lahiff
Other key management personnel
A D Crossley
M C Newton
D L Ennis
D M Hoskins
W J O’Rourke
e
Additional information
Performance of Mortgage Choice Limited
10 August 2007
97,000
24 February 2008
10 August 2007
10 August 2007
10 August 2007
10 August 2007
24,500
27,600
24,000
33,900
30,800
–
–
–
–
–
–
The remuneration of key management personnel includes short-term incentives (STI), as detailed in Section A Principles used to
determine the nature and amount of remuneration, and long-term incentives (LTI) as detailed in Section D Share-based
compensation.
Payments made under the STI plan are conditional upon the Company achieving a pre-determined profit target. The following
table lists Mortgage Choice Limited’s earnings per share (EPS) since listing on the ASX in August 2004:
Year
2005
2006
2007
2008
EpS (cents per share)*
10.9
15.2
16.6
16.4
* Until 30 June 2005, earnings per share were calculated in accordance with Australian GAAP as opposed to Australian
Equivalents to International Financial Reporting Standards (AIFRS).
Payments made under the LTI plan are based on the total Shareholder return (TSR) of the Company over a three year period
compared to the TSRs of comparator groups of companies. TSR is the percentage increase in the Company’s share price plus
reinvested dividends and reflects the increase in value delivered to Shareholders over the period. The following table lists
Mortgage Choice Limited’s TSR since listing on the ASX in August 2004 expressed as a percentage of the opening value of the
investment for each period:
TSr
24%
117%
34%
-61%
Year
2005
2006
2007
2008
/28
DIRECTORs' REPORT CONTINUED
Details of remuneration: cash bonuses, share rights and options
For each cash bonus and grant of share rights and options in the tables on pages 22-27, the percentage of the available grant
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. The share rights and options vest over 3 years, providing vesting conditions are
met. No share rights or options will vest if the conditions are not satisfied, hence the minimum value of the share rights and
options yet to vest is nil. The maximum value of the share rights and options yet to vest has been determined as the amount of
the grant date fair value of the share rights and options that is yet to be expensed.
Cash bonus
Share rights and options
Name
P A Lahiff
Paid
%
100
A D Crossley
100
A J Fraser
–
M C Newton
100
N C Rose–Innes
D L Ennis
100
100
D M Hoskins
100
W J O’Rourke
100
M N Writer
100
L A Wyatt
100
Year
granted
Forfeited
%
Vested
%
Forfeited
%
Financial years in
which rights and
options may vest
Minimum total
value of grant
yet to vest
$
Maximum total
value of grant
yet to vest
$
–
–
–
–
–
–
–
–
–
–
2008
2007
2006
2005
2008
2007
2006
2005
2007
2006
2005
2008
2007
2006
2005
2008
2008
2007
2006
2005
2008
2007
2006
2005
2008
2007
2006
2005
2008
2007
2006
2008
2007
–
–
–
100%
–
–
–
100%
–
–
–
–
–
–
100%
–
–
–
–
100%
–
–
–
100%
–
–
–
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30/6/2011
30/6/2010
30/6/2009
–
30/6/2011
30/6/2010
30/6/2009
–
–
–
–
30/6/2011
30/6/2010
30/6/2009
–
30/6/2011
30/6/2011
30/6/2010
30/6/2009
–
30/6/2011
30/6/2010
30/6/2009
–
30/6/2011
30/6/2010
30/6/2009
–
30/6/2011
30/6/2010
30/6/2009
30/6/2011
30/6/2010
Nil
Nil
Nil
–
Nil
Nil
Nil
–
–
–
–
Nil
Nil
Nil
–
Nil
Nil
Nil
Nil
–
Nil
Nil
Nil
–
Nil
Nil
Nil
–
Nil
Nil
Nil
Nil
Nil
433,577
214,286
9,839
–
78,044
31,522
2,986
–
–
–
–
50,457
27,944
2,527
–
37,053
29,212
10,196
949
–
29,718
14,153
1,330
–
27,379
12,874
1,208
–
22,257
11,194
721
26,367
11,954
Share based compensation: Options
Further details relating to options are set out below.
Name
P A Lahiff
A D Crossley
A
remuneration
consisting of
options
28.9%
14.3%
b
value at
grant date
$
600,000
108,000
C
value at
exercise date
$
d
value at
lapse date
$
–
–
–
–
MORTGAGE CHOICE ANNUAL REPORT 2008 /29
Share based compensation: Performance shares
Further details relating to performance shares are set out below.
Name
P A Lahiff
A D Crossley
M C Newton
N C Rose-Innes
D L Ennis
L A Wyatt
D M Hoskins
W J O’Rourke
M N Writer
A
remuneration
consisting of
performance shares
b
value at
offer date
$
C
value at
entitlement date
$
d
value at
lapse date
$
2.0%
2.2%
13.0%
5.7%
8.8%
7.7%
9.9%
10.0%
9.7%
–
–
69,825
51,275
40,425
36,488
41,125
37,888
30,800
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A = The percentage of the value of remuneration consisting of options or performance shares, based on the value of options or
performance shares expensed during the current year.
B = The value at grant date calculated in accordance with AASB 2 Share-based Payment of options or performance shares
granted during the year as part of remuneration.
C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year.
D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year.
Shares under option
Unissued ordinary shares of Mortgage Choice Limited under option at the date of this report are as follows:
date options granted
Expiry date
Issue price of shares
Number under option
10 August 2004
24 February 2005
2 September 2005
12 December 2006
31 August 2007
10 August 2014
24 February 2015
2 September 2015
12 December 2016
31 August 2017
$1.05
$1.08
$1.43
$2.60
$2.51
415,400
81,800
661,600
953,250
1,416,000
3,528,050
No option holder has any right under the options to participate in any other share issue of the Company or any other entity.
14.
iNsUrANCe OF OFFiCers
Insurance premiums were paid for the year ended 30 June 2008 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:
Q Costs and expenses incurred by relevant Directors and Officers in defending any proceedings; and
Q 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.
15. PrOCeeDiNGs ON BehALF OF the COMPANy
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of
the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on
behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the
Corporations Act 2001.
/30
DIRECTORs' REPORT CONTINUED
16. NON-AUDit serviCes
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 APES 110 Code of Ethics for Professional Accountants.
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:
1.
Audit services
PricewaterhouseCoopers Australian firm:
Audit and review of financial reports
Total remuneration for audit services
2.
Non-audit services
Audit-related services
PricewaterhouseCoopers Australian firm:
Audit of regulatory returns
Other assurance services
Total remuneration for audit-related services
Taxation services
PricewaterhouseCoopers Australian firm:
Tax compliance services
Other tax services
Total remuneration for taxation services
other services
PricewaterhouseCoopers Australian firm:
Consulting on employee share trust
Total remuneration for other services
Total remuneration for non-audit services
Consolidated
2008
$
2007
$
215,500
211,450
215,500
211,450
–
7,500
7,500
2,500
7,500
10,000
22,200
15,500
75,780
97,980
9,780
25,280
–
–
40,090
40,090
105,480
75,370
17. AUDitOrs’ iNDePeNDeNCe DeCLArAtiON
A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 32.
18. rOUNDiNG OF AMOUNts
The Company is of a kind referred to in Class Order 98/100 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. AUDitOr
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of the directors.
Peter ritChie
DireCtOr
syDNey
20 AUGUst 2008
MORTGAGE CHOICE ANNUAL REPORT 2008 /31
/32
Mortgage Choice Limited ABN 57 009 161 979
Annual Financial Report
30 June 2008
contents
34
35
36
37
38
72
73
Financial report
Income statements
balance sheets
Statements of changes in equity
Cash flow statements
Notes to the financial statements
directors’ declaration
Independent audit report to members of
Mortgage Choice Limited
This financial report covers both Mortgage Choice Limited as
an individual entity and the consolidated entity consisting of
Mortgage Choice Limited and its controlled subsidiaries. The
financial report is presented in the Australian currency.
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 which
is not part of this financial report.
The financial report was authorised for issue by the directors
on 20 August 2008. The Company has the power to amend
and reissue the financial report.
Through the use of the internet, we have ensured that our
corporate reporting is timely, complete, and available globally
at minimum cost to the Company. All financial reports and
other information are available at our Shareholders’ Centre on
our website: www.mortgagechoice.com.au.
MORTGAGE CHOICE ANNUAL REPORT 2008 /33
Income statements
For the year ended 30 June 2008
revenue from continuing operations
Other income
Expenses from continuing operations
Sales
Technology
Marketing
Finance
Corporate
Finance costs
profit before income tax
Income tax expense
Consolidated
parent entity
Notes
2008
$’000
2007
$’000
2008
$’000
2007
$’000
160,169
155,992
160,169
155,992
1,222
1,126
1,222
1,126
5
6
7
(99,290)
(99,035)
(99,290)
(99,035)
(4,825)
(4,033)
(4,825)
(4,033)
(9,041)
(8,318)
(9,041)
(8,318)
(1,930)
(1,556)
(1,930)
(1,556)
(6,435)
(5,275)
(6,435)
(5,275)
(12,195)
(10,690)
(12,195)
(10,690)
27,675
28,211
27,675
28,211
8
(8,331)
(8,624)
(8,331)
(8,624)
Net profit attributable to the members of Mortgage Choice Limited
19,344
19,587
19,344
19,587
Earnings per share for profit from continuing operations attributable to the
ordinary equity holders of the Company
Basic earnings per share
Diluted earnings per share
Cents
Cents
16.4
16.3
16.6
16.4
31
31
The above income statements should be read in conjunction with the accompanying notes.
/34
Balance sheets
As at 30 June 2008
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Receivables
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Consolidated
parent entity
Notes
2008
$’000
2007
$’000
2008
$’000
2007
$’000
9
10
11
12
13
14
15
16
17
18
19
8,482
9,121
8,482
9,121
59,987
58,070
59,987
58,070
68,469
67,191
68,469
67,191
123,996
114,981
123,996
114,981
1,019
1,189
2,902
1,223
1,115
2,653
1,019
1,189
2,902
1,223
1,115
2,653
129,106
119,972
129,106
119,972
197,575
187,163
197,575
187,163
41,180
40,674
41,180
40,674
1,692
711
2,071
511
1,692
711
2,071
511
43,583
43,256
43,593
43,256
79,012
73,401
79,012
73,401
19,449
17,866
19,449
17,866
410
410
410
410
Total non-current liabilities
98,871
91,677
98,871
91,677
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
142,454
134,933
142,454
134,933
55,121
52,230
55,121
52,230
20
21(a)
21(b)
437
1,291
203
830
437
1,291
203
830
53,393
51,197
53,393
51,197
Total equity
55,121
52,230
55,121
52,230
The above balance sheets should be read in conjunction with the accompanying notes.
MORTGAGE CHOICE ANNUAL REPORT 2008 /35
statements of changes in equity
For the year ended 30 June 2008
Consolidated
parent entity
Notes
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Total equity at the beginning of the financial year
52,230
47,455
52,230
47,455
profit for the year
19,344
19,587
19,344
19,587
Transactions with equity holders in their capacity as equity holders:
Employee share rights and options
Treasury shares
Dividends paid
32
757
(62)
487
–
757
(62)
487
–
22
(17,148)
(15,299)
(17,148)
(15,299)
(16,453)
(14,812)
(16,453)
(14,812)
Total equity at the end of the financial year
55,121
52,230
55,121
52,230
The above statements of changes in equity should be read in conjunction with the accompanying notes.
/36
Cash flow statements
For the year ended 30 June 2008
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)
Income taxes paid
Consolidated
parent entity
Notes
2008
$’000
2007
$’000
2008
$’000
2007
$’000
164,635
151,856
164,635
151,856
(140,437)
(127,802)
(140,437)
(127,802)
24,198
24,054
24,198
24,054
(7,201)
(7,330)
(7,201)
(7,330)
Net cash inflow from operating activities
30
16,997
16,724
16,997
16,724
Cash flows from investing activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payments for software and development costs
Interest received from cash and deposits at call
Net cash (outflow) from investing activities
(529)
(590)
(529)
(590)
–
(705)
746
(488)
1
(736)
628
(697)
–
(705)
746
(488)
1
(736)
628
(697)
Cash flows from operating & investing activities
16,509
16,027
16,509
16,027
Cash flows from financing activities
Dividends paid
Net cash (outflow) from financing activities
(17,148)
(15,299)
(17,148)
(15,299)
(17,148)
(15,299)
(17,148)
(15,299)
Net increase/(decrease) in cash and cash equivalents
(639)
728
(639)
728
Cash and cash equivalents at the
beginning of the financial year
9,121
8,393
9,121
8,393
Cash and cash equivalents at the end of year
9
8,482
9,121
8,482
9,121
The above cash flow statements should be read in conjunction with the accompanying notes.
MORTGAGE CHOICE ANNUAL REPORT 2008 /37
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 1. summary of significant accounting policies
The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for
Mortgage Choice Limited as an individual entity and the consolidated entity consisting of Mortgage Choice Limited and its subsidiaries.
(a) Basis of preparation
This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative
pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.
Compliance with International Financial Reporting Standards (IFRS)
Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS).
Compliance with AIFRS ensures that the financial report of Mortgage Choice Limited complies with International Financial
Reporting Standards (IFRS).
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available
for sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit and loss, certain
classes of property, plant and equipment and investment property.
Critical accounting estimates
The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements,
are disclosed in note 3.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Mortgage Choice Limited
(‘’company’’ or ‘’parent entity’’) as at 30 June 2008 and the results of all subsidiaries for the year then ended. Mortgage
Choice Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.
Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The
existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing
whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(g)).
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Investments in subsidiaries are accounted for at cost in the individual financial statements of Mortgage Choice Limited.
(ii) Employee Share Trust
The Group has formed a trust to administer the Group’s employee share scheme. This trust is consolidated, as the
substance of the relationship is that the trust is controlled by the Group.
(c) segment reporting
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of clawbacks.
A business segment is identified for a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different to those of other business segments. A geographical segment is identified when products
or services are provided within a particular economic environment subject to risks and returns that are different from those of
segments operating in other economic environments.
(d) revenue recognition
The consolidated entity provides loan origination services and receives origination commission on the settlement of a home loan.
Additionally, the lender will normally pay a trailing commission over the life of the loan. Revenue over the estimated life of loans
written is recognised on the settlement of the loans. 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.
/38
NOTEs TO THE FINANCIAL sTATEMENTs
(ii) Trailing commissions
The Company receives trailing commissions from lenders on loans they have settled that were originated by the group and
its franchisees. The trailing commissions are received over the life of the loans based on loan book balance outstanding.
The Company also makes trailing commission payments to franchisees based on the loan book balance outstanding.
On initial recognition, trailing commission revenue and receivables are recognised at fair value, being the expected future
trailing commission receivables discounted to their net present value. In addition, an associated payable and expense to the
franchisees are also recognised, initially measured at fair value being the future trailing commission payable to franchisees
discounted to their net present value.
Subsequent to initial recognition and measurement, both the trailing commission asset and trailing commission payable are
measured at amortised cost. The carrying amount of the trailing commission asset and trailing commission payable are
adjusted to reflect actual and revised estimated cash flows by recalculating the carrying amount through computing the
present value of estimated future cash flows at the original effective interest rate. The resulting adjustment is recognised as
income or expense in the income statement.
(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)
Interest income
Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired,
the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the
original effective interest rate of the instrument, and continues unwinding the discount as interest income.
(v) 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.
(e)
income tax
The income tax expense for the period is the tax payable on the current period’s taxable income based on the income tax rate,
adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets
and liabilities and their carrying amounts in the financial statements.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of
investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences
and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and
when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the
entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
Tax consolidation legislation
Mortgage Choice Limited and its wholly-owned Australian controlled entities are members of a consolidated group for income tax
purposes.
The head entity, Mortgage Choice Limited, and the controlled entities in the tax consolidated group account for their own current
and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a
stand alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Mortgage Choice Limited also recognises the current tax liabilities (or
assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in
the tax consolidated group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are
recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
MORTGAGE CHOICE ANNUAL REPORT 2008 /39
MORTGAGE CHOICE LIMITED 30 JUNE 2008
(f)
Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and
the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in
other long term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The interest element of the finance cost is charged to the income statement over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The
property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the
lease term.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
(g) Business combinations
The purchase method of accounting is used to account for all business combinations, including business combinations involving
entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is
measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of
exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of
the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated
that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation
methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are
recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over
the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less
than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised
directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.
(h)
impairment of assets
Assets subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets
(cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at
each reporting date.
(i) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with
financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(j)
trade receivables
Trade receivables are recognised in accordance with the revenue recognition policy outlined in note 1(d).
Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A
provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue)
are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The
amount of the provision is recognised in the income statement in other expenses.
(k)
investments and other financial assets
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for
which the investments were acquired. Management determines the classification of its investments at initial recognition and, in
the case of assets classified as held to maturity, re-evaluates this designation at each reporting date.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date
which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance
sheet (notes 10 and 11).
/40
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
(l)
Property, plant and equipment
All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives, as follows:
Office equipment
Computer equipment
Furniture and fittings
5-10 years
3-4 years
10-15 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount (note 1(h)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income
statement.
(m)
intangible assets
Software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortised over their estimated useful lives (three to five years).
Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and
that will probably generate future economic benefits exceeding costs beyond one year, are recognised as intangible assets.
Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding five
years).
(n) trade and other payables
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.
(o) Borrowing costs
Borrowing costs are recognised as expenses.
(p) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more
likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments
of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is
recognised as interest expense.
MORTGAGE CHOICE ANNUAL REPORT 2008 /41
MORTGAGE CHOICE LIMITED 30 JUNE 2008
(q) employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months
of the reporting date are recognised in the provision for employee entitlements 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.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee entitlements 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 using
the projected unit credit method. 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) Retirement benefit obligations
Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
(iv) Share-based payments
Share-based compensation benefits are provided to employees via the Mortgage Choice Executive Performance Option
Plan and the Mortgage Choice Performance Share Plan. Further details are included in note 32 of the financial report.
The fair value of options granted under the Mortgage Choice Executive Performance Option Plan and share rights granted
under the Mortgage Choice Performance Share Plan are recognised as an employee benefit expense with a corresponding
increase in equity. The fair value is measured at grant date and recognised over the period during which the employees
become unconditionally entitled to the options and share rights.
The fair value at grant date is independently determined using a Monte Carlo simulation model utilising a Black-Scholes
option pricing model framework that takes into account the exercise price, the term of the option, the vesting and
performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and
expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the
option.
The fair value of the options and share rights granted excludes the impact of any non-market vesting conditions (for
example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the
number of options and shares that are expected to become exercisable. At each balance sheet date, the entity revises its
estimate of the number of options and shares that are expected to become exercisable. The employee benefit expense
recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any,
is recognised in the income statement with a corresponding adjustment to equity.
(v) Profit-sharing and bonus plans
The Group recognises a liability and an expense where contractually obliged or where there is a past practice that has
created a constructive obligation.
(vi) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is
demonstrably committed to either terminating the employment of current employees according to a detailed formal plan
without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary
redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
(r) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options,
or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration.
If the entity reacquires its own equity instruments, eg. as the result of a share buy-back, those instruments are deducted from
equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid
including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.
(s) 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.
/42
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
(t) 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.
(u) Goods and services tax (Gst)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.
(v) rounding of amounts
The Company is of a kind referred to in Class Order 98/100, 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.
(w) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2008 reporting
periods. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out
below.
(i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting
Standards arising from AASB 8
AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will
result in a significant change in the approach to segment reporting, as it requires adoption of a ‘management approach’ to
reporting on financial performance. The information being reported will be based on what the key decision makers use
internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group
has not yet decided when to adopt AASB 8. Application of AASB 8 may result in different segments, segment results and
different types of information being reported in the segment note of the financial report. However, at this stage, it is not
expected to affect any of the amounts recognised in the financial statements.
(ii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian
Accounting Standards arising from AASB 101
A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1
January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of
changes in equity, but will not affect any of the amounts recognised in the financial statements. If an entity has made a prior
period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet
(statement of financial position), this one being as at the beginning of the comparative period. The Group intends to apply
the revised standard from 1 July 2009.
MORTGAGE CHOICE ANNUAL REPORT 2008 /43
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 2. Financial risk management
The Group has limited exposure to financial risks. The Group does not use derivative financial instruments such as foreign exchange
contracts and interest rate swaps to hedge certain risk exposures. It does not operate internationally and is not exposed to either
securities price risk or commodity price risk.
Risk management is carried out by the Group’s finance department under policies approved by the Board of Directors.
The Group and parent entity hold the following financial instruments:
Financial Assets
Current
Cash and cash equivalents
Trade and other receivables
Non-current
Trade and other receivables
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
8,482
9,121
8,482
9,121
59,987
58,070
59,987
58,070
123,996
114,981
123,996
114,981
192,465
182,172
192,465
182,172
The Group’s policies in relation to financial risks to which it has exposure are detailed below.
(a) Market risk
Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from cash and cash equivalents. At 30 June 2008 the weighted average interest rate
was 7.4% (2007 6.2%). If interest rates increased by 100 basis points, the Group’s after tax result would increase by $77,000
(2007 $88,000). A decrease of 100 basis points would reduce the Group’s after tax result by $77,000 (2007 $88,000).
The Group does not have borrowings and therefore is not exposed to interest rate risk on borrowings.
(b) Credit risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents through deposits with banks and
financial institutions as well as credit exposure to financial institutions that are the members of the lender panel. The majority of
these financial institutions are Authorised Deposit-taking Institutions (ADI’s) and are regulated by Australian Prudential Regulation
Authority (APRA). Most of the financial institutions have been independently rated which forms the basis of the Group’s
assessment of credit risk. If the lender has not been independently rated, credit risk is assessed taking into account its financial
position, past experience and other factors. The table below indicates the Group’s exposure to each ratings category.
The Group bears the risk of non-payment of future trailing commissions by lenders should they not maintain solvency
(correspondingly, Mortgage Choice would not have to pay out any future trailing commissions to franchisees in relation to such
loans). The risk profile of both the parent and consolidated entities are set out in the table below.
2008
ADI’s
Non ADI’s
Total Receivable
/44
Standard & poor’s
Credit rating
Current Assets
Non Current Assets
Trade receivables
$ 000’s
Npv Future Trailing
Commissions
receivable
$ 000’s
Npv Future Trailing
Commissions
receivable
$ 000’s
AA
A+
A
BBB+
BBB
Not rated
AA
Not rated
8,591
1,318
258
333
216
614
11,330
2
267
269
11,599
32,095
6,159
856
1,813
1,242
3,690
45,855
9
1,587
1,596
47,451
83,866
16,094
2,236
4,739
3,246
9,644
119,825
24
4,147
4,171
123,996
2007
ADI’s
Non ADI’s
Total Receivable
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Standard & Poor’s
Credit Rating
Current Assets
Non Current Assets
Trade Receivables
$ 000’s
NPV Future Trailing
Commissions
Receivable
$ 000’s
NPV Future Trailing
Commissions
Receivable
$ 000’s
AA
A+
A
BBB+
BBB
Not rated
AA
Not rated
8,380
1,258
311
639
370
991
11,949
2
561
563
12,512
26,849
10,136
760
1,641
1,013
3,081
43,480
11
1,546
1,557
45,037
68,550
25,876
1,939
4,190
2,586
7,866
111,007
27
3,947
3,974
114,981
The tables below analyse the Group’s and parent entity’s financial assets into relevant maturity groupings based on the expected
future discounted cashflows. No financial assets are past due or impaired.
group and parent entity – At 30 June 2008
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Less than
6 months
6 – 12
months
between
1 and 2
years
between
2 and 5
years
over 5
years
Total
discounted
cash flows
Carrying
Amount
Non-derivatives
Interest bearing
Non-interest bearing
Cash and cash equivalents
Commissions receivable
Other receivables
8,479
3
11,949
587
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,479
8,479
3
3
11,949
11,949
587
587
NPV future trailing commissions receivable
25,360
22,091
35,523
60,539
27,934
171,447
171,447
46,378
22,091
35,523
60,539
27,934
192,465
192,465
Group and parent entity – At 30 June 2007
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Less than
6 months
6 – 12
months
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
Total
discounted
cash flows
Carrying
Amount
Non-derivatives
Interest bearing
Non-interest bearing
Cash and cash equivalents
Commissions receivable
Other receivables
9,118
3
12,512
521
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,118
9,118
3
3
12,512
12,512
521
521
NPV future trailing commissions receivable
24,094
20,943
33,305
55,467
26,209
160,018
160,018
46,248
20,943
33,305
55,467
26,209
182,172
182,172
MORTGAGE CHOICE ANNUAL REPORT 2008 /45
MORTGAGE CHOICE LIMITED 30 JUNE 2008
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The Group manages liquidity risk
by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. Surplus
funds are generally only invested in instruments that are tradable in highly liquid markets.
The tables below analyse the Group’s and parent entity’s financial liabilities into relevant maturity groupings based on the
expected future discounted cashflows.
group and parent entity – At 30 June 2008
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Less than
6 months
6 – 12
months
between
1 and 2
years
between
2 and 5
years
over 5
years
Total
discounted
cash flows
Carrying
Amount
Non-derivatives
Non-interest bearing
Commissions payable
Other payables
7,396
4,789
–
–
–
–
–
–
–
–
7,396
4,789
7,396
4,789
NPV future trailing commissions receivable
15,459
13,536
22,030
38,481
18,399
107,905
107,905
27,644
13,536
22,030
38,481
18,399
120,090
120,090
Group and parent entity – At 30 June 2007
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Less than
6 months
6 – 12
months
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
Total
discounted
cash flows
Carrying
Amount
Non-derivatives
Non-interest bearing
Commissions payable
Other payables
8,610
4,801
–
–
–
–
–
–
–
–
8,610
4,801
8,610
4,801
NPV future trailing commissions receivable
14,543
12,720
20,608
35,261
17,333
100,465
100,465
27,954
12,720
20,608
35,261
17,333
113,876
113,876
(d) Fair value estimation
Refer Note 3 Critical Accounting Estimates and Judgements
/46
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Note 3. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
(a) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Trailing commissions
The Company receives trailing commissions from lenders on settled loans over the life of the loan based on the loan book
balance outstanding to which the Group is entitled without having to perform further services. The Company also makes trailing
commission payments to franchisees based on the loan book balance outstanding.
The fair value of trailing commissions receivable and the corresponding payable to franchisees is determined by using the
discounted cash flow valuation technique. These calculations require the use of assumptions. The key assumptions underlying
the fair value calculations of trailing commissions receivable and the corresponding payable to franchisees at balance date
include the average loan life, discount rate and the percentage paid to franchisees. These assumptions are determined by
management with the assistance of external actuaries and are as follows:
Average loan life
Discount rate
Percentage paid to franchisees
(10 year average)
2008
2007
between 3.0 and 3.5 years
Between 3.0 and 3.5 years
12.5%
63%
12%
62%
Were the actual final loan life outcome to differ by +/- 10% from management’s estimates, the impact on the estimates would be:
–
–
an increase in net assets of $5.3 million (made up of increases in current assets of $2.2 million, non current assets of $18.9
million, current liabilities of $1.3 million, non-current liabilities of $12.2 million and deferred tax liabilities of $2.3 million) if
favourable; or
a decrease in net assets of $5.2 million (made of decreases in current assets of $1.9 million, non current assets of $18.7
million, current liabilities of $1.1 million, non-current liabilities of $12.1 million and deferred tax liabilities of $2.2 million if
unfavourable.
Management do not consider material changes to the percentage paid to franchisees to be reasonably possible. Changes to the
discount rate are likely to occur as a result of changes to the interest rate. However, management do not consider this to have a
material impact on the fair value calculation of trailing commissions receivable and the corresponding payable to franchisees.
(b) Critical judgements in applying the entity’s accounting policies
Judgements that management has made in the process of applying the entity’s accounting policies are not expected to have a
significant effect on the amounts recognised in the financial report.
Note 4. segment information
The Mortgage Choice group of companies operates predominantly in Australia and in one segment, the mortgage broking industry.
MORTGAGE CHOICE ANNUAL REPORT 2008 /47
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 5. Revenue
revenue from continuing operations
Sales revenue
Services
Other revenue
Interest (note (a))
(a)
interest
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
140,008
138,199
140,008
138,199
20,161
17,793
20,161
17,793
160,169
155,992
160,169
155,992
Interest income includes the unwinding of the discount in relation to receipt of trailing commission as well as interest earned on
deposits and loans.
Note 6. Other income
Conference sponsorships (note (a))
Amortisation of software licence cost recovery (note (b))
Other
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
1,098
1,085
1,098
1,085
30
94
20
21
30
94
20
21
1,222
1,126
1,222
1,126
(a) Conference sponsorships
Lenders sponsor Mortgage Choice’s National conference, High Flyers’ conference, quarterly state conferences, training days and
workshops.
(b) Amortisation of software licence cost recovery
The cost of software licences purchased for use by franchisees is recovered from franchisees. This cost recovery is amortised
over three to five years, consistent with the amortisation of the corresponding intangible asset.
/48
Note 7. Expenses
Profit from ordinary activities before income tax includes
the following specific expenses:
Finance costs
Interest and finance charges (note (a))
Net loss on disposal of property, plant and equipment
Depreciation
Plant and equipment
Amortisation
Leasehold improvements
Computer software
Other provisions
Employee entitlements
Rental expense relating to operating leases
Defined contribution superannuation expense
(a)
interest and finance charges
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
12,195
10,690
12,195
10,690
5
11
5
11
244
199
244
199
484
456
10
930
347
158
44
848
484
456
10
930
347
158
44
848
1,149
1,099
1,149
1,099
Interest expense includes the unwinding of the discount in relation to payment of trailing commission to franchisees.
MORTGAGE CHOICE ANNUAL REPORT 2008 /49
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 8. Income tax
(a)
income tax expense
Current tax
Deferred tax
Under (over) provided in prior years
Income tax expense is attributable to:
Profit from continuing operations
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
7,116
1,307
(92)
8,331
7,032
1,591
1
8,624
7,116
1,307
(92)
8,331
7,032
1,591
1
8,624
8,331
8,624
8,331
8,624
Deferred income tax (revenue) expense including income tax expense comprises:
(Increase)/decrease in deferred tax assets (note 13)
(2,306)
(3,602)
(2,306)
(3,602)
Increase/(decrease) in deferred tax liabilities (note 18)
3,613
1,307
5,193
1,591
3,613
1,307
5,193
1,591
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
27,675
28,211
27,675
28,211
Income tax calculated @ 30% (2007 – 30%)
Tax effect of amounts which are not deductible in calculating taxable income:
Under/(over) provision from prior years
Income tax expense
8,303
8,463
8,303
8,463
120
8,423
(92)
8,331
160
8,623
1
8,624
120
8,423
(92)
8,331
160
8,623
1
8,624
No part of the deferred tax asset shown above and in note 13 is attributable to tax losses.
(c) tax consolidation legislation
Mortgage Choice and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 1
July 2002. The accounting policy in relation to this legislation is set out in note 1(e).
The wholly owned Australian controlled entities of Mortgage Choice are dormant and have been dormant since the date of
implementation of the tax consolidation legislation. Consequently, no tax sharing agreement is in place as it is not considered
necessary by the Directors.
/50
Note 9. Current Assets – Cash and cash equivalents
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Cash at bank and on hand
Deposits at call
DePOsits At CALL
Consolidated
parent entity
2008
$’000
125
8,357
8,482
2007
$’000
106
9,015
9,121
2008
$’000
125
8,357
8,482
2007
$’000
106
9,015
9,121
The deposits are bearing interest rates between 7.38% and 7.61% (2007 – 6.00% and 6.24%). These deposits have an average maturity
of 38 days (2007 – 60 days).
Note 10. Current Assets – Trade and other receivables
Trade receivables (1)
Net present value of future trailing commissions receivable
Franchisee receivables
Other receivables
Prepayments
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
11,599
12,512
11,599
12,512
47,451
45,037
47,451
45,037
68
377
492
202
149
170
68
377
492
202
149
170
59,987
58,070
59,987
58,070
1. Subject to a limited charge in favour of The Loan Book Security Trust (refer to note 15).
(a) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
(b) effective interest rates and credit risk
Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in the
non-current receivables note (note 11).
(c) Fair values
The carrying amounts of trade and other receivables at year end is a reasonable approximation of their fair values with the
exception of the net present value of future trailing commissions receivable which are accounted for at amortised cost.
Note 11. Non-Current Assets – Receivables
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Net present value of future trailing commissions receivable
123,996
114,981
123,996
114,981
(a)
impaired receivables and receivables past due
The non-current receivables represent the net present value of future trailing commissions receivable. This receivable is not past
due and there is no reason for it to be impaired.
(b) risk exposure
Information about the Group’s and the parent entity’s exposure to credit risk, and interest rate risk is provided in note 2.
MORTGAGE CHOICE ANNUAL REPORT 2008 /51
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 12. Non-Current Assets – Property, plant and equipment
Consolidated
parent entity
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
Total
$’000
Total
$’000
574
257
(5)
(199)
627
3,259
(2,632)
627
627
240
(5)
(244)
618
3,415
(2,797)
618
618
332
(7)
(347)
596
1,192
589
(12)
(546)
1,223
574
257
(5)
(199)
627
618
332
(7)
(347)
596
1,192
589
(12)
(546)
1,223
1,738
4,997
(1,142)
(3,774)
596
1,223
3,259
(2,632)
627
1,738
4,997
(1,142)
(3,774)
596
1,223
596
289
–
(484)
401
1,223
529
(5)
(728)
1,019
627
240
(5)
(244)
618
596
289
–
(484)
401
1,223
529
(5)
(728)
1,019
2,027
5,442
(1,626)
(4,423)
401
1,019
3,415
(2,797)
618
2,027
5,442
(1,626)
(4,423)
401
1,019
Year ended 30 June 2007
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2007
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2008
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2008
Cost
Accumulated depreciation
Net book amount
/52
Note 13. Non-current assets – Deferred tax assets
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
The balance comprises temporary differences attributable to:
NPV of future trailing commissions payable
32,371
30,139
32,371
30,139
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Employee benefits
Depreciation and amortisation
Accrued expenses
Share issue expenses
Total deferred tax assets
732
379
52
26
683
322
58
52
732
379
52
26
683
322
58
52
33,560
31,254
33,560
31,254
Set-off of deferred tax assets pursuant to set-off provisions (note 18)
(32,371)
(30,139)
(32,371)
(30,139)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
1,189
9,805
1,115
8,873
1,189
9,805
1,115
8,873
Deferred tax assets to be recovered after more than 12 months
23,755
22,381
23,755
22,381
33,560
31,254
33,560
31,254
Movements –
Consolidated and parent entity
At 30 June 2006
Charged/(credited)
to the income statement
At 30 June 2007
Charged/(credited)
to the income statement
At 30 June 2008
Npv of
future trailing
commissions
payable
$’000
Employee
benefits
$’000
depreciation
and
amortisation
$’000
Accrued
expenses
$’000
26,455
3,684
30,139
2,232
32,371
647
36
683
49
732
325
(3)
322
57
379
147
(89)
58
(6)
52
other
$’000
78
(26)
52
(26)
26
Total
$’000
27,652
3,602
31,254
2,306
33,560
MORTGAGE CHOICE ANNUAL REPORT 2008 /53
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 14. Non-current assets – intangible assets
At 30 June 2006
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2007
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 30 June 2007
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2008
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 30 June 2008
Cost
Accumulated amortisation
Net book amount
Consolidated
parent entity
Computer
Software*
$’000
Computer
Software*
$’000
3,776
(1,701)
2,075
2,075
736
(158)
2,653
4,512
(1,859)
2,653
2,653
705
(456)
2,902
5,218
(2,316)
2,902
3,776
(1,701)
2,075
2,075
736
(158)
2,653
4,512
(1,859)
2,653
2,653
705
(456)
2,902
5,218
(2,316)
2,902
*Capitalised computer software includes internally generated software development costs, a significant component of these costs will
not be installed and ready for use until October 2008 at which time amortisation will commence.
/54
Note 15. Current liabilities – Trade and other payables
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Trade payables(1)
Net present value of future trailing commissions payable
Licence fees repayable
Other payables
(1) Loan Book security trust
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
9,475
10,558
9,475
10,558
28,995
27,263
28,995
27,263
176
320
176
320
2,534
2,533
2,534
2,533
41,180
40,674
41,180
40,674
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 2008, the amount subject to charge resulting from applying the specified percentage to the trailing commission
subsequently received by Mortgage Choice Limited is $3,166,993 (2007 – $2,913,119). This is included as part of the balance of
trade payables at 30 June 2008 and is subject to charge until disbursed to the eligible franchisees. The amount subject to the
charge will vary dependant on trailing commission received by Mortgage Choice Limited from time to time and franchisee
performance.
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.
Fair values
The carrying amounts of trade and other payables at year end is a reasonable approximation of their fair values with the
exception of the net present value of future trailing commissions payable which are accounted for at amortised cost.
MORTGAGE CHOICE ANNUAL REPORT 2008 /55
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 16. Current liabilities – Provisions
Make good provision
Employee entitlements –annual leave
(a) Make good provision
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
230
481
711
–
511
511
230
481
711
–
511
511
Mortgage Choice is required to restore the leased premises of its offices to their original condition at the end of the respective
lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any
leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised
over the shorter of the term of the lease or the useful life of the assets. Make good costs that are not expected to be settled
within 12 months have been included in non-current liabilities as detailed in Note 19.
(b) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Consolidated and parent entity - 2008
Current
Carrying amount at start of year
Amounts expected to be settled within 12 months transferred from non-current liabilities
Additional provision recognised – charged to leasehold improvements
Carrying amount at end of year
Note 17. Non-current liabilities – Payables
Net present value of future trailing commissions payable
Licence fees repayable
Make good provision
$’000
–
80
150
230
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
78,910
73,201
78,910
73,201
102
200
102
200
79,012
73,401
79,012
73,401
/56
Note 18. Non-current liabilities – Deferred tax liabilities
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
The balance comprises temporary differences attributable to:
NPV of future trailing commissions receivable
Intangibles
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
51,434
48,005
51,434
48,005
386
–
386
–
51,820
48,005
51,820
48,005
Set-off of deferred tax assets pursuant to set-off provisions (note 13)
(32,371)
(30,139)
(32,371)
(30,139)
Net deferred tax liabilities
19,449
17,866
19,449
17,866
Deferred tax liabilities to be settled within 12 months
14,299
13,511
14,299
13,511
Deferred tax liabilities to be settled after more than 12 months
37,521
34,494
37,521
34,494
51,820
48,005
51,820
48,005
Movements – Consolidated and parent entity
At 30 June 2006
Charged to the income statement
At 30 June 2007
Charged to income tax provision
Charged to the income statement
At 30 June 2008
Npv of
future trailing
commissions
payable
$’000
42,812
5,193
48,005
–
3,429
51,434
Intangibles
$’000
–
–
–
202
184
386
Total
$’000
42,812
5,193
48,005
202
3,613
51,820
Note 19. Non-current liabilities – Provisions
Make good provision (refer note 16)
Employee entitlements – long service leave
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
135
275
410
175
235
410
135
275
410
175
235
410
Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Consolidated and parent entity - 2008
Non-current
Carrying amount at start of year
Amounts expected to be settled within 12 months transferred to current liabilities
Carrying amount at end of year
Make good provision
$’000
175
(40)
135
MORTGAGE CHOICE ANNUAL REPORT 2008 /57
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 20. Contributed equity
(a) share capital
Ordinary shares – fully paid
parent entity
2008
number
’000
2007
number
’000
Consolidated and
parent entity
2008
$’000
2007
$’000
117,980
117,593
437
203
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon
a poll each share is entitled to one vote.
Total contributed equity as at 30 June 2008:
details
Total ordinary shares on issue
Treasury shares
Total ordinary shares held as contributed equity
(i)
Treasury shares
Notes
Number of shares
(i)
118,439,867
(460,000)
117,979,867
Treasury shares are shares in Mortgage Choice Limited that are held by the Mortgage Choice Performance Share Plan Trust for
the purpose of issuing shares under the Mortgage Choice Performance Share Plan (PSP) (see note 32 for further information).
date
details
1 July 2006
Opening balance
29 December 2006
Shares issued to the Mortgage Choice Performance Share Plan Trust
30 June 2008
Balance
22 November 2007
Shares issued to the Mortgage Choice Performance Share Plan Trust
7 December 2007
Treasury shares issues under the Performance Share plan to employees
25 February 2008
Acquisition of shares on market to meet vesting requirements
25 February 2008
Treasury shares issues under the Performance Share plan to employees
30 June 2008
Balance
(b) Movements in ordinary share capital:
date
details
1 July 2006
Opening balance
29 December 2006
Shares issued to the Mortgage Choice Performance Share Plan Trust
29 December 2006
Held as treasury shares
30 June 2008
Balance
24 August 2007
Shares vested to employees under the Performance Share Plan
22 November 2007
Shares issued to the Mortgage Choice Performance Share Plan Trust
22 November 2007
Held as treasury shares
7 December 2007
Shares vested to employees under the Performance Share Plan
25 February 2008
Acquisition of shares on market to meet vesting requirements
25 February 2008
Shares vested to employees under the Performance Share Plan
Number of shares
–
216,150
216,150
308,750
(5,245)
34,945
(94,600)
460,000
Number of shares
$’000
117,592,767
216,150
(216,150)
117,592,767
322,200
308,750
(308,750)
5,245
(34,945)
94,600
203
477
(477)
203
171
741
(741)
10
–
53
30 June 2008
Balance
119,979,867
437
/58
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
(c) employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 32.
(d) Options
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 Directors', report –
refer to section D of the Remuneration report on pages 24-28.
Note 21. Reserves and retained profits
(a) reserves
Share-based payments reserve
Movements:
Share-based payments reserve
Balance 1 July
Options and performance shares expensed
Issue of shares to the Mortgage Choice Performance Share Plan Trust
Funding of acquisition of shares by the Mortgage Choice Performance Share Plan Trust
Acquisition of shares on market to meet vesting requirements
Vesting of shares held by the Mortgage Choice Performance Share Plan Trust to
employees
Balance 30 June
(b) retained profits
Balance 1 July
Net profit for the year
Dividends
Balance 30 June
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
1,291
830
1,291
830
830
757
–
–
(62)
(234)
1,291
343
487
–
–
–
–
830
830
757
741
(741)
(62)
(234)
1,291
343
487
477
(477)
–
–
830
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
51,197
46,909
51,197
46,909
19,344
19,587
19,344
19,587
(17,148)
(15,299)
(17,148)
(15,299)
53,393
51,197
53,393
51,197
(c) Nature and purpose of reserves
Share-based payments reserve
The share-based payments reserve is used to recognise:-
Q the fair value of options and performance shares granted but not vested.
Q In the parent entity – the fair value of options and performance shares issued and funding of acquisition of shares by the
Mortgage Choice Performance Plan Trust.
MORTGAGE CHOICE ANNUAL REPORT 2008 /59
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 22. Dividends
(a) Ordinary shares
Final dividend declared out of profits of the Company for the
year ended 30 June 2006 of 7.5 cents per fully paid share paid
on 18 September 2006:
Fully franked based on tax paid @ 30%
7.5 cents per share
Interim dividend declared out of profits of the Company for the
half-year ended 31 December 2006 of 5.5 cents per fully paid
share paid 19 March 2007:
Fully franked based on tax paid @ 30%
5.5 cents per share
Final dividend declared out of profits of the Company for the
year ended 30 June 2007 of 8.5 cents per fully paid share paid
on 18 September 2007:
Fully franked based on tax paid @ 30%
8.5 cents per share
Interim dividend declared out of profits of the Company for the
half-year ended 31 December 2007 of 6.0 cents per fully paid
share paid 18 March 2008:
Fully franked based on tax paid @ 30%
6.0 cents per share
(b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors
have recommended the payment of a final dividend of 8.0 cents
per fully paid ordinary share, (2007 – 8.5 cents) fully franked based
on tax paid at 30%. The aggregate amount of the proposed
dividend expected to be paid on 15 September 2008 out of retained
profits at 30 June 2008, but not recognised as a liability at year end, is
(c) Franked dividend
The franked portions of the final dividends recommended after 30 June 2008
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 2009.
parent entity
2008
$’000
2007
$’000
–
8,819
–
6,480
10,041
7,106
–
–
17,148
15,299
9,475
10,041
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Franking credits available for subsequent financial years based on
a tax rate of 30% (2007 – 30%)
4,494
5,019
4,494
5,019
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were
paid as dividends.
The impact on the franking account of the dividend recommended by the Directors since year end, but not recognised as a liability at
year end, will be a reduction in the franking account of $4,061,000 (2007: $4,302,000).
/60
Note 23. Key management personnel disclosures
(a) key management personnel compensation
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Short-term employee benefits
Post-employment benefits
Long – term benefits
Share-based payments
Consolidated
parent entity
2008
$
2007
$
2008
$
2007
$
3,198,199 2,743,646 3,198,199 2,743,646
424,860
349,589
424,860
349,589
34,941
18,385
34,941
18,385
656,120
350,819
656,120
350,819
4,314,120 3,462,439 4,314,120 3,462,439
Detailed remuneration disclosures are provided in section A-C of the remuneration report on pages 20-24.
(b) equity instrument disclosures relating to key management personnel
(i)
Options and performance shares provided as remuneration and shares issued on exercise of such options
Details of options and performance shares provided as remuneration and shares issued on the exercise of such options,
together with terms and conditions of the options, can be found in section D of the remuneration report on pages 24-28.
(ii) Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each Director of
Mortgage Choice Limited and other key management personnel of the Group, including their personally related parties,
are set out below.
2008
Name
balance at
the start of
the year
granted as
compensation
Exercised
other
changes
balance at
the end of
the year
vested and
exercisable
unvested
Directors of Mortgage Choice Limited
P A Lahiff
1,493,600
1,200,000
Other key management personnel of the Group
A D Crossley
A J Fraser*
M C Newton
320,100
117,050
298,350
216,000
–
–
–
–
–
–
–
–
2,693,600
323,200
2,370,400
536,100
81,800
454,300
(117,050)
–
–
–
–
298,350
92,200
206,150
* Entitlement to options has been forfeited as part of termination of employment
2007
Name
Balance at
the start of
the year
Granted as
compensation
Exercised
Other
changes
Balance at
the end of
the year
Vested and
exercisable Unvested
Directors of Mortgage Choice Limited
P A Lahiff
747,300
746,300
Other key management personnel of the Group
A D Crossley
A J Fraser
M C Newton
210,400
71,400
201,100
109,700
45,650
97,250
–
–
–
–
–
–
–
–
1,493,600
320,100
117,050
298,350
–
–
–
–
1,493,600
320,100
117,050
298,350
MORTGAGE CHOICE ANNUAL REPORT 2008 /61
MORTGAGE CHOICE LIMITED 30 JUNE 2008
(iii) Performance share rights
The number of performance share rights held during the financial year by each Director of Mortgage Choice Limited and
other key management personnel of the Group, including their personally related parties, are set out below.
2008
Name
balance at
the start of
the year
granted as
compensation
Exercised
other
changes
balance at
the end of
the year
unvested
Directors of Mortgage Choice Limited
P A Lahiff
Other key management personnel of the Group
A D Crossley
A J Fraser *
M C Newton
N C Rose-Innes
D L Ennis
L A Wyatt
D M Hoskins
W J O’Rourke
M N Writer
180,300
49,800
52, 550
49,000
–
55,500
14,950
77,800
70,700
28,200
–
–
–
39,900
29,300
23,100
20,850
23,500
21,650
17,600
(97,000)
(24,500)
–
–
83,300
83,300
25,300
25,300
–
(52,550)
(27,600)
–
(24,000)
–
(33,900)
(30,800)
–
–
–
–
–
–
–
–
–
61,300
29,300
54,600
35,800
67,400
61,550
45,800
–
61,300
29,300
54,600
35,800
67,400
61,550
45,800
* Entitlement to shares has been forfeited as part of termination of employment
2007
Name
Balance at
the start of
the year
Granted as
compensation
Exercised
Other
changes
Balance at
the end of
the year
Unvested
Directors of Mortgage Choice Limited
P A Lahiff
Other key management personnel of the Group
A D Crossley
A J Fraser
M C Newton
D M Hoskins
W J O’Rourke
M N Writer
L A Wyatt
180,300
49,800
38,700
49,000
60,100
54,600
14,200
–
–
–
13,850
–
17,700
16,100
14,000
14,950
–
–
–
–
–
–
–
–
180,300
180,300
49,800
52, 550
49,000
77,800
70,700
28,200
14,950
49,800
52, 550
49,000
77,800
70,700
28,200
14,950
–
–
–
–
–
–
–
/62
(iv) Share holdings
The number of shares in the Company held during the financial year by each Director of Mortgage Choice Limited and other
key management personnel of the Group, including their personally related parties, are set out below.
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
2008
Name
Directors of Mortgage Choice Limited
balance at
the start of
the year
received during the
year on the vesting
of share rights
other changes
during the year
P A Lahiff
P D Ritchie
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Other key management personnel of the Group
A D Crossley
M C Newton
N C Rose-Innes
D L Ennis
D M Hoskins
W J O’Rourke
M N Writer
L A Wyatt
2007
Name
100,000
350,125
5,822,939
15,226,215
2,000,000
50,000
–
–
–
–
50
2,089
–
–
97,000
50,000
–
–
–
–
–
24,500
27,600
–
24,000
33,900
30,800
–
–
–
–
–
–
–
(7,000)
–
–
(24,000)
–
–
–
–
Balance at
the start of
the year
Received during
the year on
the vesting
of share rights
Other changes
during the year
Directors of Mortgage Choice Limited
P A Lahiff
P D Ritchie
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Other key management personnel of the Group
A D Crossley
A J Fraser
M C Newton
D M Hoskins
W J O’Rourke
M N Writer
L A Wyatt
100,000
350,125
8,436,534
19,991,583
4,000,000
50,000
–
–
–
50
1,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,613,595)
(4,765,368)
(2,000,000)
–
–
–
–
–
589
–
–
balance at
the end of
the year
247,000
350,125
5,822,939
15,226,215
2,000,000
50,000
17,500
27,600
–
–
33,950
32,889
–
–
Balance at
the end of
the
year
100,000
350,125
5,822,939
15,226,215
2,000,000
50,000
–
–
–
50
2,089
–
–
Shareholdings of Directors and other key management personnel of the Group include those that have been disclosed
under representation made to them by the parties within the AASB 124 Related Party Disclosures. The Directors and
other key management personnel 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.
MORTGAGE CHOICE ANNUAL REPORT 2008 /63
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 24. Remuneration of auditors
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:
(a) Audit service
PricewaterhouseCoopers Australian firm:
Audit and review of financial reports
Total remuneration for audit services
(b) Non-audit services
Audit-related services
PricewaterhouseCoopers Australian firm:
Audit of regulatory returns
Other assurance services
Total remuneration for audit-related services
Taxation services
PricewaterhouseCoopers Australian firm:
Tax compliance services
Other tax services
Total remuneration for taxation services
Other services
PricewaterhouseCoopers Australian firm:
Consulting on employee share trust
Total remuneration for other services
Total remuneration for non-audit services
Consolidated
parent
2008
$
2007
$
2008
$
2007
$
215,500
211,450
201,800
211,450
215,500
211,450
201,800
211,450
–
7,500
7,500
2,500
7,500
10,000
–
7,500
7,500
2,500
7,500
10,000
22,200
15,500
22,200
15,500
75,780
9,780
75,780
9,780
97,980
25,280
97,980
25,280
–
–
40,090
40,090
–
–
40,090
40,090
105,480
75,370
105,480
75,370
Note 25. Contingencies
CONtiNGeNt LiABiLities
The parent entity and consolidated entity had contingent liabilities at 30 June 2008 in respect of:
Guarantees
Guarantees given in respect of premises leases $1,155,488 (2007: $297,552).
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 2008 and 30 June 2007, 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.
/64
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Note 26. Commitments
(a) Lease commitments
Non-cancellable operating leases
The Company leases various offices under non-cancellable operating leases expiring within one to six years. The leases have
varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Company also
leases various office equipment under non-cancellable operating leases. The table below includes lease commitments
associated with the relocation of the Company’s head office to new premises in North Sydney.
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
920
3,325
185
4,430
648
539
–
1,187
920
3,325
185
4,430
648
539
–
1,187
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
830
50
880
–
–
–
830
50
880
–
–
–
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
Later than five years
(b) Other commitments
Commitments in relation to non-cancellable obligation for the supply of media
placement services as at the reporting date but not recognised as liabilities
payable:
Within one year
Later than one year but not later than five years
Note 27. Related party transactions
(a) Parent entities
The parent entity within the Group is Mortgage Choice Limited.
(b) subsidiaries
Interests in subsidiaries are set out in note 28.
(c) key management personnel
Disclosures relating to key management personnel are set out in note 23.
(d) Loans to/from related parties
The Group has formed a trust to administer the Group’s employee share scheme. This is funded by the parent entity. This trust is
consolidated, as the substance of the relationship is that the trust is controlled by the Group.
No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised
in respect of bad or doubtful debts due from related parties.
MORTGAGE CHOICE ANNUAL REPORT 2008 /65
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 28. subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following in accordance with the accounting
policy described in note 1(b):
Name of entity
Country of
incorporation
Class of
Shares
Equity holding
Cost of parent
entity’s investment
Mortgage Choice (W.A.) Pty Limited
MC Loan Book Security Pty Limited
Australia
Australia
Ordinary
Ordinary
2008
%
100
100
2007
%
100
100
2008
$
100
2
2007
$
100
2
Note 29. Events occurring after the balance sheet date
Dividend payment
A final ordinary dividend of $9,475,000 (8.0 cents per fully paid share) was declared out of profits of the Company for the year ended 30
June 2008 on 20 August 2008 to be paid on 15 September 2008.
The financial effects of the above transaction have not been brought to account at 30 June 2008.
Note 30. Reconciliation of profit after income tax to net cash
inflow from operating activities
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
19,344
19,587
19,344
19,587
1,184
695
705
487
1,184
695
705
487
(11,429)
(17,310)
(11,429)
(17,310)
7,440
(746)
5
819
(74)
(322)
(921)
(402)
(379)
1,583
200
12,280
(628)
11
(1,332)
82
91
1,587
(267)
(297)
1,509
219
7,440
(746)
5
819
(74)
(322)
(921)
(402)
(379)
1,583
200
12,280
(628)
11
(1,332)
82
91
1,587
(267)
(297)
1,509
219
16,997
16,724
16,997
16,724
Profit for the year
Depreciation and amortisation
Non-cash employee expense benefits – share-based payments
Non-cash net present value of future trailing inflows
Non-cash net present value of future trailing outflows
Interest received on cash and deposits at call
Net loss on sale of non-current assets
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
(Increase)/decrease in deferred tax asset
(Increase)/decrease in other operating assets
(Decrease)/increase in trade payables
(Decrease)/increase in other operating liabilities
(Decrease)/increase in provision for income taxes payable
Increase/(decrease) in provision for deferred income tax
Increase/(decrease) in other provisions
Net cash inflow from operating activities
/66
Note 31. Earnings per share
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Basic earnings per share
Diluted earnings per share
Earnings used in calculating earnings per share – profit from continuing operations
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
Adjustments for calculation of diluted earnings per share:
Rights and options
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
iNFOrMAtiON CONCerNiNG the CLAssiFiCAtiON OF seCUrities
(a) Options
Consolidated
2008
Cents
16.4
16.3
2007
Cents
16.6
16.4
$’000
$’000
19,344
19,587
2008
Number
2006
Number
118,270,854
117,701,730
499,304
1,396,210
118,770,158
119,097,940
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) Performance Share Plan
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 rights have not
been included in the determination of basic earnings per share. Details relating to the options are set out in the
Remuneration report.
MORTGAGE CHOICE ANNUAL REPORT 2008 /67
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Note 32. share-based payments
(a) 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 2008, 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
and property trust 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 for the year ending 30 June 2007 are Aevum Limited, AP Eagers Limited,
ARB Corporation Limited, AVJennings Limited, Biota Holdings Limited, Blackmores Limited, Cardno Limited, Cellestis Limited,
Ceramic Fuel Cells Limited, Coffey International Limited, Devine Limited, DWS Advanced Business Solutions Ltd, Fantastic
Holdings Limited, Fleetwood Corporation Limited, Geodynamics Limited, Hastie Group Limited, Home Building Society
Limited, Housewares International Limited, Independent Practitioner Network Ltd, IWL Limited, McGuigan Simeon Wines
Limited, McMillan Shakespeare Limited, Melbourne IT Limited, Mitchell Communication Group Ltd, MYOB Limited, Nomad
Building Solutions Limited, Oaks Hotels & Resorts Limited, Oakton Limited, Photon Group Limited, Port Bouvard Limited,
Prime Television Limited, Redflex Holdings Limited, Regional Express Holdings Limited, Ridley Corporation Limited, RP Data
Ltd, Select Harvests Limited, Servcorp Limited, SMS Management & Technology Ltd, SP Telemedia Limited, Specialty Fashion
Group Limited, Super Cheap Auto Group Limited, Talent2 International Limited, Tassal Group Limited, Technology One
Limited, The MAC Services Group Limited, The Reject Shop Limited, Tower Limited, Trust Company Limited, Village
Roadshow Limited, Wide Bay Australia Ltd.
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.
The vesting scale is as follows:
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.
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:
Q 10 years after the date of offer;
Q 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
Q 12 months, or such other period determined by the Board, after the participant ceases employment for a ‘qualifying
reason’.
/68
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
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, if there is cessation of employment due to a ‘qualifying reason’, the Board may
determine that some or all of the options may vest. In the event of a change of control of the Company, all options will 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.
Details of options over ordinary shares in the Company provided as remuneration to each Director and key management
personnel of Mortgage Choice Limited are set out below. When exercisable, each option is convertible into one ordinary share of
Mortgage Choice Limited. Further information on the options is set out in the remuneration report.
Set out below are summaries of options granted under the plan:
grant date
Expiry date
Exercise
price
balance
at start of
the year
granted
during
the year
Exercised
during
the year
Expired
during
the year
Forfeited
during
the year
balance
at end of
the year
Exercisable
at end of
the year
Number Number Number Number Number
Number
Number
Consolidated and parent entity – 2008
10 August 2004
10 August 2014
$1.05
415,400
24 February 2005
24 February 2015
$1.08
81,800
2 September 2005
2 September 2015
$1.43
733,000
12 December 2006 12 December 2016
$2.60
998,900
–
–
–
–
31 August 2007
31 August 2017
$2.51
– 1,416,000
Total
Weighted average exercise price
2,229,100 1,416,000
$1.87
$2.51
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415,400
415,400
81,800
81,800
(71,400)
661,600
(45,650)
953,250
–
1,416,000
–
–
–
– (117,050) 3,528,050
497,200
–
$1.89
$2.13
$1.05
Grant Date
Expiry date
Exercise
price
Balance
at start of
the year
Granted
during
the year
Exercised
during
the year
Expired
during
the year
Forfeited
during
the year
Balance
at end of
the year
Exercisable
at end of
the year
Number
Number
Number Number Number
Number
Number
Consolidated and parent entity – 2007
10 August 2004
10 August 2014
24 February 2005
24 February 2015
$1.05
$1.08
415,400
81,800
2 September 2005
2 September 2015
$1.43
733,000
–
–
–
12 December 2006 12 December 2016
$2.60
–
998,900
Total
Weighted average exercise price
1,230,200
998,900
$1.28
$2.60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415,400
81,800
733,000
998,900
2,229,100
$1.87
–
–
–
–
–
–
The weighted average remaining contractual life of share options outstanding at the end of the period was 8.19 years (2007 –
8.54 years).
The assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently
determined using a Monte Carlo simulation model utilising a Black-Scholes option pricing model framework that takes into
account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable
nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend
yield and the risk-free interest rate for the term of the option.
The model inputs for options granted during the year ended 30 June 2008 included:
Q options are granted for no consideration, each tranche vests and is exercisable after three anniversaries
of the date of grant;
Q exercise price: $2.51 (2007 – $2.60);
Q grant date: 31 August 2007 (2007 – 12 December 2006);
Q expiry date: 31 August 2017 (2007 – 12 December 2016);
Q share price at grant date: $2.49 (2007 – $2.68);
Q expected price volatility of the Company’s shares: 30% (2007 – 40%);
Q expected dividend yield: 6.5% (2007 – 5.6%); and
Q risk-free interest rate: 5.97% (2007 – 5.76%).
MORTGAGE CHOICE ANNUAL REPORT 2008 /69
MORTGAGE CHOICE LIMITED 30 JUNE 2008
(b) 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 2008 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. 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:
Q 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;
Q the participant ceasing to be an employee of the Company;
Q a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the Company) occurring; or
Q 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.
Details of performance shares in the Company provided as remuneration to each Director and key management personnel of
Mortgage Choice Limited are set out below. Further information on the performance shares is set out in the remuneration report.
Set out below are summaries of performance shares conditionally issued under the plan:
offer date
vesting date
value
balance
at start of
the year
granted
during
the year
Exercised
during
the year
Expired
during
the year
Forfeited
during
the year
balance
at end of
the year
Exercisable
at end of
the year
Number Number Number Number Number Number
Number
Consolidated and parent entity – 2008
10 August 2004
10 August 2007
$1.05
297,400
6 September 2004
6 September 2007
$1.05
4 January 2005
4 January 2008
$0.91
24 February 2005
24 February 2008
$1.08
24,800
94,800
24,500
2 September 2005
2 September 2008
$1.43
415,900
12 December 2006 31 August 2009
31 August 2007
31 August 2010
$2.21
$2.20
211,800
–
308,750
–
–
–
–
–
–
(297,400)
(24,800)
(70,100)
(24,500)
–
(5,245)
–
–
–
–
–
–
–
–
(24,700)
–
–
–
–
–
(87,200)
328,700
(56,255)
150,300
–
308,750
Total
1,069,200
308,750 (422,045)
– (168,155)
787,750
Weighted average exercise price
$1.42
$2.20
$1.04
–
$1.61
$1.88
/70
–
–
–
–
–
–
–
–
NOTEs TO THE FINANCIAL sTATEMENTs CONTINUED
Offer Date
Vesting date
Value
Balance
at start of
the year
Granted
during
the year
Exercised
during
the year
Expired
during
the year
Forfeited
during
the year
Balance
at end of
the year
Exercisable
at end of
the year
Number
Number
Number Number Number
Number
Number
Consolidated and parent entity – 2007
10 August 2004
10 August 2007
$1.05
297,400
6 September 2004
6 September 2007
$1.05
24,800
4 January 2005
4 January 2008
$0.91
117,900
24 February 2005
24 February 2008
$1.08
24,500
2 September 2005
2 September 2008
$1.43
437,600
–
–
–
–
–
12 December 2006 31 August 2009
$2.21
–
216,150
Total
Weighted average exercise price
902,200
216,150
$1.21
$2.21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
297,400
24,800
(23,100)
94,800
–
24,500
(21,700)
415,900
(4,350)
211,800
(49,150) 1,069,200
$1.25
$1.42
–
–
–
–
–
–
–
–
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 1.15 years
(2007 – 0.99 years).
The assessed fair value at grant date of share rights granted to individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently
determined using a Monte Carlo simulation model utilising a Black-Scholes option pricing model framework that takes into
account the term of the rights, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the rights,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free
interest rate for the term of the share rights.
The model inputs for performance shares granted during the year ended 30 June 2008 included:
Q share rights are granted for no consideration, each tranche vests and is exercisable after three anniversaries
of the date of grant;
Q grant date: 31 August 2007 (2007 – 12 December 2006);
Q expiry date: 31 August 2017 (2007 – 12 December 2016);
Q share price at grant date: $2.49 (2007 – $2.68);
Q expected price volatility of the Company’s shares: 30% (2007 – 40%);
Q expected dividend yield: 6.5% (2007 – 5.6%); and
Q risk-free interest rate: 5.97% (2007 – 5.76%).
(c) expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were as follows:
Options issued under EPOP
Shares issues under PSP
Consolidated
parent entity
2008
$’000
2007
$’000
2008
$’000
2007
$’000
472
285
757
217
270
487
472
285
757
217
270
487
MORTGAGE CHOICE ANNUAL REPORT 2008 /71
MORTGAGE CHOICE LIMITED 30 JUNE 2008
Directors’ declaration
30 JUNe 2008
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 34-71 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 2008 and of their performance, 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
The Directors have been given the declarations by the Managing Director 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
19 AUGUst 2008
/72
Independent auditor’s 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 Sydney
Australia
www.pwcglobal.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
Report on the financial report
We have audited the accompanying financial report of Mortgage Choice Limited (the company),
which comprises the balance sheet as at 30 June 2008, and the income statement, statement of
changes in equity and cash flow statement for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and the directors’ declaration for both
Mortgage Choice Limited and the Mortgage Choice Group (the consolidated entity). The
consolidated entity comprises the company and the entities it controlled at the year's end or from
time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation and fair presentation of the
financial report in accordance with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal controls relevant to the preparation and fair presentation of
the financial report that is free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances. In Note 1, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the
Australian equivalents to International Financial Reporting Standards ensures that the financial
report, comprising the financial statements and notes, complies with International Financial
Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards
require that we comply with relevant ethical requirements relating to audit engagements and plan
and perform the audit to obtain reasonable assurance whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial report in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether
it contains any material inconsistencies with the financial report.
For further explanation of an audit, visit our website
http://www.pwc.com/au/financialstatementaudit.
Liability limited by a scheme approved under Professional Standards Legislation
66
MORTGAGE CHOICE ANNUAL REPORT 2008 /73
MORTGAGE CHOICE LIMITED 30 JUNE 2008
/74
shareholder information
The Shareholder information set out below was applicable as at 15 August 2008.
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
options
Conditional
entitlements
391
1401
868
796
43
3,499
1
14
0
15
3
3
There were 81 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:
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Ochoa Pty Ltd
Merrill Lynch (Australia) Nominees Pty Ltd
Basscave Pty Limited
R G Higgins
National Nominees Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
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