2010 AnnuAl finAnciAl REPORT
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full financial Results
Mortgage choice limited
Acn 009 161 979
corporate
Directory
for the year ended 30 June 2010
notice of AnnuAl generAl Meeting
The annual general meeting of Mortgage Choice Limited
will be held at:
The Pavilion, Gallery Level
Star Court – Darling Park
201 Sussex Street, Sydney NSW 2000
Time: 10am
Date: 10 November 2010
directors
P D Ritchie
Chairman
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
chief executive officer
M i Russell
secretAry
D M Hoskins
divisionAl generAl
MAnAgers
S R Mitchell
Chief Financial Officer
n c Rose-innes
Chief Information Officer
S c Dehne
National Manager, Non-Core
K Rampal
Head of LoanKit
PrinciPle registered
office in AustrAliA
Level 10, 100 Pacific Highway,
North Sydney NSW 2060
(02) 8907 0444
shAre register
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
(02) 8280 7111
Auditor
PricewaterhouseCoopers
Chartered Accountants
Darling Park Tower 2
201 Sussex Street
Sydney NSW 2000
solicitors
Minter Ellison
Aurora Place, 88 Phillip Street
Sydney NSW 2000
BAnkers
ANZ Banking Group Limited
116 Miller Street
North Sydney NSW 2060
stock exchAnge listings
Mortgage Choice Limited
shares are listed on the
Australian Stock Exchange
weBsite Address
www.mortgagechoice.com.au
cORPORATE DiREcTORy
1
contents
01/ corporate Directory 02/ Directors’ Report 16/ corporate Governance Statement 21/ financial Report
62/ independent auditor’s report to the members 64/ Shareholder information
Directors’ Report
for the year ended 30 June 2010
your Directors present their report on the consolidated entity consisting of Mortgage choice limited (“the company”) and the entities it
controlled at the end of, or during, the year ended 30 June 2010, hereafter referred to as “Mortgage choice”, “the Mortgage choice Group”
or “the Group”.
review of oPerAtions
operational results for the year
The improving market conditions combined with the historically low interest rates and the first Home Owners Grant (fHOG) boost near the
end of fy 2009 gave Mortgage choice a strong start to the year. Approvals and settlements for the first half of the year increased
significantly at 17% compared to the first half of the prior year. The second half of the year met with the headwinds of progressive interest
rate rises, the end of the fHOG boost and continuous credit tightening but it also saw the return of the investor and the economy remained
fundamentally sound. Despite these headwinds, a solid result was delivered for the year.
During the year the Group acquired the assets of the loanKit business as detailed in note 28. This business included 50 brokers and a loan
book of $0.6 billion and was re-launched as the commencement of the Group’s aggregation arm.
Mortgage choice – residential
loans approved – $m
change
loans settled – #
change
loans settled – $m
change
2010
9,973
(0.9%)
34,083
1.3%
8,891
3.1%
2009
10,059
(8.2%)
33,646
(12.6%)
8,620
(9.8%)
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:
The Group’s loan book balance continued to grow. At 30 June 2010, the balance was $40.0 billion, including loanKit and the non-core
offering. Mortgage choice’s residential loan book increased to $39.1 billion, an 8.6% increase on the 30 June 2009 balance of $36.0 billion.
P D Ritchie
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
PrinciPAl Activities
During the year the principal continuing activity of the Mortgage choice Group was mortgage broking. This activity involves:
n
n
n
the provision of assistance in determining the borrowing capacities of prospective borrowers;
the assessment, at the request of those borrowers, of a wide range of home loan or other products; and
the submission of loan applications on behalf of prospective borrowers.
dividends
Dividends paid or payable to members during the financial year are as follows:
A final ordinary dividend of $6.542 million (5.5 cents per fully paid share) was declared out of profits of the company for the year ended
30 June 2009 on 21 August 2009 and paid on 16 September 2009.
An interim ordinary dividend of $6.579 million (5.5 cents per fully paid share) was declared out of profits of the company for the half-year
ended 31 December 2009 on 24 february 2010 and paid on 22 March 2010.
A final ordinary dividend of $7.775 million (6.5 cents per fully paid share) was declared out of profits of the company for the year ended
30 June 2010 on 25 August 2010 to be paid on 20 September 2010.
financial results for the year
Despite the fall in revenue for the year, underlying profit before tax and before the adjustment for loan book assumptions is $20.6m, which
represents a 30% increase from fy 2009. This increase is primarily as a result of a decrease in operating expenses and refinements in the
estimates of margins on future trailing commissions.
The annual review of the historical trail book found that the trail book performance with regard to run-off was overstated and an adjustment
to the profit and loss for the year was required to recognise the actual experience in the portfolio. in addition, assumptions used in the
valuation of future trailing commissions were changed to reflect an extension of the current economic environment for the short to medium
term. These refinements to the trailing commission model resulted in a $12.8 million adjustment before tax to the Group’s profit and loss for
fy 2010. The resulting profit after tax was $23.479 million, which is 12.5% lower than the previous year. The fall in after tax profit as
compared to 2009 is primarily the result of the revised approach to forecasting future cash flows adopted in 2009, which resulted in a
$22.3m adjustment before tax in fy 2009.
The effect of the adjustment is summarised below.
financial summary
Revenue
underlying revenue
Adjustment to loan book assumptions
Total Revenue
Profit before tax
underlying result before tax
Adjustment to loan book assumptions
Total Profit Before Tax
2010
$’000
2009
$’000
130,464
40,864
171,328
20,623
12,845
33,468
134,305
58,590
192,895
15,842
22,303
38,145
The Group will continue to review the assumptions used in estimating the future trailing commissions, as required in the Group’s accounting
policies, and recognise any changes in net assets in the period in which it arises.
strategy and Plans for next year
At the end of June 2009, Mortgage choice developed a strategy to address negative trends in the business caused by the Gfc and lender
commission cuts. it was codenamed DREAM:
n Diversification – introduce new products
n Recruitment – re-ignite greenfield franchise recruitment initiatives
n Existing franchises – help franchisees grow their businesses
n Acquisitions – identify acquisition opportunities that meet our benchmarks
n Manage costs – continue diligent management of our cost base
Twelve months on, DREAM has evolved into a three year strategy. Mortgage choice recognises that DREAM is not a quick solution.
This next year will see the continuation of initiatives and improvements to drive the implementation of DREAM.
2
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
3
Directors’ Report (continued)
significAnt chAnges in the stAte of AffAirs
Except for the matters disclosed in the Review of Operations section of this annual report, there have been no significant changes in the
state of affairs of the consolidated entity.
MAtters suBsequent to the end of the finAnciAl yeAr
no matters or circumstances have arisen since 30 June 2010 that have significantly affected, or may significantly affect:
(a)
(b)
(c)
the Group’s operations in future financial years;
the results of those operations in future financial years; or
the Group’s state of affairs in future financial years.
likely develoPMents And exPected results of oPerAtions
information on likely developments in the operations of the Group 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 Group.
environMentAl regulAtion
The Group 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.
inforMAtion on directors
Peter ritchie Ao, Bcom, fcPA
independent non-executive chairman
chairman of nomination and
Remuneration committees
sean clancy dip Mkt
independent non-executive director
Member of Audit committee
Peter higgins
non-executive director
Member of Audit committee
rodney higgins
non-executive director
Member of nomination and
Remuneration committees
steve Jermyn fcPA
independent non-executive director
chairman of Audit committee
Peter is Deputy chairman of Seven network and chairman of Reverse corp limited. He
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 68.
With a sales and marketing background across many industries including banking, fast
moving consumer goods, liquor, pharmacy, consumer electronics, telecommunications
and hardware, Sean brings a diverse range of knowledge and expertise to the Mortgage
choice Board. He is also a Director of the Sydney Swans foundation, and the STW
Executive council Board. Age 50.
Peter is co-founder of Mortgage choice. He also is a Director of technology company
Power & Data corporation Pty ltd, trading as Mainlinepower.com. Having been
successfully self-employed for over 25 years, Peter is an investor in a diverse number of
industries covering manufacturing, agriculture, technology, property and finance. Age 50.
Rodney is co-founder of Mortgage choice. With a background in residential and
commercial property, sales and leasing, he has been a Director of companies involved in
manufacturing, wholesaling, importing, retailing and finance. Age 55.
Steve joined McDonald’s Australia in 1984 and joined the Board of Directors in 1986. in June
1999, he was appointed Deputy Managing Director. Steve has been involved in all aspects
of the development of the McDonald’s restaurant business in Australia and brings with him
significant experience in the development of new business and franchising. He retired from
McDonald’s Australia in 2005. Steve is also a Director of Reverse corp limited. Age 61.
deborah ralston Phd, fAicd, ffin, fcPA
independent non-executive director
Member of Audit committee
Deborah is Director of the Australian centre for financial Studies and Professor of finance
at Monash university. She was formerly Pro Vice chancellor at the university of canberra
and has also been Director of the centre for Australian financial institutions at the university
of Southern Queensland. Deborah is a former Director of Heritage Building Society. Age 57.
The table below sets out the Directors’ interests at 30 June 2010:
director
P D Ritchie
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
4
MORTGAGE cHOicE AnnuAl REPORT 2010
Particulars of directors’ interests in share and options
350,125 ordinary shares
50,000 ordinary shares
822,939 ordinary shares
15,226,215 ordinary shares
2,000,000 ordinary shares
50,000 ordinary shares
coMPAny secretAry
The company Secretary is Mr D M Hoskins B com, cPA, cSA. Mr Hoskins was appointed to the position of company Secretary in 2000.
Before joining Mortgage choice limited he had experience in a variety of accounting and company secretarial functions, primarily in the
finance and insurance industries.
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 2010,
and the numbers of meetings attended by each Director were:
full meetings of
directors
Meetings of committees
Audit
nomination
remuneration
P D Ritchie
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
A
7
7
6
5
8
8
B
8
8
8
8
8
8
A = number of meetings attended
B = number of meetings held
* = not a member of the relevant committee
A
*
2
2
*
2
2
B
*
2
2
*
2
2
A
–
*
*
–
*
*
B
–
*
*
–
*
*
A
2
*
*
1
*
*
B
2
*
*
2
*
*
retireMent, election And continuAtion in the office of directors
in accordance with the constitution, Rodney Higgins and Deborah Ralston retire by rotation and, being eligible, offer themselves for
re-election.
reMunerAtion rePort
The information provided in this remuneration report has been audited as required by section 308(3c) of Corporations Act 2001.
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. Structured in conjunction with external remuneration consultants, the framework aligns executive rewards with the
achievement of strategic objectives and the creation of value for shareholders. The Board ensures that executive rewards satisfy the
following key criteria for good governance practices:
n competitiveness and reasonableness;
n acceptability to shareholders;
n performance linkage / alignment of executive compensation;
n
transparency; and
n capital management.
Alignment to shareholders’ interests means the remuneration framework:
n has economic profit as a core component of the plan design;
n
focuses on sustained growth in share price; and
n attracts and retains high calibre executives.
Alignment to program participants’ interests means the remuneration framework:
n
n
rewards capability and experience;
reflects competitive reward for contribution to growth in shareholder value;
n provides a clear structure for earning rewards; and
n 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 within
the Group, the balance of this mix shifts to a higher proportion of “at risk” rewards.
DiREcTORS’ REPORT
5
Directors’ Report (continued)
Non-Executive Directors
fees and payments to non-Executive Directors reflect the demands made on, and the responsibilities of, those Directors. non-Executive
Directors’ fees and payments are reviewed annually by the Board. The Board has sought independent research material to ensure
non-Executive Directors fees and payments, including those of the chairman, are appropriate and in line with market. The chairman’s fees
are determined independently to the fees of non-Executive Directors. non-Executive Directors do not receive any short term cash
incentives or share-based payments as part of their remuneration.
Directors’ fees
The base remuneration for the year ended 30 June 2010 was determined on 17 May 2005 and was based on the recommendations of
independent remuneration consultants. Directors do not receive additional remuneration for representation on board committees.
Shareholders at the General Meeting on 5 April 2004 set the maximum aggregate remuneration of the Board (excluding the Managing
Director and any executive Director) at $750,000.
Long-term incentives
long-term incentives are provided in the form of share-based payments through the Executive Performance Option Plan (EPOP) and the
Performance Share Plan (PSP); see pages 10-14 for further information.
Performance of Mortgage Choice Limited
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):
year
2006
2007
2008
2009
2010
ePs (cents per share)
15.2
16.6
16.4
22.6
19.7
The following fees apply :
chairman
Other non-Executive Directors
from 1 July 2010
$119,900
$65,400
from 1 July 2009
to 30 June 2010
$119,900
$65,400
Grants made under the EPOP in May 2009 vest based on service requirements.
Grants under the PSP, prior to 1 July 2009, vest based on the total shareholder return (TSR) of the company over a three year period as
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 expressed as a percentage of the opening value of the investment for each period:
Retirement allowances for Directors
non-Executive Directors do not receive retirement allowances. Superannuation contributions, as required under the Australian
superannuation guarantee legislation, are paid on non-Executive Directors’ remuneration and are included in the fees above.
Executive pay
The executive pay and reward framework has three components:
n base pay and non-cash benefits;
n short-term incentives; and
n
long-term incentives through participation in executive and employee share-based plans.
The combination of these comprises an executive’s total remuneration.
Base pay and non-cash benefits
An executive’s base pay comprises a fixed cash salary plus superannuation. Executives have an opportunity to salary sacrifice amounts
from their fixed salary towards a series of prescribed benefits and any associated fringe benefits tax.
Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay is reviewed annually in
conjunction with external consultants to ensure it 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.
Executives do not receive non-cash benefits in addition to base pay except in isolated circumstances as approved by the Board or the
remuneration committee.
Short-term incentives
Should the Group achieve the profit target set by the Board each year, a pool of short-term incentive funds (“STi”) is made available for
allocation during the annual review. Any amounts awarded as STi are payable in cash following the signing of the annual report each year.
using a profit target ensures variable reward is available only when value has been created for shareholders and when this value has been
achieved in a manner consistent with the business plan. in addition, some executives have a target STi opportunity based solely on
achieving a key performance indicator (“KPi”) related to the accountabilities of the role and its impact on the organisation’s or business
unit’s performance. These KPi’s are set annually by the executive and the chief Executive Officer.
for senior executives, the maximum STi opportunity ranges from 20% to 52% of their cash salary. However, from time to time, bonuses are
paid outside this structure in relation to special projects or in special circumstances.
Each year, the remuneration committee reviews the appropriate profit target with which the STi plan will be linked and the level of payout if
targets are met. This includes setting any maximum payout under the STi plan and the minimum levels of profit performance to trigger
payment of STi. The STi payments may be adjusted up or down in line with under or over achievement against the target performance
levels at the discretion of the remuneration committee.
year
2006
2007
2008
2009
2010
tsr
117%
34%
-61%
-20%
55%
Grants made under the PSP after 30 June 2009 vest based on service requirements.
details of remuneration
Amounts of remuneration
Details of the remuneration of the Directors and 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 the Group are the chief Executive Officer, M i Russell, the company
Secretary, D M Hoskins, and those executives serving on the executive committee during the year:
n S R Mitchell – Chief Financial Officer
n n c Rose-innes – Chief Information Officer
n D l Ennis – Head of Franchise Distribution
n M n Writer – Head of Human Resources (to 28 April 2010)
n S c Dehne – National Manager, Non-Core (from 28 July 2009)
n K Rampal – Head of LoanKit (from 1 December 2009)
in addition, J M Stevenson, Financial Controller, must be disclosed under the Corporations Act 2001 as he is among the 5 highest
remunerated Group executives.
Subsequent to year end, D l Ennis resigned from the company effective 2 July 2010.
6
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
7
short-term benefits
Post-
employment
benefits
long-term
benefits
share-
based
payments
non-
monetary
benefits
$
super-
annuation
$
long
service
leave
$
termination
benefits
$
shares,
rights &
options1
$
Directors’ Report (continued)
Key management personnel
2010
name
Non-Executive Directors
P D Ritchie
Chairman
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
cash
salary and
fees
$
110,000
60,000
60,000
60,000
60,000
60,000
sti
$
–
–
–
–
–
–
–
–
–
–
–
–
9,900
5,400
5,400
5,400
5,400
5,400
–
–
–
–
–
–
M i Russell 3
Chief Executive Officer
532,173
275,880
28,102
18,651
1,043
Other key management personnel
S R Mitchell 3
n c Rose-innes 3
D l Ennis 2,3
D M Hoskins
M n Writer
(from 1/7/09 to 28/4/10)
S c Dehne
(from 28/7/09 to 30/6/10)
K Rampal
(from 1/12/09 to 30/6/10)
236,132
249,626
249,200
111,615
138,312
73,852
73,364
77,340
–
–
145,298
27,699
109,490
–
Other Company and Group executives
J M Stevenson 3
181,595
29,970
–
–
–
–
–
–
–
–
15,426
15,405
15,576
–
524
1,521
(15,281)
–
13,147
(2,978)
12,583
–
–
–
14,676
7,155
total
$
119,900
65,400
65,400
65,400
65,400
65,400
–
–
–
–
–
–
99,587
955,436
17,493
343,427
42,410
382,326
(33,772)
293,063
–
111,615
(21,166)
127,315
7,577
193,157
–
109,490
15,339
248,735
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
3
Remuneration in the form of rights and options includes negative amounts for rights and options forfeited during the year.
D l Ennis’ employment terminated effective 2 July 2010, whereby her unvested shares lapsed.
Denotes one of the 5 highest paid executives of the company as required to be disclosed under the Corporations Act 2001.
Key management personnel
2009
name
Non-Executive Directors
P D Ritchie
Chairman
S J clancy
(from 18/5/09 to 30/6/09)
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
Executive Directors
P A lahiff 2
Managing Director
(from 1/7/08 to 19/5/09)
M i Russell 4
Chief Executive Officer
(from 23/4/09- 30/6/09)
cash
salary and
fees
$
110,000
7,308
60,000
60,000
60,000
60,000
505,758
100,843
Other key management personnel
D l Ennis 3
S R Mitchell
(from 27/2/09 to 30/6/09)
230,422
89,158
n c Rose-innes 3
223,600
M n Writer
D M Hoskins 3,5
M c newton 3
(from 1/7/08 to 15/5/09)
A D crossley
(from 1/7/08 to 27/2/09)
l A Wyatt
(from 1/7/08 to 17/10/08)
W J O’Rourke
(from 1/7/08 to 17/10/08)
161,200
12,090
162,463
–
235,973
40,500
186,174
57,022
59,383
Other Company and Group executives
D A Player 3
(from 1/7/08 to 12/6/09)
175,171
sti
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
short-term benefits
Post-
employment
benefits
long-term
benefits
non-
monetary
benefits
$
super-
annuation
$
long
service
leave
$
termination
benefits
$
share-
based
payments
shares,
rights &
options1
$
–
–
–
–
–
–
9,900
658
5,400
5,400
5,400
5,400
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
total
$
119,900
7,966
65,400
65,400
65,400
65,400
9,405
45,518
34,078
735,928
(443,439)
887,248
–
–
–
–
–
–
–
–
–
–
–
8,507
–
20,631
7,490
20,124
15,596
9,762
6,755
–
632
1,719
9,845
–
–
–
–
–
32,918
142,268
33,796
291,604
–
96,648
23,707
268,063
24,653
215,258
120,365
6,748
309,183
24,883
12,915
230,122
(7,698)
536,695
16,756
(4,050)
93,600
(69,167)
223,313
5,132
(1,125)
33,225
10,299
104,553
5,344
6,559
136,545
12,220
220,051
15,765
11,917
83,378
32,744
318,975
1
2
3
4
5
Remuneration in the form of rights and options includes negative amounts for rights and options forfeited during the year.
P A lahiff’s employment terminated effective 1 July 2009, whereby his unvested options lapsed. His termination benefits include
payment in lieu of notice, payment for past services.
Denotes one of the 5 highest paid executives of the company as required to be disclosed under the Corporations Act 2001.
M i Russell received 2.5m options in the 1 May 2009 grant in conjunction with accepting the role of chief Executive Officer as of
23 April 2009.
D M Hoskins ceased to be an employee on 31 December 2008 after which his services were provided through The Governance
Practice Pty limited. Payments to this entity are included in the above table.
8
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
9
Directors’ Report (continued)
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
2010
2009
2010
2009
2010
2009
Key management personnel of Group
M i Russell
S R Mitchell
n c Rose-innes
D l Ennis
D M Hoskins
M n Writer
S c Dehne
K Rampal
61%
73%
70%
74%
100%
100%
82%
100%
77%
100%
91%
88%
98%
83%
–
–
29%
22%
19%
26%
–
–
14%
–
Other Company and Group executives
J M Stevenson
82%
94%
12%
–
–
–
–
–
6%
–
–
–
10%
5%
11%
–
–
–
4%
–
6%
23%
–
9%
12%
2%
11%
–
–
6%
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 chief Executive Officer M i Russell and other key management personnel, excluding
D M Hoskins and K Rampal, are set out in their respective letters of employment. The employment terms do not prescribe the duration of
employment for executives except for the chief Executive Officer who has a set term of employment of two years. The periods of notice
required to terminate employment are set out below:
n The employment contracts of Messrs Russell, Rose-innes, and Ms Mitchell are terminable by either the company or the executive
with three months notice.
n The employment contracts of Messrs Dehne, Stevenson, Writer and Ms Ennis are terminable by either the company or the executive
with four weeks notice.
Except as set out below, no provision is made for termination payments other than amounts paid in respect of notice of termination:
n Mr Russell’s employment terms provide that in the event of the sale of the company’s business or a corporate restructure, subject to
certain conditions relating to length of service, Mr Russell will become entitled to a severance payment equivalent to 6 months base
salary, less any amounts paid in respect of notice of termination under the terms of his employment.
The services of the company Secretary D M Hoskins are provided through The Governance Practice Pty limited on a contract that has a
term of one year.
K Rampal provides services to the Group pursuant to contracts for the purchase of the assets constituting the loanKit business from freeol
Pty ltd of which he is a Director. These contracts require services to be provided for a set term ending 31 December 2011.
share-based compensation
Executive Performance Option Plan (EPOP)
The Executive Performance Option Plan may be offered on an annual basis to eligible executives as determined by the Board. The details
of each offer may differ as to the particulars, especially with regard to performance criteria and performance period. Participation in the
EPOP provides one component of the long-term incentive available to the selected executives within their aggregate remuneration package.
under the terms of the EPOP, options are offered over one ordinary share of Mortgage choice limited and 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. in the year ending
30 June 2010, no options were offered.
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:
n
n
ten years after the date of offer;
three months, or such other period determined by the Board, after the participant ceases employment for a reason other than a
‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or any other reason determined by the Board); and
n
twelve months, or such other period determined by the Board, after the participant ceases employment for a ‘qualifying reason’.
When a participant ceases to be employed by the company prior to the end of the performance period, 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, options will vest on
a pro-rata basis or in their entirety for certain senior executives.
if the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of harassment or discrimination, is in
serious breach of any duty to Mortgage choice, or, in the Board’s reasonable opinion, has brought Mortgage choice into serious disrepute,
any options held by the participant will lapse.
The terms and conditions of each grant of options affecting remuneration in the current year are as follows:
grant date
1 May 2009
1 May 2009
1 May 2009
date vested and exercisable
from 22 May 2009
from 22 April 2010
from 22 April 2011
The above grants vest based on service requirements.
expiry date
1 May 2019
1 May 2019
1 May 2019
exercise
price
$0.76
$0.76
$0.76
value per
option at
grant date
$0.03
$0.03
$0.03
vested
100%
100%
n/a
Offers made under 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 provided as remuneration to key management personnel of the company and the Group are set out below.
further information on the options is set out in note 32 to the financial statements.
name
M i Russell
number of options
granted during the year
value of options
at grant date*
number of options
vested during the year
number of options
lapsed during the year
value at lapse
date**
-
–
800,000
–
–
* The value at grant date calculated in accordance with AASB 2 Share-based Payments of options granted during the year as part of
remuneration.
** The value at lapse date of options that lapsed during the year because a vesting condition was not satisfied is calculated assuming the
condition was satisfied.
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 8 and 9 of this report. fair values at grant date are independently
determined using a Monte carlo simulation model utilising a BlackScholes 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 the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest
rate for the term of the option.
no options have been offered since the end of the year to the date of this report.
Performance Share Plan (“PSP”)
The PSP permits eligible employees as 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 managers and any other designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees 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
performance requirements and vesting scale applicable to offers under the PSP for years up to and including 30 June 2009 use TSR as the
basis of their performance criteria. The right to receive performance shares will lapse if the performance criteria have not been met at the
end of the performance period. Offers made under the PSP for the year ended 30 June 2010 are based on service requirements.
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 performance period. Participants are not required to pay for shares allocated to them under the PSP. until the
shares are released from the PSP, they will remain subject to the plan rules including the ‘holding lock’ applied pursuant to those rules and
the participant is restricted from trading in those shares.
Shares will not be released from the PSP and will remain subject to a holding lock until a notice of Withdrawal 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.
10
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
11
Directors’ Report (continued)
A notice of Withdrawal may be lodged by a participant following the earlier of:
n 1 July in the year (being a period commencing 1 July and ending 30 June) that is ten years after the year in which the offer is made
and is accepted by the participant;
n
the participant ceasing to be an employee of the company;
n a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the company) occurring; or
n
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). Where a participant ceases to be employed by the company prior to the end of the performance period, other than
because of a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or 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.
The terms and conditions of each offer of performance shares affecting remuneration in this or future reporting periods are as follows:
offer date
31 August 2007
31 August 2008
9 December 2009
9 December 2009
9 December 2009
value per performance share at offer date
$2.20
$1.00
$1.24
$1.24
$1.24
vesting date
31 August 2010
31 August 2011
31 August 2011
31 August 2012
31 August 2013
Details of performance shares in the company provided as remuneration to each Director and key management personnel are set out
below. further information on the performance shares is set out in note 32 to the financial statements.
number of
performance share
rights granted
during the year
value of
performance share
rights at grant date*
number of
performance shares
rights vested during
the year
number of
performance shares
rights lapsed during
the year
value at lapse
date**
name
Key management personnel
M i Russell
S R Mitchell
n c Rose-innes
D l Ennis
M n Writer
S c Dehne
239,250
296,670
62,450
62,050
54,500
36,350
27,050
77,438
76,942
67,580
45,074
33,542
Other Company and Group executives
J M Stevenson
23,700
29,388
–
–
–
–
–
–
–
–
–
–
143,950
88,200
–
–
–
–
161,816
106,134
–
6,350
7,080
* The value at grant date calculated in accordance with AASB 2 Share-based Payments of share rights granted during the year as part of
remuneration.
** The value at lapse date of share rights that lapsed during the year because a vesting condition was not satisfied is calculated assuming
the condition was satisfied.
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 BlackScholes option pricing model framework that takes into account the term of the rights, the vesting
criteria, the exercise price (zero), the expected price volatility of the underlying share, the expected dividend yield (acknowledging that
dividends will be paid to participants from the date of grant) and the risk-free interest rate for the term of the share rights. There are no
performance hurdles associated with the 2010 grant.
The model inputs for performance shares granted during the year ended 30 June 2010 included:
(a)
(b)
(c)
(d)
(e)
(f)
share rights are granted for no consideration and vest over a period of four years;
grant date: 9 December 2009 (2009 – 11 September 2008);
share price at grant date: $1.25 (2009 – $1.12);
expected price volatility of the company’s shares: 40% (2009 – 40%);
expected dividend yield: 9.2% (2009 – 10.0%); and
risk-free interest rate: 5.25% (2009 – 5.54%).
Shares provided on vesting of performance share entitlements
no shares were issued in the company in the year ended 30 June 2010 as a result of the vesting of performance share entitlements.
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 8 – 9 and 11–12, 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 or
performance criteria is set out below. The share rights and options vest at the end of a set period of up to four 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.
sti
share rights and options
forfeited
%
financial
year
granted
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
$
name
M i
Russell
S R
Mitchell
n c
Rose-innes
D l
Ennis
M n
Writer
S c
Dehne
J M
Stevenson
Paid
%
100
100
100
100
–
–
–
–
–
100
100
100
–
–
2010
2010
2010
2009
2009
2010
2010
2010
2010
2010
2010
2009
2008
2007
2010
2009
2008
2007
2010
2009
2008
2007
2010
2010
2010
2010
2010
2010
2009
2008
2007
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
100
30/6/2014
30/6/2013
30/6/2012
30/6/2011
–
30/6/2014
30/6/2013
30/6/2012
30/6/2014
30/6/2013
30/6/2012
30/6/2012
30/6/2011
–
–
–
–
–
–
–
–
–
30/6/2014
30/6/2013
30/6/2012
30/6/2014
30/6/2013
30/6/2012
30/6/2012
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
–
87,078
78,656
66,919
10,837
–
21,946
20,531
17,468
21,806
20,400
17,356
9,322
2,898
–
–
–
–
–
–
–
–
–
9,506
8,893
7,566
8,329
7,792
6,629
4,578
687
–
12
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
13
n costs and expenses incurred by relevant Directors and Officers in defending any proceedings; and
3.
taxation services
n Other liabilities that may arise from their position, with the exception of conduct involving dishonesty, wrongful acts, or improper use
Pricewaterhousecoopers Australian firm:
Directors’ Report (continued)
shares under option
unissued ordinary shares of Mortgage choice limited under option at the date of this report are as follows:
date options granted
1 May 2009
expiry date
1 May 2019
exercise price
number under option
$0.76
2,500,000
no option holder has any right under the options to participate in any other share issue of the company or any other Group entity.
shares provided on exercise of remuneration options
no options issued to key management personnel were exercised during the year. Options issued to former employees granted on
10 August 2004 were exercised during the year at $1.05 per share. These options were satisfied by issuing 323,200 ordinary shares.
insurAnce of directors And officers
insurance premiums were paid for the year ended 30 June 2010 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:
of information or position to gain personal advantage.
Since the end of the previous financial year, the company has entered into deeds of access, insurance and indemnity with the chief
Executive Officer, the chief financial Officer and company Secretary. The indemnity is subject to the restrictions prescribed in the
Corporations Act 2001. Subject to the terms of the deed, it also gives each executive a right of access to certain documents and requires
the company to maintain insurance cover for the executives.
no indemnities were paid to current or former officers or auditors during or since the end of the year.
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.
non-Audit services
The company may decide to employ the auditor on assignments in addition to their statutory audit duties where the auditor’s expertise and
experience with the company or Group are important.
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.
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.
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:
Other assurance services
Total remuneration for audit-related services
Tax compliance services
Other tax services
Total remuneration for taxation services
Total remuneration for non-audit services
consolidated
2010
$
2009
$
193,214
193,214
227,940
227,940
8,000
8,000
7,500
7,500
23,700
30,610
54,310
62,310
24,885
13,205
38,090
45,590
Auditor’s indePendence declArAtion
A copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 20.
rounding
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.
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
25 August 2010
14
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ REPORT
15
corporate
Governance
Statement
for the year ended 30 June 2010
Mortgage choice limited has in place corporate governance
practices to ensure the company and the Group are effectively
directed and managed, risks are monitored and assessed and
appropriate disclosures are made.
A statement of the company’s full corporate governance practices
is set out below. The company considers that it complies with the
August 2007 ASX corporate Governance Principles and
Recommendations.
PrinciPle 1:
lAy solid foundAtions for MAnAgeMent And oversight
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:
n overseeing the company, including its control and
accountability systems;
n appointing and removing the chief Executive Officer;
n monitoring the performance of the chief Executive Officer;
n monitoring senior management’s implementation of strategy,
and ensuring appropriate resources are available;
n
reporting to shareholders;
n providing strategic advice to management;
n approving management’s corporate strategy and performance
objectives;
n determining and financing dividend payments;
n approving and monitoring the progress of major capital
expenditure, capital management, acquisitions and
divestitures;
n approving and monitoring financial and other reporting;
n
n
reviewing and ratifying systems of risk management, internal
compliance and control, and legal compliance to ensure
appropriate compliance frameworks and controls are in place;
reviewing and overseeing the implementation of the
company’s corporate code of conduct and code of conduct
for Directors and senior executives;
n approving charters of Board committees;
n monitoring and ensuring compliance with legal and regulatory
requirements and ethical standards and policies; and
n monitoring and ensuring compliance with best practice
corporate governance requirements.
Responsibility for day-to-day management and administration of the
company is delegated by the Board to the chief Executive Officer
and the executive team.
16
MORTGAGE cHOicE AnnuAl REPORT 2010
PrinciPle 2:
structure the BoArd to Add vAlue
The Board comprises two non-Executive Directors and four
independent non-Executive Directors including Peter Ritchie
(chairman), Steve Jermyn and Deborah Ralston, who were
appointed as non-Executive Directors in the period prior to the
company’s listing on the ASX, and Sean clancy, who was
appointed in May 2009. These individuals bring a long history of
public company, operational and franchising experience with them
and assist in overseeing the corporate governance of the company.
The Board operates in accordance with the broad principles set out
in its charter which is available in the Shareholders section of the
company’s website at www.mortgagechoice.com.au
Board size, composition and independence
The charter states that:
n
there must be a minimum of five Directors and a maximum of
seven Directors;
n
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;
n
the nomination committee is responsible for recommending
candidates for appointment to the Board; and
n 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.
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:
n
is not a substantial shareholder of the company or an officer
of, or otherwise associated directly with, a substantial
shareholder of the company;
n 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;
n 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;
n
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;
n has no material contractual relationship with the company or
another Group member other than as a Director of the
company;
n has not served on the Board for a period which could, or
could reasonably be perceived to, materially interfere with the
Director’s ability to act in the best interests of the company;
and
n
is free from any interest in any business or other relationship
which could, or could reasonably be perceived to, materially
interfere with the Director’s ability to act in the best interests of
the company.
All Directors are required to complete an independence
questionnaire.
independent professional advice
Board committees and individual Directors may seek independent
external professional advice for the purposes of proper
performance of their duties.
Performance assessment
The performance of the Board, the Directors and key executives is
reviewed annually. The nomination committee is responsible for
reviewing:
n
n
n
the Board’s role;
the processes of the Board and Board committees;
the Board’s performance; and
n 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 that has
been adopted by the Board is available in the Shareholders 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 2010.
Board committees
Mortgage choice has three Board committees comprising the
remuneration committee, the audit committee and the nomination
committee. These committees serve to support the functions of the
Board and will make recommendations to Directors on issues
relating to their area of responsibility.
the 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 Shareholders
section of the company’s website at www.mortgagechoice.com.au
PrinciPle 3:
ProMote ethicAl And resPonsiBle decision MAking
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:
n articulate the high standards of honesty, integrity, ethical and
law-abiding behaviour expected of Directors and senior
executives;
n encourage the observance of those standards to protect and
promote the interests of shareholders and other stakeholders
(including franchisees, employees, customers, suppliers and
creditors);
n guide Directors and senior executives as to the practices
thought necessary to maintain confidence in the company’s
integrity; and
n 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 in the Shareholders section of the company’s website at
www.mortgagechoice.com.au
PrinciPle 4:
sAfeguArd integrity in finAnciAl rePorting
the audit committee
The audit committee provides advice and assistance to the Board
in fulfilling the Board’s responsibilities relating to:
n financial reporting;
n
the application of accounting policies;
n business policies and practices;
n
n
legal and regulatory compliance; and
internal risk control and management systems.
The audit committee comprises Steve Jermyn (chairman),
Sean clancy, Peter Higgins and Deborah Ralston.
The objective of the audit committee is to:
n maintain and improve the quality, credibility and objectivity of
the financial accountability process; and
n provide a forum for communication between the Board and
senior financial and compliance management.
The audit committee charter is available in the Shareholders section
of the company’s website at www.mortgagechoice.com.au.
cORPORATE GOVERnAncE STATEMEnT
17
corporate Governance Statement (continued)
external auditor
The company has adopted procedures for the selection and
appointment of the external auditor which are available in the
Shareholders 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.
PrinciPle 5:
MAke tiMely And BAlAnced disclosure
continuous disclosure
The company has adopted a market disclosure protocol.
The objective of this protocol is to:
n ensure the company immediately discloses all price-sensitive
information to ASX in accordance with the ASX listing Rules
and the Corporations Act 2001 (Cth);
n ensure officers and employees are aware of the company’s
continuous disclosure obligations; and
n establish procedures for:
–
–
–
–
the collection of all potentially price-sensitive information;
assessing if information must be disclosed to ASX under
the ASX listing Rules or the Corporations Act 2001 (Cth);
releasing to ASX information determined to be
price-sensitive information and to require disclosure; and
responding to any queries from ASX (particularly queries
under listing Rule 3.1B).
The protocol is carried out through a market disclosure committee
comprised of management representatives. The market disclosure
committee is responsible for:
n ensuring compliance with continuous disclosure obligations;
n establishing a system to monitor compliance with continuous
disclosure obligations and this protocol;
n monitoring regulatory requirements so that this protocol
continues to conform with those requirements;
18
MORTGAGE cHOicE AnnuAl REPORT 2010
n monitoring movements in share price and share trading to
identify circumstances where a false market may have
emerged in company securities; and
n 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.
PrinciPle 6:
resPect the rights of shAreholders
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:
n communicate effectively with shareholders;
n give shareholders ready access to balanced and
understandable information about the company and its
corporate goals; and
n make it easy for shareholders to participate in general
meetings.
information is communicated to shareholders through ASX
announcements, the company’s annual report, the 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 Shareholders section of the company’s website at
www.mortgagechoice.com.au
PrinciPle 7:
recognise And MAnAge risk
The company has adopted and endorsed a compliance policy.
The policy is a commitment to:
n promote a culture of compliance throughout the company and
franchise network;
n create an understanding of the relevant laws at all levels;
n minimise the possibility of a contravention of the law and
manage any legal risk;
n enhance the company’s corporate image and customer
service; and
n 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, national consumer credit Protection Act) is covered.
All staff and the Board are required to complete all modules and
must repeat the program at prescribed intervals. The program has
also been 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 the
company. 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:
n analysing all aspects of the business to determine what
operational risks are faced, either on a continuous or isolated
basis;
n having determined these risks, assessing each of them to
allocate a rating based upon the likelihood of occurrence and
consequence of occurrence;
n 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
n 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 has reported to the Board that risk management and
internal control systems effectively manage the company’s material
business risks.
corporate reporting
The chief Executive Officer 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.
PrinciPle 8:
reMunerAte fAirly And resPonsiBly
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:
n has coherent remuneration policies and practices to attract
and retain executives and Directors who will create value for
shareholders;
n observes those remuneration policies and practices; and
n
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 Shareholders
section of the company’s website at www.mortgagechoice.com.au
cORPORATE GOVERnAncE STATEMEnT
19
financial Report
for the year ended 30 June 2010
The financial statements were
authorised for issue by the
Directors on 25 August 2010.
The company has the power
to amend and reissue the
financial statements.
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
statements and other
information are available in the
Shareholders section of
company’s website:
www.mortgagechoice.com.au
These financial statements are
the consolidated financial
statements of the consolidated
entity consisting of Mortgage
choice limited and its
subsidiaries. The financial
statements are 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 10, 100 Pacific Highway
north Sydney nSW 2060
A description of the nature of
the consolidated entity’s
operations and its principal
activities is included in the
Directors’ report, which
is not part of these financial
statements.
20
MORTGAGE cHOicE AnnuAl REPORT 2010
AnnuAl finAnciAl REPORT
21
contents
22/ consolidated income statement 22/ consolidated statement of comprehensive income
23/ consolidated balance sheet 24/ consolidated statement of changes in equity
25/ consolidated statement of cash flows 26/ notes to the consolidated financial statements
61/ Directors’ declaration 62/ independent audit report to members of Mortgage choice limited
consolidated
income Statement
for the year ended 30 June 2010
consolidated
Balance Sheet
for the year ended 30 June 2010
revenue from continuing operations
Other income
Expenses from continuing operations
Sales
Technology
Marketing
finance
corporate
finance costs
Profit before income tax
income tax expense
Net profit attributable to the owners of Mortgage Choice Limited
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
notes
5
6
7
2010
$’000
2009
$’000
170,513
191,993
815
902
(103,417)
(119,809)
(4,677)
(8,378)
(1,800)
(4,709)
(14,879)
33,468
(9,989)
23,479
Cents
19.7
19.5
(5,356)
(8,941)
(2,038)
(5,449)
(13,157)
38,145
(11,296)
26,849
cents
22.6
22.6
8
31
31
The above consolidated income statement should be read in conjunction with the accompanying notes.
consolidated Statement of
comprehensive income
as at 30 June 2010
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners
of Mortgage Choice Limited
notes
2010
$’000
2009
$’000
23,479
26,849
–
–
23,479
26,849
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
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
Total non-current liabilities
Total liabilities
Net assets
equity
contributed equity
Reserves
Retained profits
Total equity
notes
2010
$’000
2009
$’000
9
10
11
12
13
14
15
16
17
18
19
20
21(a)
21(b)
10,042
83,315
93,357
5,334
82,403
87,737
184,326
153,874
1,759
813
3,516
190,414
283,771
58,372
2,664
539
61,575
114,795
29,615
507
144,917
206,492
77,279
1,207
597
75,475
77,279
2,046
675
2,725
159,320
247,057
57,631
349
425
58,405
96,331
25,316
609
122,256
180,661
66,396
808
471
65,117
66,396
22
MORTGAGE cHOicE AnnuAl REPORT 2010
incOME STATEMEnT / BAlAncE SHEET
23
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
consolidated
Statement of
changes in Equity
as at 30 June 2010
consolidated
Statement of
cash flows
for the year ended 30 June 2010
Balance at 1 July 2008
437
1,291
53,393
55,121
cash flows from operating activities
contributed
equity
reserves
retained
earnings
notes
$’000
$’000
$’000
total
$’000
notes
2010
$’000
2009
$’000
–
26,849
26,849
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Total comprehensive income for the year as reported
in the 2009 financial statements
Transactions with equity holders in their capacity as
owners:
contributions of equity net of transaction costs
Dividends paid
Employee share options – value of employee services
32
22
Balance at 30 June 2009
Total comprehensive income for the year as reported
in the 2010 financial statements
Transactions with equity holders in their capacity as
owners:
contributions of equity net of transaction costs
32
Dividends paid
Employee share options – value of employee services
–
–
–
–
–
Balance at 30 June 2010
371
(639)
–
–
(15,125)
(181)
–
371
808
(820)
(15,125)
471
65,117
(268)
15,125)
(181)
(15,574)
66,396
–
23,479
23,479
399
(59)
–
340
–
–
(13,121)
(13,121)
185 –
185
399
126
(13,121)
(12,596)
1,207
597
75,475
77,279
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
30
interest received from trailing commissions
interest paid on trailing commissions
income taxes paid
Net cash inflow from operating activities
cash flows from investing activities
Payments for property, plant, equipment and intangibles
Payments for acquisition of loanKit business
Proceeds from sale of plant and equipment
interest received from cash and deposits at call
Net cash (outflow) from investing activities
cash flows from financing activities
Proceeds from sale of shares
Dividends paid to company’s shareholders
Net cash (outflow) from financing activities
net increase/(decrease) in cash and cash equivalents
cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of year
9
The above consolidated statement cash flows should be read in conjunction with the accompanying notes.
129,402
(116,251)
13,151
24,068
(14,879)
(3,543)
18,797
(1,180)
(500)
–
373
(1,307)
339
(13,121)
(12,782)
4,708
5,334
10,042
133,540
(121,154)
12,386
20,689
(13,157)
(6,257)
13,661
(2,092)
–
4
404
(1,684)
–
(15,125)
(15,125)
(3,148)
8,482
5,334
24
MORTGAGE cHOicE AnnuAl REPORT 2010
STATEMEnT Of cHAnGES in EQuiTy / STATEMEnT Of cASH flOWS
25
notes to the
consolidated
financial
Statements
for the year ended 30 June 2010
note 1
Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity
consisting of Mortgage choice limited and its subsidiaries.
A.
BAsis of PrePArAtion
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards – Reduced
Disclosure Requirements, other authoritative pronouncements of the Australian Accounting Standards Board, urgent issues Group
interpretations and the Corporations Act 2001.
compliance with ifrs
The consolidated financial statements of the Group have been prepared in accordance with international financial Reporting
Standards (ifRS) as issued by the international Accounting Standards Board (iASB).
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 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.
financial statement presentation
The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The
revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity.
All non-owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Group
had to change the presentation of its financial statements. comparative information has been represented so that it is also in
conformity with the revised standard.
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 2010 and the results of all subsidiaries for the year then ended. Mortgage choice
limited and its subsidiaries together are referred to in these financial statements as the Group or the consolidated entity.
Subsidiaries are all those 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 acquisition method of accounting is used to account for business combinations 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.
26
MORTGAGE cHOicE AnnuAl REPORT 2010
(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.
Shares held by the employee share scheme are disclosed as treasury shares and deducted from contributed equity.
c.
segMent rePorting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating
segments, has been identified as the chief Executive Officer.
changes in accounting policy
The Group has adopted AASB 8 Operating Segments from 1 July 2009, which replaces AASB 114 Segment Reporting. The new
standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for
internal reporting purposes. This has resulted in reporting in a manner that is consistent with the internal reporting provided to the
chief operating decision maker. This format is disclosed in note 4.
d.
revenue recognition
Revenue is measured at the fair value of the consideration received or receivable.
The Parent entity provides loan origination services through its franchise network and receives origination commission on the settlement
of loans. 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 as no additional services are required to receive the entitled funds. Additionally, the
Parent entity earns income from the sale of franchises and franchisee services. Other companies in the Group earn service fees by
processing commissions for contracted brokers and provide software services. Revenue is recognised as the service is performed.
Revenue from sale of services is recognised as follows:
(i) origination commissions
Origination commissions received by the company are recognised as revenue on settlement of the loan. commissions may be “clawed
back” by lenders at a later date as per their individual policies. These clawbacks are netted against revenue at the time incurred.
(ii) trailing commissions
The company receives trailing commissions from lenders over the life of the settled loans in its loan book based on outstanding
balance. The company also makes trailing commission payments to franchisees based on the outstanding loan book balance
of the individual franchisees.
On initial recognition at settlement, trailing commission revenue and the related receivable are recognised at fair value being the
net present value of the expected future trailing commissions to be received. An associated expense and payable to the
franchisees are also recognised initially measured at fair value being the net present value of the expected future trailing
commission payable to franchisees.
Subsequent to initial recognition and measurement, both the trailing commission receivable and payable are measured at
amortised cost. The carrying amounts of the receivable and payable are adjusted to reflect actual and revised estimated cash
flows by recalculating the net present value of estimated future cash flows at the original effective interest rate. Any resulting
adjustment to the carrying value 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 company and comprises licence fees and contributions for
training and franchise consumables. licence fees are partially repayable should franchisees terminate their franchise agreement
in accordance with a repayment schedule as defined in the agreement. licence fee income is recognised over a four year
period in accordance with this schedule. contributions for training and consumables are recognised as revenue on receipt.
licence fees which may be repayable to franchisees at the balance sheet date are included in liabilities.
(iv) service fee income
Other companies in the Group also provide services to mortgage brokers by collecting origination and trailing commissions and
processing them for the broker in exchange for a fee, as well as providing software and other services. fees for these services
are recognised at the time the service is provided.
(v)
interest income
interest income is recognised 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.
(vi) other income
Other income includes contributions from lenders towards conferences and workshops which are recognised as income in the
period the conference or workshop is held. Also included in this category are other non-operating revenues recognised in the
period to which the income relates.
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
27
note 1. Summary of significant accounting policies (continued)
e.
incoMe tAx
The income tax expense for the period is the tax payable on the current period’s taxable income, based on the applicable income
tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.
The current income tax charge is calculated on the basis of the tax laws substantively enacted at the end of the reporting period.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is
subject to interpretation. it establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
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.
Mortgage choice limited and its wholly-owned controlled entities have implemented the tax consolidation legislation. As a
consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the
consolidated financial statements.
current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. in this case the tax is also recognised in other comprehensive or directly in equity, respectively.
(i)
investment allowances
companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment
allowances). The Group accounts for such allowances as tax credits which means that the allowance reduces income tax
payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that may be carried forward.
(ii) 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 current tax liabilities or
assets, and deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the
tax consolidated group.
f.
leAses
leases of property, plant and equipment, where the Group as lessee 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 not transferred to the Group as lessee 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 acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or
other assets are acquired. The consideration transferred for an acquisition comprises the fair values of the assets transferred, the
liabilities incurred and the equity interests issued by the Group. The consideration also includes the fair value of any contingent
28
MORTGAGE cHOicE AnnuAl REPORT 2010
consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition related costs are
expensed as incurred. identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are,
with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group
recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share in the
acquiree’s net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair
value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is
recorded as goodwill. if those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the
measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and conditions.
contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit or loss.
change in accounting policy
A revised AASB 3 Business Combinations became operative on 1 July 2009. While the revised standard continues to apply the
acquisition method to business combinations, there have been some significant changes.
All purchase consideration is now recorded at fair value at the acquisition date. contingent payments classified as debt are
subsequently remeasured through profit or loss. under the Group’s previous policy, contingent payments were only recognised when
the payments were probable and could be measured reliably and were accounted for as an adjustment to the cost of acquisition.
Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and therefore
included in goodwill. non-controlling interests in an acquiree are now recognised either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. under the
previous policy, the non-controlling interest was always recognised at its share of the acquiree’s net identifiable assets.
if the Group recognises previous acquired deferred tax assets after the initial acquisition accounting is completed there will no longer be
any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the Group’s net profit after tax.
iMPAirMent of Assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment
or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets 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 have suffered impairment are reviewed for possible
reversal of that impairment at each reporting date.
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. Overdrafts are shown in borrowings in
current liabilities on the balance sheet.
trAde receivABles
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment. Trade receivables are generally due in 30 days.
collectability of 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. 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. cash flows
relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is
recognised in the income statement in other expenses.
trAiling coMMissions receivABle
Receivables related to trailing commissions are recognised in accordance with the revenue recognition policy outlined in note 1(d).
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, reevaluates this designation at each reporting date.
h.
i.
J.
k.
l.
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
29
note 1. Summary of significant accounting policies (continued)
s.
eMPloyee Benefits
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 twelve months after the balance sheet date which are
classified as noncurrent assets. loans and receivables are included in trade and other receivables in the balance sheet (notes 10 and 11).
M.
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 or, in the case of leasehold improvements , the shorter lease term as follows:
Office equipment
computer equipment
5-10 years
3-4 years
furniture and fittings
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.
n.
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).
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.
trAiling coMMissions PAyABle
Payables related to trailing commissions are recognised in accordance with the revenue recognition policy outlined in note 1(d).
Borrowing costs
Borrowing costs are recognised as expenses.
Provisions
Provisions for legal claims and make good obligations are recognised when the Group has a present legal or constructive obligation
as a result of past events, it is probable 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.
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.
o.
P.
q.
r.
short-term obligations
liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months after
the end of the period in which the employees render the related service, are recognised in respect of employees’ services up to the
end of the reporting period and are measured at the amounts expected to be paid. The liability for annual leave is included in
provisions. The liability for all other short-term employee benefits are included in trade and other payables.
other long-term employee benefit obligations
The liability for long service leave and annual leave, which is not expected to be settled within twelve months after the end of the
period in which the employees render the related service, is recognised in the provisions and measured as the present value of
expected future payments to be made in respect of services provided by employees up to the end of the reporting period 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.
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.
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. information relating to these schemes is set out in note 32.
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 is recognised as an employee benefit expense with a corresponding increase in equity.
The total amount to be expensed is determined by reference to the fair value of the options and share rights granted, which includes
any market performance conditions but excludes the impact of any service and non-market performance vesting conditions and the
impact of any non-vesting conditions.
non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense
is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the
end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing
vesting conditions. it recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding
adjustment to equity.
The Mortgage choice Executive Performance Option Plan and share rights granted under the Mortgage choice Performance Share
Plan are administered by the Mortgage choice Performance Share Plan Trust; see note 1(b)(ii).
short term incentive plans
The Group recognises a liability and an expense where contractually obliged or where there is a past practice that it has created a
constructive obligation.
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 twelve
months after balance sheet date are discounted to present value.
t.
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 option for
the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.
if the entity reacquires its own equity instruments, for example, as the result of a share buyback, 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.
u.
dividends
Provision is made for the amount of any dividend declared, that is appropriately by the Directors on or before the end of the financial
year but not yet at the reporting date.
30
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
31
note 1. Summary of significant accounting policies (continued)
v.
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.
w. 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.
x.
y.
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 statements. Amounts in the financial statements have been rounded off in
accordance with that class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
new Accounting stAndArds And interPretAtions
certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting
periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.
AAsB 9 Financial Instruments and AAsB 2009-11 Amendments to Australian Accounting Standards arising from AAsB 9
(effective from 1 January 2013)
AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the Group’s
accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is
yet to assess its full impact. However, initial indications are that it may affect the Group’s accounting for its available-for-sale financial
assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to
equity investments that are not held for trading. fair value gains and losses on available-for-sale debt investments, for example, will
therefore have to be recognised directly in profit or loss. The Group has not yet decided when to adopt AASB 9.
revised AAsB 124 Related Party Disclosures and AAsB 2009-12 Amendments to Australian Accounting Standards
(effective from 1 January 2011)
in December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. it is effective for accounting periods beginning
on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related
party and removes the requirement for government-related entities to disclose details of all transactions with the government and
other government-related entities and clarifies and simplifies the definition of a related party. The Group will apply the amended
standard from 1 July 2011. When the amendments are applied, the Group will need to disclose any transactions between its
subsidiaries and its associates. However, there will be no impact on any of the amounts recognised in the financial statements.
AAsB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project and
AAsB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project
(effective from 1 July 2010/1 January 2011)
in June 2010, the AASB made a number of amendments to Australian Accounting Standards as a result of the iASB’s annual
improvements project. The Group will apply the amendments from 1 July 2010. it does not expect that any adjustments will be
necessary as a result of applying the revised rules.
AAsB 1053 Application of Tiers of Australian Accounting Standards and AAsB 2010-2 Amendments to Australian Accounting
Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013)
On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. under this framework, a
two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. Mortgage choice
limited is listed on the ASX and is not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure
Requirements. The two standards will therefore have no impact on the financial statements of the entity.
z.
PArent entity finAnciAl inforMAtion
The financial information for the parent entity, Mortgage choice limited, disclosed in note 33 has been prepared on the same basis
as the consolidated financial statements, except as set out below.
investments in subsidiaries, associates and joint venture entities
investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Mortgage
choice limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted
from the carrying amount of these investments.
tax consolidation legislation
Mortgage choice limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
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.
The entities intend to also enter into a tax funding agreement under which the wholly-owned entities fully compensate Mortgage
choice limited for any current tax payable assumed and are compensated by Mortgage choice limited for any current tax
receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Mortgage choice
limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the
wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim
funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the 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.
financial guarantees
Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the
fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.
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, interest rate swaps or other derivative instruments to hedge risk exposures. it does not operate internationally, does not have any
debt or significant interest rate exposure 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 holds the following financial instruments:
financial Assets
Current
cash and cash equivalents
Trade and other receivables
Non-current
Receivables
2010
$’000
2009
$’000
10,042
83,315
5,334
82,403
184,326
277,683
153,874
241,611
32
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
33
note 2. financial risk management (continued)
The Group’s policies in relation to financial risks to which it has exposure are detailed below.
A. MArket risk
interest rate risk
The Group’s main interest rate risk arises from cash and cash equivalents. At 30 June 2010 the weighted average interest rate on its
cash balances was 4.5% (2009 3.2%). if interest rates were to increase by 100 basis points, the Group’s after tax result would increase
by $68,000 (2009 $53,000). A decrease of 100 basis points would reduce the Group’s after tax result by $68,000 (2009 $53,000).
The Group does not have any borrowings and therefore is not exposed to interest rate risk on borrowings.
B.
credit risk
credit risk is assessed on a Group basis. it arises from cash and cash equivalents placed with banks as well as credit exposure to
financial institutions on the Group’s lender panel from which future trailing commissions are due. The majority of these financial
institutions are Authorised Deposit-taking institutions (ADis) and therefore regulated by the Australian Prudential Regulation Authority
(APRA) and are independently rated. This 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 become insolvent but
correspondingly, there is no legal requirement to pay out any trailing commissions due to brokers or franchisees that have not been
received. The risk profile of the Group is set out in the table below.
2010
ADis
non ADis
Total Receivable
2009
ADis
non ADis
Total Receivable
current Assets
non-current
Assets
standard &
Poor’s
credit rating
trade
receivables
nPv future
trailing
commissions
receivable
nPv future
trailing
commissions
receivable
$ 000’s
$ 000’s
$ 000’s
AA
A+
A
BBB+
BBB
not rated
A+
not rated
8,294
1,025
643
440
232
398
11,032
8
315
323
52,221
6,915
4,388
2,114
1,335
2,843
69,816
–
1,648
1,648
134,656
17,830
11,314
5,452
3,441
7,332
180,026
–
4,250
4,250
11,355
71,464
184,276
current Assets
non-current
Assets
standard &
Poor’s
credit rating
trade
receivables
nPv future
trailing
commissions
receivable
nPv future
trailing
commissions
receivable
AA
A+
A
BBB+
BBB
not rated
not rated
$ 000’s
$ 000’s
9,920
1
607
386
340
432
11,686
420
420
55,294
9
4,926
2,400
1,810
3,623
68,062
1,585
1,585
$ 000’s
122,164
19
10,883
5,303
3,998
8,005
150,372
3,502
3,502
12,106
69,647
153,874
The tables below analyse the Group’s financial assets into relevant maturity groupings based on the expected future cashflows. no financial
assets are past due or impaired.
At 30 June 2010
non-derivatives
Interest bearing
less than 6
months
6 – 12
months
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
$’000
$’000
over
5 years
$’000
total
cash flows
carrying
Amount
$’000
$’000
cash and cash equivalents
10,039
Non-interest bearing
cash and cash equivalents
Trade receivable
Other receivables
future trailing commissions
receivable
3
11,355
479
40,409
62,285
–
–
–
17
–
–
–
33
–
–
–
17
38,666
38,683
65,494
65,527
121,341
121,358
At 30 June 2009
non-derivatives
Interest bearing
less than 6
months
6 – 12
months
Between 1
and 2 years
Between 2
and 5 years
$’000
$’000
$’000
$’000
–
–
–
–
90,596
90,596
over
5 years
$’000
10,039
10,039
3
11,355
546
3
11,355
546
356,506
378,449
255,740
277,683
total
cash flows
carrying
Amount
$’000
$’000
cash and cash equivalents
5,431
Non-interest bearing
cash and cash equivalents
Trade receivable
Other receivables
future trailing commissions
receivable
3
12,106
550
38,650
56,740
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,431
5,431
3
12,106
550
3
12,106
550
35,114
35,114
58,840
58,840
104,248
104,248
76,660
76,660
313,512
331,602
223,521
241,611
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 financial liabilities into relevant maturity groupings based on the expected future cashflows.
contractual maturities
of financial liabilities
At 30 June 2010
non-derivatives
Non-interest bearing
Trade payables
Other payables
future trailing commissions
payable
less than 6
months
6 – 12
months
Between 1
and 2 years
Between 2
and 5 years
over
5 years
total
cash flows
carrying
Amount
$’000
$’000
$’000
$’000
$’000
$’000
$’000
10,754
2,976
25,175
38,905
–
54
23,391
23,445
–
32
40,142
40,174
–
28
–
–
75,347
75,375
56,273
56,273
10,754
3,090
220,328
234,172
10,754
3,090
159,323
173,167
34
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
35
note 2. financial risk management (continued)
contractual maturities of
financial liabilities
At 30 June 2009
non-derivatives
Non-interest bearing
Trade payable
Other payables
future trailing commissions
payable
less than 6
months
6 – 12
months
Between 1
and 2 years
Between 2
and 5 years
over
5 years
total
cash flows
carrying
Amount
$’000
$’000
$’000
$’000
$’000
$’000
$’000
10,723
2,666
24,704
38,093
–
–
–
–
–
–
–
–
22,083
22,083
36,963
36,963
65,072
65,072
47,794
47,794
10,723
2,666
196,616
210,005
10,723
2,666
140,553
153,942
d.
fAir vAlue estiMAtion
Refer note 3 critical Accounting Estimates and Judgements.
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 Group receives trailing commissions from lenders on settled loans over the life of the loan based on the loan book balance
outstanding. The Group also makes trailing commission payments to franchisees based on their individual 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, which requires the use of assumptions. The key assumptions to determine the fair value at balance
sheet date are the future run-off rate of the underlying loan portfolio, the discount rate and the percentage paid to franchisees. The
future run-off rate used is actually a series of rates applied to the underlying loans based primarily on their age at the date of
valuation. The weighted average life shown below is the result of the series of future run-off rates applied to the specific loan data at
the balance sheet date.
The determination of the assumptions to be used in the valuation is made by Management based primarily on two factors: an annual
assessment, with external actuaries, of the underlying loan portfolio including historical run-off rate analysis and consideration of current
and future economic factors. These factors are complex and the determination of assumptions requires a high degree of judgement.
The significant assumptions used in the valuation are listed below:
Weighted average loan life
Average discount rate
Percentage paid to franchisees
(10 year average)
2010
2009
3.9 years
3.5 years
10.9%
11.8%
62%
63%
if the series of run-off rates used in the valuation of trailing commissions receivable and payable were to differ by +/- 10% from
Management’s estimates, the impact on the balance sheet would be:
n an increase in net assets of $4.5 million (made up of increases in current assets of $0.5 million, non-current assets of $16.6
million, current liabilities of $0.3 million, non-current liabilities of $10.4 million and deferred tax liabilities of $1.9 million) if
favourable; or
n a decrease in net assets of $4.0 million (made up of decreases in current assets of $0.6 million, non-current assets of $14.7
million, current liabilities of $0.4 million, non-current liabilities of $9.2 million and deferred tax liabilities of $1.7 million) if
unfavourable.
changes to the discount rate are likely to occur as a result of changes to the interest rate. However, management does not consider
this to have a material impact on the fair value calculation of trailing commissions receivable and the corresponding payable to
franchisees. Management does not consider material changes to the percentage paid to franchisees to be reasonably possible.
in the current period, the annual review of the underlying loan book found that the run-off rate experienced in 2010 was slower than
that assumed in the valuation model and an adjustment to the profit and loss for the year was required to recognise the actual
experience in the portfolio. in addition assumptions used in the valuation of future trailing commissions were changed to reflect an
extension of the current economic environment for the short to medium term. These refinements to the trailing commission model
resulted in a $9.0 million adjustment after tax to the Group’s profit and loss for fy 2010.
B.
criticAl JudgeMents in APPlying the entity’s Accounting Policies
Judgements that management have 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 statements.
note 4
Segment information
A.
descriPtion of segMents
Management has determined the operating segments based on the reports reviewed by the chief Executive Officer that are used to
make strategic decisions.
He considers the business from both a product and a geographic perspective. The Group operates only in Australia and
predominantly in one industry segment, mortgage broking.
inforMAtion Provided to the chief executive officer
B.
information provided to the chief Executive Officer for the year ended 30 June 2010 is as follows:
2010
2009
% change
2010
2009
% change
Origination
commission income
Trailing commission income
Origination commission paid
Trailing commission paid
Net core commissions
non-core products
net revenue
Other income
Gross Profit
Operating Expenses
Share based remuneration
net profit before tax
Net profit after tax
cash*
$000’s
$000’s
52,150
82,931
53,408
84,622
135,081
138,030
37,237
51,329
88,566
46,515
460
1,948
48,923
27,900
–
21,023
14,825
38,073
52,903
90,976
47,054
266
1,738
49,058
30,606
–
18,452
12,983
(2%)
(2%)
(2%)
(2%)
(3%)
(3%)
(1%)
73%
12%
0%
(9%)
14%
14%
reported
$000’s
$000’s
52,150
115,150
167,300
37,237
70,920
108,157
59,143
460
1,948
61,551
27,900
185
33,466
23,479
53,408
136,696
190,104
38,073
85,551
123,624
66,480
266
1,738
68,484
30,607
(268)
38,145
26,849
(2%)
(16%)
(12%)
(2%)
(17%)
(13%)
(11%)
73%
12%
(10%)
(9%)
(12%)
(13%)
* cash is based on accruals accounting and excludes share based remuneration and the net present value of future trailing commissions
receivable and payable on loans settled during the year.
c.
other inforMAtion
(i) revenue
Revenue from the origination of a residential mortgage is comprised of commission paid at the time the loan is originated and a
trailing commission which is paid over the life of the loan. Prior to the introduction of ifRS in 2006, trailing commission was
recognised as income as it became due over the life of a loan. under ifRS, the future trailing cash flows to be received over the
life of a loan are estimated, discounted to present value and recognised at the time a loan settles. The chief Executive Officer
considers both methods in measuring the Group’s performance.
36
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
37
note 4. Segment information (continued)
Revenue reconciles to total revenue from continuing operations as follows:
note 6
Other income
Origination commission income
Trailing commission income
non-core gross revenue
non-core cost
non-core net revenue
franchise income
interest
Service fees
Other income
Total other income
2010
$000’s
52,150
115,150
167,300
2,080
616
373
144
2,080
(1,620)
460
616
373
144
815
1,948
2009
$000’s
53,408
136,696
190,104
1,053
432
404
1,053
(787)
266
432
404
902
1,738
conference sponsorships (note (A))
Amortisation of software licence cost recovery (note (B))
Other
2010
$’000
813
–
2
815
2009
$’000
844
17
41
902
(A) conference sPonsorshiPs
lenders sponsor Mortgage choice’s national conference, High flyers’ conference, quarterly state conferences, and periodic 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.
Total revenue from continuing operations
170,513
191,993
(ii) net profit after tax
The cash net profit after tax reconciles to the reported profit after tax as follows:
note 7
Expenses
cash net profit after tax
nPV future trails on new loans originated, net of payout
less modelled expectation of cash to be received in the year
Plus adjustments to loan book assumptions
Plus gain on prepayment of trail liability
Reversal of amortisation of trail liability*
Share based payments expense
Profit for the year
* under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
note 5
Revenue
revenue from continuing operations
Sales revenue
Services
Other revenue
interest (note (A))
2010
$000’s
14,825
13,042
(13,810)
8,991
252
364
(185)
2009
$000’s
12,983
11,478
(13,714)
15,834
–
–
268
23,479
26,849
2010
$’000
2009
$’000
146,069
170,901
24,444
170,513
21,092
191,993
(A)
interest
interest income comprises the unwinding of discount in relation to the receipt of trailing commission and interest earned on deposits
and loans.
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
termination benefits
2010
$’000
2009
$’000
14,879
–
13,157
141
323
222
560
13
1,177
914
105
254
268
574
(131)
1,085
1,033
1,548
(A)
interest And finAnce chArges
interest expense comprises the unwinding of the discount in relation to payment of trailing commission to franchisees.
38
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
39
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
Deferred income tax (revenue) expense including income tax expense comprises:
(increase)/decrease in deferred tax assets (note 13)
increase/(decrease) in deferred tax liabilities (note 18)
B. nuMericAl reconciliAtion of incoMe tAx exPense to PriMA fAcie tAx PAyABle
Profit from continuing operations before income tax expense
income tax calculated @ 30% (2009 – 30%)
Tax effect of amounts which are not deductible/(assessable) in calculating taxable income:
under/(over) provision from prior years
income tax expense
no part of the deferred tax asset shown above and in note 13 is attributable to tax losses.
note 9
current assets – cash and cash equivalents
cash at bank and on hand
Deposits at call
2010
$’000
5,886
4,161
(58)
9,989
2009
$’000
4,915
6,381
–
11,296
9,989
11,296
(5,769)
9,930
4,161
33,468
10,040
7
10,047
(58)
9,989
2010
$’000
10,042
–
10,042
(9,281)
15,662
6,381
38,145
11,444
(148)
11,296
–
11,296
2009
$’000
1,340
3,994
5,334
A.
risk exPosure
The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the reporting date is the
carrying amount of each class of cash and cash equivalents mentioned above.
note 10
current assets – Trade and other receivables
Trade receivables (1)
net present value of future trailing commissions receivable
franchisee receivables
Other receivables
Prepayments
2010
$’000
11,355
71,464
124
147
225
2009
$’000
12,106
69,647
127
263
260
83,315
82,403
(1)
Subject to a limited charge in favour of The loan Book Security Trust (refer to note 15)
A.
B.
c.
other receivABles
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
effective interest rAtes And credit risk
information about the Group’s exposure to credit risk and interest rate risk is provided in note 2.
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
net present value of future trailing commissions receivable
Other receivables
A.
B.
iMPAired receivABles And receivABles PAst due
none of the non-current receivables are impaired.
risk exPosure
information about the Group’s exposure to credit risk and interest rate risk is provided in note 2.
2010
$’000
2009
$’000
184,276
153,874
50
–
184,326
153,874
40
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
41
note 12
non-current assets – Property, plant and equipment
Movements
year ended 30 June 2009
Opening net book amount
Additions
Disposals
Depreciation charge
closing net book amount
At 30 June 2009
cost
Accumulated depreciation
net book amount
year ended 30 June 2010
Opening net book amount
Additions
Disposals
Depreciation charge
closing net book amount
At 30 June 2010
cost
Accumulated depreciation
net book amount
note 13
non-current assets – Deferred tax assets
the balance comprises temporary differences attributable to:
net present value of future trailing commissions payable
Employee benefits
Depreciation and amortisation
Accrued expenses
Total deferred tax assets
Set-off of deferred tax assets pursuant to set-off provisions (note 18)
net deferred tax assets
Deferred tax assets to be recovered within twelve months
Deferred tax assets to be recovered after more than twelve months
Plant and
equipment
leasehold
improvements
$’000
$’000
618
940
(113)
(254)
1,191
1,945
(754)
1,191
1,191
255
(1)
(323)
1,122
2,029
(907)
1,122
401
754
(32)
(268)
855
1,403
(548)
855
855
4
–
(222)
637
1,406
(769)
637
total
$’000
1,019
1,694
(145)
(522)
2,046
3,348
(1,302)
2,046
2,046
259
(1)
(545)
1,759
3,435
(1,676)
1,759
2010
$’000
2009
$’000
47,797
42,166
580
108
125
48,610
(47,797)
813
14,046
34,564
48,610
224
62
389
42,841
(42,166)
675
13,816
29,025
42,841
nPv of future
trailing
commissions
payable
employee
benefits
depreciation
and
amortisation
Accrued
expenses
$’000
32,371
9,795
42,166
5,631
47,797
$’000
732
(508)
224
356
580
$’000
$’000
379
(317)
62
46
108
52
337
389
(264)
125
other
$’000
26
(26)
–
–
–
total
$’000
33,560
9,281
42,841
5,769
48,610
At 30 June 2008
charged/(credited) to the income statement
At 30 June 2009
charged/(credited) to the income statement
At 30 June 2010
note 14
non-current assets – intangible assets
At 30 June 2008
cost
Accumulated amortisation
net book amount
year ended 30 June 2009
Opening net book amount
Additions
Amortisation charge
closing net book amount
At 30 June 2009
cost
Accumulated amortisation
net book amount
year ended 30 June 2010
Opening net book amount
Additions
Amortisation charge
closing net book amount
At 30 June 2010
cost
Accumulated amortisation
net book amount
computer
software*
$’000
5,218
(2,316)
2,902
2,902
397
(574)
2,725
5,531
(2,806)
2,725
2,725
1,351
(560)
3,516
6,849
(3,333)
3,516
* capitalised computer software includes internally generated software development costs. A significant component of these costs will not
be installed and ready for use until September 2010 at which time amortisation will commence.
42
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
43
note 15
current liabilities – Trade and other payables
note 17
non-current liabilities – Payables
Trade payables(1)
net present value of future trailing commissions payable
licence fees repayable
Other payables
2010
$’000
10,754
44,588
98
2,932
58,372
2009
$’000
10,723
44,242
68
2,598
57,631
(1) loAn Book security trust
The loan Book Security Scheme provides security for the trailing commissions payable to certain eligible franchisees based on
performance criteria. Mortgage choice limited has granted two charges in favour of a trustee 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 trailing commissions in the event that administration or liquidation
occurs. The charge will crystallise and can be enforced by eligible franchisees only in the event of liquidation or administration of Mortgage
choice limited.
As at 30 June 2010, the amount that would be subject to charge resulting from applying the specified percentage to the trailing
commission immediately due to be received by Mortgage choice limited is $3,416,867 (2009 – $3,619,843). This is included as part of the
balance of trade payables at 30 June 2010 and would be subject to charge until disbursed to the eligible franchisees. The amount subject
to the charge would vary dependant on trailing commission due to be received by Mortgage choice limited from month to month.
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 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.
note 16
current liabilities – Provisions
Make good provision (note(A))
Employee entitlements – annual leave
Employee entitlements – long service leave
(A) MAke good Provision
2010
$’000
–
428
111
539
2009
$’000
–
414
11
425
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 twelve months
have been included in non-current liabilities – provisions as detailed in note 19.
net present value of future trailing commissions payable
licence fees repayable
note 18
non-current liabilities – Deferred tax liabilities
the balance comprises temporary differences attributable to:
nPV of future trailing commissions receivable
intangibles
Prepayments and other receivables
Setoff of deferred tax assets pursuant to setoff provisions (note 13)
net deferred tax liabilities
Deferred tax liabilities to be settled within twelve months
Deferred tax liabilities to be settled after more than twelve months
Movements – consolidated
At 30 June 2008
charged to income tax provision
charged to the income statement
At 30 June 2009
charged to the income statement
At 30 June 2010
nPv of future trailing
commissions payable
intangibles
$’000
51,434
–
15,622
67,056
9,666
76,722
$’000
386
–
40
426
229
655
note 19
non-current liabilities – Provisions
Make good provision (refer note 16)
Employee entitlements – long service leave
2010
$’000
114,735
60
2009
$’000
96,311
20
114,795
96,331
2010
$’000
2009
$’000
76,722
67,056
655
35
77,412
(47,797)
29,615
24,351
53,061
77,412
Prepayments
and other
receivables
$’000
–
–
–
–
35
35
2010
$’000
408
99
507
426
–
67,482
(42,166)
25,316
20,940
46,542
67,482
total
$’000
51,820
–
15,662
67,482
9,930
77,412
2009
$’000
408
201
609
44
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
45
note 20
contributed equity
2010
number
’000
2009
number
’000
2010
$’000
2009
$’000
A.
shAre cAPitAl
Ordinary shares – fully paid
118,438
118,106
1,207
808
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.
Ordinary shares have no par value and the company does not have a limited amount of authorised capital.
B.
totAl contriButed equity As At 30 June 2010:
details
Total ordinary shares on issue
Treasury shares
Total ordinary shares held as contributed equity
notes
(i)
number
of shares
119,617,705
(1,179,800)
118,437,905
(i)
treasury shares
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
30 June 2008
1 July 2008
details
Balance
Acquisition of shares on market to meet vesting requirements
11 September 2008
Shares issued to the Mortgage choice Performance Share Plan Trust
24 September 2008
Acquisition of shares on market to meet vesting requirements
24 September 2008
Treasury shares issues under the Performance Share Plan to employees
17 October 2008
Treasury shares issues under the Performance Share Plan to employees
31 December 2008
Treasury shares issues under the Performance Share Plan to employees
15 May 2009
12 June 2009
30 June 2009
23 July 2009
Treasury shares issues under the Performance Share Plan to employees
Treasury shares issues under the Performance Share Plan to employees
Balance
Treasury shares issues under the Performance Share Plan to employees
23 December 2009
Shares issued to the Mortgage choice Performance Share Plan Trust
30 June 2010
Balance
number of
shares
460,000
56
499,100
172,476
(172,476)
(43,162)
(19,632)
(26,600)
(36,600)
833,162
(8,900)
355,538
1,179,800
Movements in ordinary share capital:
date
30 June 2008
1 July 2008
details
Balance
Acquisition of shares on market to meet vesting requirements
11 September 2008
Shares issued to the Mortgage choice Performance Share Plan Trust
11 September 2008
Held as treasury shares
24 September 2008
Acquisition of shares on market to meet vesting requirements
24 September 2008
Shares vested to employees under the Performance Share Plan
17 October 2008
Shares vested to employees under the Performance Share Plan
31 December 2008
Shares vested to employees under the Performance Share Plan
15 May 2009
12 June 2009
30 June 2009
Shares vested to employees under the Performance Share Plan
Shares vested to employees under the Performance Share Plan
Balance
6 October 2009
Shares issued on exercise of options
15 July 2009
Shares vested to employees under the Performance Share Plan
23 December 2009
Shares issued to the Mortgage choice Performance Share Plan Trust
23 December 2009
Held as treasury shares
30 June 2010
Balance
number of
shares
117,979,867
$’000
437
(56)
499,100
(499,100)
(172,476)
172,476
43,162
19,632
26,600
36,600
118,105,805
323,200
8,900
355,538
(355,538)
–
–
–
–
152
78
36
47
58
808
387
12
–
–
118,437,905
1,207
c.
d.
eMPloyee shAre scheMe
information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 32.
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 on pages
10 – 14 of the remuneration report.
46
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
47
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/(reversed)
Acquisition of shares on market to meet vesting requirements
Vesting of shares held by the Mortgage choice Performance Share Plan Trust to employees
Options exercised
Balance 30 June
B.
retAined Profits
Balance 1 July
net profit for the year
Dividends
Balance 30 June
2010
$’000
597
471
185
–
(12)
(47)
597
2010
$’000
65,117
23,479
(13,121)
75,475
2009
$’000
471
1,291
(268)
(181)
(371)
–
471
2009
$’000
53,393
26,849
(15,125)
65,117
note 22
Dividends
A.
ordinAry shAres
final dividend declared out of profits of the company for the year ended 30 June 2008
of 8.0 cents per fully paid share paid on 15 September 2008:
fully franked based on tax paid @ 30%
8.0 cents per share
interim dividend declared out of profits of the company for the half-year ended 31 December 2008
of 4.75 cents per fully paid share paid 23 March 2009:
fully franked based on tax paid @ 30%
4.75 cents per share
final dividend declared out of profits of the company for the year ended 30 June 2009
of 5.5 cents per fully paid share paid on 16 September 2009:
fully franked based on tax paid @ 30%
5.5 cents per share
interim dividend declared out of profits of the company for the half-year ended 31 December 2009
of 5.5 cents per fully paid share paid 22 March 2010:
fully franked based on tax paid @ 30%
5.5 cents per share
B.
dividends not recognised At yeAr end
2010
$’000
2009
$’000
–
–
6,542
6,579
13,121
9,475
5,650
–
–
15,125
c.
nAture And PurPose of reserves
share-based payments reserve
The share-based payments reserve is used to recognise the fair value of options and performance shares granted but not vested.
in addition to the above dividends, since year end the Directors have recommended the payment of a
final dividend of 6.5 cents per fully paid ordinary share, (2009 – 5.5 cents) fully franked based on tax
paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 20 September
2010 out of retained profits at 30 June 2010, but not recognised as a liability at year end, is
7,775
6,542
c.
frAnked dividend
The franked portions of the final dividends recommended after 30 June 2010 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 2010.
franking credits available for subsequent financial years to the equity holders of the parent entity based
on a tax rate of 30% (2009 – 30%)
2010
$’000
2009
$’000
3,161
2,927
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a)
franking credits that will arise from the payment of the amount of the provision for income tax;
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c)
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
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 $3,332,000 (2009: $2,804,000).
48
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
49
note 23
Key management personnel disclosures
A.
key MAnAgeMent Personnel coMPensAtion
Short-term employee benefits
Post-employment benefits
long-term benefits
Termination benefits
Share-based payments
Payments to KMP whose services are provided through external companies
Balance 30 June
2010
$
2009
$
2,106,978
2,019,991
90,788
(15,171)
179,743
67,328
–
1,349,785
112,129
(375,963)
221,105
54,000
2,515,829
3,294,884
Detailed remuneration disclosures are provided in the Directors’ report on pages 8 – 14 of the remuneration report.
B.
equity instruMent disclosures relAting to key MAnAgeMent Personnel
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 the Directors’ report on pages 10 – 14 of the remuneration report.
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.
2010
name
Balance at
the start of
the year
granted as
compensation
exercised
forfeited/
lapsed
Balance at
the end of
the year
vested and
exercisable
unvested
Key management personnel of the Group
M i Russell
2,500,000
–
–
–
2,500,000
1,700,000
800,000
2009
name
Balance at
the start of
the year
granted as
compensation
exercised
forfeited/
lapsed
Balance at
the end of
the year
vested and
exercisable
unvested
Directors of Mortgage Choice Limited
P A lahiff
2,693,600
3,396,250
Other key management personnel of the Group
A D crossley
M c newton
M i Russell
536,100
298,350
–
491,050
–
2,500,000
–
–
–
–
(5,537,636)
552,214
552,214
(536,100)
–
–
(638,394)
151,006
151,006
–
–
–
–
2,500,000
900,000
1,600,000
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.
2010
name
Balance at
the start of
the year
granted as
compensation
exercised
forfeited
Balance at
the end of
the year
unvested
Key management personnel of the Group
M i Russell
D l Ennis
n c Rose-innes
M n Writer
S R Mitchell
S c Dehne
2009
name
–
239,250
89,450
63,000
51,850
–
–
54,500
62,050
36,350
62,450
27,050
–
–
–
–
–
–
–
239,250
239,250
(143,950)
–
–
–
125,050
125,050
(88,200)
–
–
–
62,450
27,050
–
62,450
27,050
Balance at
the start of
the year
granted as
compensation
exercised
forfeited
Balance at
the end of
the year
unvested
Directors of Mortgage Choice Limited
P A lahiff
83,300
–
(44,982)
(38,318)
–
–
Other key management personnel of the Group
D l Ennis
n c Rose-innes
M n Writer
D M Hoskins
M c newton
A D crossley
l A Wyatt
W J O’Rourke
54,600
29,300
45,800
67,400
61,300
25,300
35,800
61,550
53,550
33,700
20,250
–
–
112,750
–
–
(10,098)
(8,602)
–
(7,668)
(33,780)
(38,156)
(13,662)
(16,915)
(30,800)
–
(6,532)
(33,620)
(23,144)
(124,388)
(18,885)
(30,750)
89,450
63,000
51,850
89,450
63,000
51,850
–
–
–
–
–
–
–
–
–
–
50
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
51
note 23. Key management personnel disclosures (continued)
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.
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:
2010
name
Directors of Mortgage Choice Limited
P D Ritchie
S J clancy
P G Higgins
R G Higgins
S c Jermyn
D E Ralston
Key management personnel of the Group
M i Russell
D l Ennis
S R Mitchell
n c Rose-innes
M n Writer
D M Hoskins
S c Dehne
K Rampal
D l Ennis’ employment terminated effective 2 July 2010.
2009
name
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
M i Russell
D l Ennis
S R Mitchell
n c Rose-innes
M n Writer
D M Hoskins
M c newton
A D crossley
Balance
at the start
of the year
received during the
year on the vesting
of share rights
other changes
during the year
Balance
at the end of
the year
350,125
–
5,822,939
15,226,215
2,000,000
50,000
–
10,098
–
–
7,668
67,730
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
(5,000,000)
–
–
–
–
–
–
–
(7,668)
–
–
–
350,125
50,000
822,939
15,226,215
2,000,000
50,000
–
10,098
–
–
–
67,730
–
–
Balance
at the start
of the year
received during the
year on the vesting
of share rights
other changes
during the year
Balance
at the end of
the year
247,000
350,125
5,822,939
15,226,215
2,000,000
50,000
–
–
–
–
–
33,950
27,600
17,500
44,982
–
–
–
–
–
–
10,098
–
–
7,668
33,780
38,156
13,662
–
–
–
–
–
–
–
–
–
–
–
–
(65,756)
(31,162)
291,982
350,125
5,822,939
15,226,215
2,000,000
50,000
–
10,098
–
–
7,668
67,730
–
–
P A lahiff’s employment terminated effective 1 July 2009.
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.
A.
Audit services
Pricewaterhousecoopers Australian firm:
Audit and review of financial reports
Total remuneration for audit services
B.
non-Audit services
Audit-related services
Pricewaterhousecoopers Australian firm:
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
Total remuneration for non-audit services
note 25
contingencies
2010
$
2009
$
193,214
193,214
227,940
227,940
8,000
8,000
7,500
7,500
23,700
30,610
54,310
62,310
24,885
13,205
38,090
45,590
contingent liABilities
The Group had contingent liabilities at 30 June 2010 in respect of:
guarantees
Guarantees given in respect of premises leases $963,405 (2009: $963,405).
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 2010 and 30 June 2009, 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.
52
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
53
note 26
commitments
A.
leAse coMMitMents
non-cancellable operating leases
The Group 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 Group also leases various
pieces of office equipment under non-cancellable operating leases.
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 entity
The ultimate parent entity within the Group is Mortgage choice limited.
2010
$’000
2009
$’000
1,090
2,068
–
3,158
2010
$’000
–
–
–
1,018
3,008
–
4,026
2009
$’000
50
–
50
B.
c.
d.
suBsidiAries
interests in subsidiaries are set out in note 28.
key MAnAgeMent Personnel
Disclosures relating to key management personnel are set out in note 23. Additional disclosures are set out in the Directors’ report in
the remuneration report.
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.
note 28
Business combination
A.
suMMAry of Acquisition
On 1 December 2009 the Group acquired the loanKit business and associated assets. Details of the purchase consideration and
the net assets acquired are as follows:
Purchase consideration
The assets and liabilities recognised as a result of the acquisition are as follows:
intangible asset: software
Other receivable: service fees receivable
Deferred tax liability
net identifiable assets acquired
$’000
500
fair value
$’000
430
100
(30)
500
As part of the purchase agreement, the former owner will provide ongoing services to the Group including the provision of software
maintenance. This agreement has a set term to 31 December 2011. Total payments to be made over the period are $412,360 of
which $109,490 has been recognised in the current period.
There were no acquisitions in the year ended 30 June 2009.
Service fees receivable is calculated as the present value of service fees to be received from processing trailing commissions for the
loans existing at the time of acquisition.
The loanKit business is operated through Beagle finance Pty limited, a wholly owned subsidiary of Mortgage choice limited. Since
acquisition, the loanKit business incurred a net loss after tax of $0.11m
if the acquisition had occurred on 1 July 2009, revenue and profit after tax for the year ended 30 June 2010 would have been
$171.4m and $23.4m respectively which management considers represents an approximate measure of the Group, incorporating the
loanKit business, on an annualised basis.
note 29
Events occurring after the balance sheet date
A.
dividend PAyMent
A final ordinary dividend of $7,775,000 (6.5 cents per fully paid share) was declared out of profits of the company for the year ended
30 June 2010 on 25 August 2010 to be paid on 20 September 2010.
The financial effects of the above transaction have not been brought to account at 30 June 2010.
54
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
55
note 32
Share-based payments
A.
executive PerforMAnce oPtion PlAn (ePoP)
The Executive Performance Option Plan may be offered on an annual basis to eligible executives as determined by the Board. The
details of each offer may differ as to the particulars, especially with regard to performance criteria and performance period.
Participation in the EPOP provides one component of the long-term incentive available to the selected executives within their
aggregate remuneration package.
under the terms of the EPOP, options are offered over one ordinary share of Mortgage choice limited and 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. in the year ending 30
June 2010, no options were offered.
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:
n
n
n
ten years after the date of offer;
three months, or such other period determined by the Board, after the participant ceases employment for a reason other than
a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or any other reason determined by the Board); and
twelve months, or such other period determined by the Board, after the participant ceases employment for a ‘qualifying
reason’.
When a participant ceases to be employed by the company prior to the end of the performance period, 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, options will vest on a pro-rata basis or in their entirety for certain senior executives.
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.
Offers made under 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.
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 8 and 9 of this report. fair values at grant date are
independently determined using a Monte carlo simulation model utilising a BlackScholes 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 the expected price volatility of the underlying share, the expected dividend
yield and the risk-free interest rate for the term of the option.
Details of options over ordinary shares in the company provided as remuneration to each Director and key management personnel of
the company are set out below. further information on the options is set out in the Directors’ report remuneration report.
note 30
Reconciliation of profit after income tax to
net cash inflow from operating activities
Profit for the year
Depreciation and amortisation
non-cash net present value of future trailing inflows
non-cash net present value of future trailing outflows
non-cash employee expense benefits – share-based payments
Share purchases to meet vesting – share-based payments
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
Decrease/(increase) in other operating assets
increase/(decrease) in trade payables
(Decrease)/increase in other operating liabilities
increase/(decrease) 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
note 31
Earnings per share
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
2010
$’000
23,479
1, 105
(32,219)
18,771
185
–
(373)
1
920
(138)
35
479
(44)
2,315
4,269
12
18,797
2009
$’000
26,849
1,095
(52,074)
32,648
(268)
(181)
(404)
143
(452)
514
232
1,166
(44)
(1,343)
5,867
(87)
13,661
consolidated
2010
Cents
19.7
19.5
$’000
23,479
2010
Number
2009
cents
22.6
22.6
$’000
26,849
2009
number
119,361,350
118,811,799
1,251,341
154,769
120,612,691
118,966,568
A.
B.
options
Options granted to employees under the Mortgage choice Executive Performance Option Plan are considered to be potential
ordinary shares and have been included in the determination of diluted earnings per share. The options have not been included in the
determination of basic earnings per share. Details relating to the options are set out in the Remuneration report.
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.
56
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
57
note 32. Share-based payments (continued)
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 – 2010
10 August
2004
10 August
2014
2 September
2005
2 September
2015
$1.05
415,400
$1.43
287,820
1 May 2009
1 May 2019
$0.76
2,500,000
Total
Weighted average exercise price
3,203,220
$0.86
consolidated – 2009
10 August
2004
10 August
2014
24 february
2005
24 february
2015
2 September
2005
2 September
2015
29 December
2006
29 December
2016
22 november
2007
22 november
2017
2 October
2008
2 October
2018
20 november
2008
20 november
2018
1 May
2009
Total
1 May
2019
$1.05
415,400
$1.08
81,800
$1.43
661,600
$2.60
953,250
$2.51
1,416,000
$1.12
$1.12
$0.76
–
–
–
491,050
3,396,250
2,500,000
3,528,050
6,387,300
–
–
–
–
–
–
–
–
–
–
(323,200)
–
–
(323,200)
$1.05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(92,200)
(287,820)
–
–
–
–
–
2,500,000
1,700,000
(380,020)
2,500,000
1,700,000
$1.34
$0.76
$0.76
–
415,400
415,400
(81,800)
–
–
(373,780)
287,820
287,820
(953,250)
(1,416,000)
(491,050)
(3,396,250)
–
–
–
–
–
–
–
–
–
2,500,000
900,000
(6,712,130)
3,203,220
1,603,220
$1.64
$0.86
$0.96
Weighted average exercise price
$2.13
$0.98
The weighted average remaining contractual life of share options outstanding at the end of the period was 8.82 years (2009 – 8.88 years).
B.
PerforMAnce shAre PlAn (PsP)
The PSP permits eligible employees as 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 managers and any other designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees 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
performance requirements and vesting scale applicable to offers under the PSP for years up to and including 30 June 2009 use TSR
as the basis of their performance criteria. The right to receive performance shares will lapse if the performance criteria have not been
met at the end of the performance period. Offers made under the PSP for the year ended 30 June 2010 are based on tenure.
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 performance period. Participants are not required to pay for shares allocated to them under the PSP. until
the shares are released from the PSP, they will remain subject to the plan rules including the ‘holding lock’ applied pursuant to those
rules and the participant is restricted from trading in those shares.
Shares will not be released from the PSP and will remain subject to a holding lock until a notice of Withdrawal 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:
n 1 July in the year (being a period commencing 1 July and ending 30 June) that is ten years after the year in which the offer is
made and is accepted by the participant;
n
the participant ceasing to be an employee of the company;
n a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the company) occurring; or
n
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). Where a participant ceases to be employed by the company prior to the end of the performance period, other
than because of a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or 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.
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 BlackScholes option pricing
model framework that takes into account the term of the rights, the vesting criteria, the exercise price (zero), the expected price
volatility of the underlying share, the expected dividend yield (acknowledging that dividends will be paid to participants from the date
of grant) and the risk-free interest rate for the term of the share rights. There are no performance hurdles associated with the 2010
grant.
Details of performance shares in the company provided as remuneration to each Director and key management personnel 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
consolidated and parent entity – 2010
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
12 December
2006
31 August
2009
31 August
2007
31 August
2008
31 August
2010
31 August
2011
9 December
2009
31 August
2011
9 December
2009
31 August
2012
9 December
2009
31 August
2013
$2.21
62,100
$2.20
142,550
$1.00
319,350
–
–
–
$1.24
$1.24
$1.24
–
–
–
236,483
236,483
236,483
Total
524,000
709,449
Weighted average exercise price
$1.47
$1.24
(4,550)
–
(4,350)
–
–
–
(8,900)
$1.62
consolidated – 2009
2 September
2005
2 September
2008
12 December
2006
31 August
2009
31 August
2007
31 August
2008
Total
31 August
2010
31 August
2018
$1.43
328,700
$2.21
150,300
$2.20
308,750
–
–
–
(172,476)
(51,180)
(67,097)
$1.00
–
499,100
(7,717)
787,750
499,100
(298,470)
Weighted average exercise price
$1.88
$1.00
$1.73
–
–
–
–
–
–
–
–
–
–
–
–
(57,550)
–
(68,850)
73,700
(147,100)
167,900
(42,350)
194,133
(42,350)
194,133
(42,350)
194,133
(400,550)
823,999
$1.46
$1.28
(156,224)
–
(37,020)
62,100
(99,103)
142,550
(172,033)
319,350
(464,380)
524,000
$1.50
$1.47
–
–
–
–
–
–
–
–
–
–
–
–
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 1.79 years (2009 – 1.66 years).
58
MORTGAGE cHOicE AnnuAl REPORT 2010
nOTES TO THE cOnSOliDATED finAnciAl STATEMEnTS
59
note 32. Share-based payments (continued)
The model inputs for performance shares granted during the year ended 30 June 2010 included:
(a)
(b)
(c)
(d)
(e)
(f)
share rights are granted for no consideration, each tranche vests and is exercisable three years after grant date;
grant date: 9 December 2009 (2009 – 11 September 2008);
share price at grant date: $1.25 (2009 – $1.12);
expected price volatility of the company’s shares: 40% (2009 – 40%);
expected dividend yield: 9.2% (2009 – 10.0%); and
risk-free interest rate: 5.25% (2009 – 5.54%).
Directors’
Declaration
for the year ended 30 June 2010
exPenses Arising froM shAre-BAsed PAyMent trAnsActions
c.
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as
follows:
in the Directors’ opinion:
consolidated
(a)
the financial statements and notes set out on pages 22 – 60 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 consolidated entity’s financial position as at 30 June 2010 and of their performance, for the
financial year ended on that date; and
(b)
note 1(a) confirms that the financial statements also comply with international financial Reporting Standards as issued by the
international Accounting Standards Board; and
(c)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations by the chief Executive Officer and the 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
21 August 2010
Options issued under EPOP
Shares issues under PSP
note 33
Parent entity financial information
A. suMMAry finAnciAl inforMAtion
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
current assets
Total assets
current liabilities
Total liabilities
Shareholders’ equity
issued capital
Share-based payments reserve
Retained profits
Profit or loss for the year
Total comprehensive income
2010
$’000
33
152
185
2009
$’000
(519)
251
(268)
2010
$’000
93,885
283,873
61,548
206,486
1,207
597
75,583
77,387
23,587
23,587
2009
$’000
87,737
247,057
58,405
180,661
808
471
65,117
66,396
26,849
26,849
B. guArAntees entered into By the PArent entity
The parent entity has not provided any guarantees on behalf of subsidiaries.
The parent entity has provided guarantees in respect of obligations under premises leases of its head office and state offices totalling
$963,405 (2009 $963,405). no liability was recognised by the parent entity or the consolidated entity in relation to these guarantees.
c.
contingent liABilities of the PArent entity
Other than the guarantees mentioned above, the parent entity did not have any contingent liabilities as at 30 June 2010 or
30 June 2009.
60
MORTGAGE cHOicE AnnuAl REPORT 2010
DiREcTORS’ DEclARATiOn
61
62
MORTGAGE cHOicE AnnuAl REPORT 2010
inDEPEnDEnT AuDiT REPORT 63
Shareholder
information
for the year ended 30 June 2010
The shareholder information set out below was applicable as at 23 August 2010.
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
There were 84 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:
finconnect (Australia) Pty ltd
citicorp nominees Pty limited
national nominees limited
Ochoa Pty ltd
HSBc custody nominees (Australia) limited
J P Morgan nominees Australia limited
RBc Dexia investor Services Australia nominees Pty limited
cogent nominees Pty limited
R G Higgins
Ochoa Pty ltd
ScJ Pty ltd
RBc Dexia investor Services Australia nominees Pty limited
Australian Reward investment Alliance
AnZ nominees limited
Pacific custodians Pty ltd
Basscave Pty limited
Mr ian Edwards & Mrs Josephine Edwards
RBc Dexia investor Services Australia nominees Pty limited
RPG Management Pty limited
uBS Wealth Management Australia nominees Pty ltd
64
MORTGAGE cHOicE AnnuAl REPORT 2010
class of equity security
ordinary
shares
options
394
993
545
553
37
2,522
1
1
ordinary shares
number held Percentage of
issued shares
20,611,785
13,369,499
9,840,503
9,620,000
9,167,856
6,706,519
6,209,913
3,038,909
2,934,548
2,666,667
2,000,000
1,608,398
1,443,478
1,219,658
1,179,800
817,939
675,000
519,715
463,500
357,300
17.23
11.18
8.23
8.04
7.66
5.61
5.19
2.54
2.45
2.23
1.67
1.34
1.21
1.02
0.99
0.68
0.57
0.43
0.39
0.30
94,450,987
78.96
unquoted equity securities
Options issued under the Executive Performance Option Plan
c.
suBstAntiAl holders
Substantial holders in the company are set out below:
ordinary shares
count financial limited
R G Higgins and Ochoa Pty ltd
fMR corp. & fidelity international limited
commonwealth Bank of Australia
inVEScO Australia limited
Perpetual limited
number
on issue
number
of holders
2,500,000
1
number held
Percentage
20,611,785
15,231,215
13,270,161
9,728,478
9,001,873
7,249,700
17.33
12.80
11.20
8.13
7.53
6.06
d.
voting rights
The voting rights attaching to each class of equity securities are set out below:
(a) ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
shall have one vote.
(b) options
no voting rights.
(c) conditional entitlements
no voting rights.
SHAREHOlDER infORMATiOn
65
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