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annual FInanCIal REPORT 2011
contents
01⁄ Corporate directory
02 ⁄ Directors’ report
15 ⁄ Corporate governance statement
21⁄ Financial report
62 ⁄ Independent auditor’s report to the members
64 ⁄ Shareholder information
Mortgage Choice limited aCn 009 161 979
Corporate Directory
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
Executives
D M Hoskins
Chief Financial Officer S R Mitchell
General Manager, Operations
n C Rose-Innes
General Manager, Product and
Distribution a J Russell
CEO of LoanKit S C Dehne
CEO of Help Me Choose J a Hanka
Notice of Annual General
Meeting
The annual General Meeting of Mortgage
Choice limited will be held at:
The Pavilion, Gallery level
Star Court – Darling Park
201 Sussex Street
Sydney nSW
Time 10am
Date 15 november 2011
level 10, 100 Pacific Highway
north Sydney nSW 2060
(02) 8907 0444
link Market Services limited
level 12, 680 George Street
Sydney nSW 2000
(02) 8280 7111
PricewaterhouseCoopers
Chartered accountants
Darling Park Tower 2
201 Sussex Street
Sydney nSW 2000
Minter Ellison
aurora Place, 88 Phillip Street
Sydney nSW 2000
anZ Banking Group limited
116 Miller Street
north Sydney nSW 2060
Principal registered
office in Australia
Share register
Auditor
Solicitors
Bankers
Stock exchange listing
Mortgage Choice limited shares are listed
on the australian Securities Exchange.
Website address
www.MortgageChoice.com.au
Mortgage Choice annual Report 2011 Corporate Directory
1
Directors’ Report
for the year ended 30 June 2011
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 2011, hereafter referred to as “Mortgage Choice”, “the Mortgage Choice Group”
or “the Group”.
Directors
The following persons were Directors of Mortgage Choice limited during the whole of the financial year and up to the date of this report:
P 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 $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 and paid on 20 September 2010.
an interim ordinary dividend of $7.197 million (6.0 cents per fully paid share) was declared out of profits of the Company for the half-year
ended 31 December 2010 on 23 February 2011 and paid on 21 March 2011.
a final ordinary dividend of $8.398 million (7.0 cents per fully paid share) was declared out of profits of the Company for the year ended
30 June 2011 on 24 august 2011 to be paid on 19 September 2011.
Review of operations
Operational results for the year
The financial year opened with subdued but consistent credit volumes following the previous financial year’s six interest rate rises and First
Home Owners Grant (FHOG) boost cessation. a further cash rate rise in november resulting in out of cycle rate rises by most lenders kept
volumes down, however, there was an increase in refinancing brought about by borrowers looking to save money by switching lenders or to
a secure fixed rate loan.
Volumes at the end of the financial year remained subdued in line with market credit volumes.
FY2011 approvals and settlements were down 4.5% and 6.4% respectively on FY2010, which was inflated by the impact of the FHOG boost.
2
Mortgage Choice – residential only, excluding LoanKit
loans approved – $m
Change
loans settled – #
Change
loans settled – $m
Change
2011
9,527
(4.5%)
30,473
(10.6%)
8,319
(6.4%)
2010
9,973
(0.9%)
34,083
1.3%
8,891
3.1%
Despite the lower level of settlements for the year, the Company’s residential loan book grew by 5.4% to $41.2bn. The Group’s loan book
including the residential loan book, loanKit and diversified lending grew by 6% to $42.4bn.
During the year the Group continued to expand adding loanKit brokers and increasing the number of its software users. The Group
also added a business line by acquiring Help Me Choose, a comparison website for mortgages as well as health and life insurance. The
mortgage and life insurance leads generated through the website are sold to third party brokers. Health leads are contacted by the Help Me
Choose staff, who help customers determine the best health policy for them and then forward their application to the selected health fund.
The Group expects to step up its investment in both of loanKit and Help Me Choose in the coming year.
Financial results for the year
underlying profit before tax and before the adjustment to the loan book valuation is $21.7m which represents a 5.3% increase over FY2010.
This is due to an increase in operational revenue while controlling operating expenses.
The annual review of the historical trail book found that the run-off over the past year 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 the run-off assumptions used to value the
future trailing commissions on the balance sheet were changed to reflect an extension of the current economic environment. These changes
resulted in a $35.4m adjustment to revenue and a $17.6 million adjustment before tax to the Group’s profit for FY2011. approximately 70% of
the $35.4m adjustment to revenue arises from the change in forward assumptions.
The effect of the adjustment is summarised below.
Financial summary
Revenue
underlying revenue
adjustment to loan book valuation
Total revenue
Profit before tax
underlying result before tax
adjustment to loan book valuation
Total profit before tax
2011
$’000
2010
$’000
134,125
35,381
169,506
21,722
17,607
39,329
130,464
40,864
171,328
20,623
12,845
33,468
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 change in net assets in the period in which it arises.
Strategy and plans for next year
Mortgage Choice continues to drive forward its DREaM strategy. DREaM was developed to address negative trends in the business caused
by the GFC and lender commission cuts:
n Diversification – introduce new products, business lines
n Recruitment – re-ignite 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
The Group has seen improvement in its diversified revenues including an increase in revenue from the additional business lines of loanKit
and Help Me Choose, having reinvested in each during FY2011 to develop the proposition. It has also seen an improvement in its franchise
numbers and has kept tight control over its costs in spite of expanding business lines. FY2012 is the beginning of the final year of the initial
three year focus on these initiatives, which Mortgage Choice recognises are not a quick solution. The Group will step up its investment in
loanKit and Help Me Choose while continuing to drive its DREaM strategy.
Mortgage Choice annual Report 2011 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 Group.
Matters subsequent to the end of the financial year
no matters or circumstances have arisen since 30 June 2011 that have significantly affected, or may significantly affect:
(a) the Group’s operations in future financial years,
(b) the results of those operations in future financial years, or
(c) 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
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 69.
Sean Clancy Dip Mkt
Independent Non-Executive Director
Member of audit and remuneration
committees
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
Deborah Ralston PhD, FaICD, FFin,
FCPa
Independent Non-Executive Director
Member of audit committee
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, Chairman of
Metropolis Inc. and ambassador to Business Events Sydney. age 51.
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 51.
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 56.
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 62.
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 58.
4
The table below sets out the Directors’ interests at 30 June 2011:
Director
P D Ritchie
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Particulars of Directors’ interests in shares and options
350,125 ordinary shares
50,000 ordinary shares
822,939 ordinary shares
15,226,215 ordinary shares
2,000,000 ordinary shares
100,000 ordinary shares
Company Secretary
The Company Secretary is Mr D M Hoskins BCom, CPa, CSa. Mr Hoskins was appointed to the position of Company Secretary in 2000. Before
joining Mortgage Choice 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 2011, and
the numbers of meetings attended by each Director were:
Full meetings of
Directors
Meetings of committees
Audit
Nomination
Remuneration
a
8
8
7
7
7
8
B
8
8
8
8
8
8
a
*
3
3
*
3
3
B
*
3
3
*
3
3
a
–
*
*
–
*
*
B
–
*
*
–
*
*
a
1
1
*
1
*
*
B
1
1
*
1
*
*
P D Ritchie
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
a = number of meetings attended
B = number of meetings held
* = not a member of the relevant committee
Retirement, election and continuation in the office of Directors
In accordance with the Constitution, Peter Ritchie and Peter Higgins 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 the 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.
Mortgage Choice annual Report 2011 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. Initially the Board sought independent research material to ensure non-
Executive Directors fees and payments, including those of the Chairman, were 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 Directors was increased effective 1 October 2010. The Directors’ fees were last increased on 1 July 2006.
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.
The following annual fees apply:
Chairman
Other non-Executive Directors
From 1 October 2010
From 1 July 2006
to 30 September 2010
$136,250
$81,750
$119,900
$65,400
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 benchmarks 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 KPIs 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.
6
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 – 13 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
2007
2008
2009
2010
2011
EPS (cents per share)
16.6
16.4
22.6
19.7
22.9
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:
Year
2007
2008
2009
2010
2011
TSR
34%
-61%
-20%
55%
44%
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 – General Manager, Operations
n a J Russell – General Manager, Product and Distribution (from 2 December 2010)
n S C Dehne – National Manager, Non-Core (to 30 June 2011), CEO of LoanKit (from 1 July 2011)
n K Rampal – CEO of LoanKit (to 30 June 2011)
n J a Hanka – CEO of Help Me Choose (from 1 October 2010)
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.
Mortgage Choice annual Report 2011 Directors’ Report
7
Directors’ Report (continued)
Key management personnel
2011
Name
Short-term benefits
Cash salary
and fees
$
Non-
monetary
benefits
$
STI
$
Non-Executive Directors
Post-
employment
benefits
Long-term
benefits
Super-
annuation
$
Long service
leave
$
Termination
benefits
$
Share-
based
payments
Performance
shares &
options
$
P D Ritchie
Chairman
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
121,250
71,250
71,250
71,250
71,250
71,250
–
–
–
–
–
–
–
–
–
–
–
–
10,913
6,413
6,413
6,413
6,413
6,413
–
–
–
–
–
–
M I Russell 1
Chief Executive Officer
563,597
286,915
14,643
15,199
2,944
Other key management personnel:
S R Mitchell 1
n C Rose-Innes 1
a J Russell 1
(from 2/12/10 to 30/6/11)
S C Dehne
K Rampal
J a Hanka
(from 1/10/10 to 30/6/11)
D M Hoskins
270,662
244,583
138,659
162,183
210,953
144,987
166,876
89,600
76,299
41,819
32,000
–
40,447
24,000
Other Company and Group executives
J M Stevenson 1
175,071
30,600
–
–
–
–
–
–
–
–
15,199
15,199
8,866
15,199
–
10,133
14,031
1,671
2,406
–
507
–
414
–
15,199
4,177
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
132,163
77,663
77,663
77,663
77,663
77,663
–
–
–
–
–
–
210,425
1,093,723
55,557
62,623
14,963
22,798
–
–
432,689
401,110
204,307
232,687
210,953
195,981
6,925
211,832
24,269
249,316
1 Denotes one of the 5 highest paid executives of the company as required to be disclosed under the Corporations Act 2001.
8
Key management personnel
2010
Name
Short-term benefits
Cash salary
and fees
$
Non-
monetary
benefits
$
STI
$
Non-Executive Directors
Post-
employment
benefits
Long-term
benefits
Super-
annuation
$
Long service
leave
$
Termination
benefits
$
Share-
based
payments
Performance
shares &
options 1
$
P D Ritchie
Chairman
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
110,000
60,000
60,000
60,000
60,000
60,000
–
–
–
–
–
–
–
–
–
–
–
–
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
42,410
343,427
382,326
(33,772)
293,063
–
111,615
(21,166)
127,315
7,577
193,157
–
109,490
15,339
248,735
1 Remuneration in the form of performance shares and options includes negative amounts for performance shares and options forfeited
during the year.
2 D l Ennis’ employment terminated effective 2 July 2010, whereby her unvested performance shares lapsed.
3 Denotes one of the 5 highest paid executives of the company as required to be disclosed under the Corporations Act 2001.
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
2011
2010
2011
2010
2011
2010
Key management personnel of Group
M I Russell
S R Mitchell
n C Rose-Innes
a J Russell
S C Dehne
K Rampal
J a Hanka
D M Hoskins
D l Ennis
M n Writer
55%
66%
65%
72%
76%
100%
79%
86%
–
–
61%
73%
70%
–
82%
100%
–
100%
74%
100%
26%
21%
19%
21%
14%
–
21%
11%
–
–
Other Company and Group executives
J M Stevenson
78%
82%
12%
29%
22%
19%
–
14%
–
–
–
26%
–
12%
19%
13%
16%
7%
10%
–
–
3%
–
–
10%
5%
11%
-
4%
-
-
-
-
-
10%
6%
Mortgage Choice annual Report 2011 Directors’ Report
9
Directors’ Report (continued)
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
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 M I Russell, Rose-Innes, a J Russell, Hanka and Ms Mitchell are terminable by either the Company
or the executive with three months notice.
n The employment contracts of Messrs Dehne, Hoskins and Stevenson 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 M I 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 M I 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.
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 2 november 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 2011,
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
Date vested and
exercisable
Expiry date
Exercise price
Value per option
at grant date
From 22 april 2011
1 May 2019
$0.76
$0.03
Vested
100%
The above grant vested based on service requirements.
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.
10
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 31 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 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 12 and 13 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 nontradeable 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 riskfree 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 allocated unvested shares from the outset of the applicable
performance period, with the shares to be held on trust for the participants by a share plan trustee. 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 vested shares will lapse if the performance criteria have not been met at the end of
the performance period. Offers made under the PSP subsequent to the year ended 30 June 2009 are based on service requirements.
Shares will be acquired for participants following their acceptance of an offer made under the Plan. The shares will be acquired by the
plan trustee and held on trust for participants until they are withdrawn from the Plan (after they have vested or are deemed to be vested) or
are forfeited, in circumstances outlined below. Shares will be acquired only at times permitted under the Company’s share trading policy.
Shares may be acquired by on-market or off-market purchases, by subscribing for new shares to be issued by the Company, or through the
reallocation of forfeited shares. The method of acquisition for each share allocation will be determined by the Board. The costs of all share
acquisitions under the Plan will be funded by the Group. Participants will not be required to make any payment for the acquisition of shares
under the Plan.
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). If a participant resigns from his or her employment with the Company, or otherwise ceases employment in
circumstances not involving “special circumstances”, the participant will be required to forfeit any unvested shares held under the Plan on
the participant’s behalf, unless the Board otherwise determines. Vested shares will be eligible for withdrawal in accordance with the usual
procedure.
If a participant ceases to be employed by the Company or retires from office as a result of special circumstances (including death, disability,
retirement, redundancy, corporate restructure, or any other circumstances determined by the Board), the Board may in its discretion
determine that all or a portion of the participant’s unvested shares are to be treated as vested shares, notwithstanding the fact that the
vesting conditions applicable to the shares have not been met because the applicable performance period has not expired.
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.
Mortgage Choice annual Report 2011 Directors’ Report
11
Directors’ Report (continued)
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 2008
9 December 2009
9 December 2009
9 December 2009
20 September 2010
20 September 2010
20 September 2010
24 December 2010
Value per performance share at offer date
$1.00
$1.24
$1.24
$1.24
$1.16
$1.17
$1.19
$1.37
Vesting date
31 august 2011
31 august 2011
31 august 2012
31 august 2013
3 September 2012
3 September 2013
3 September 2014
1 December 2011
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 31 to the financial statements.
Number of
performance
shares granted
during the year
Value of
performance
shares at
grant date*
Number of
performance
shares vested
during the year
Number of
performance
shares lapsed
during the year
Value
at lapse
date**
Name
Key management personnel
M I Russell
S R Mitchell
n C Rose-Innes
a J Russell
S C Dehne
D M Hoskins
239,300
72,850
62,050
20,000
27,750
20,800
280,699
85,453
72,785
27,300
32,551
24,398
–
–
–
–
–
–
–
–
–
–
–
29,300
33,695
–
–
–
–
–
–
6,950
7,993
Other Company and Group executives
J M Stevenson
23,400
27,448
* The value at grant date calculated in accordance with aaSB 2 Share-based Payments of shares granted during the year as part of
remuneration.
** The value at lapse date of performance shares that lapsed during the year because a vesting condition was not satisfied is calculated
assuming the performance conditions were satisfied.
The assessed fair value at grant date of performance shares 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
performance shares, 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
performance shares. There are no performance hurdles associated with the 2011 grant.
Two tranches of performance shares were issued in the year to 30 June 2011. The model inputs for performance shares granted on
20 September 2010 included:
(a) shares are granted for no consideration and vest over a period of four years;
(b) grant date: 20 September 2010 (2010 – 9 December 2009);
(c) share price at grant date: $1.16 (2010 – $1.25);
(d) expected price volatility of the company’s shares: 30% (2010 – 40%);
(e) expected dividend yield: 9.4% (2010 – 9.2%); and
(f) risk-free interest rate: 2 years 4.20%, 3 years 4.15% and 4 years 4.16% (2010 – 5.25%).
The shares granted on 24 December 2010 were valued at the closing price on the day due to the short term nature of the grant.
Shares provided on vesting of performance share entitlements
no shares were issued in the company in the year ended 30 June 2011 as a result of the vesting of performance share entitlements.
Details of remuneration: cash bonuses, performance shares and options
For each cash bonus and grant of performance shares and options in the tables on pages 8 – 9 and 10 – 14, 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 performance shares and options vest at the end of a set period of up to four years, providing
vesting conditions are met. no performance shares or options will vest if the conditions are not satisfied, hence the minimum value of
the performance shares and options yet to vest is nil. The maximum value of the performance shares and options yet to vest has been
determined as the amount of the grant date fair value of the performance shares and options that is yet to be expensed.
12
STI
Performance shares and options
Name
Paid
%
Forfeited
%
Financial
year granted
Vested
%
Forfeited
%
Financial
years in
which shares
and options
may vest
Minimum
total value
of grant yet
to vest
$
Maximum
total value
of grant yet
to vest
$
M I Russell
100
S R Mitchell
100
n C Rose-Innes
a J Russell
100
–
S C Dehne
100
D M Hoskins
–
J M Stevenson
100
–
–
–
–
–
–
–
2011
2011
2011
2010
2010
2010
2009
2011
2011
2011
2010
2010
2010
2011
2011
2011
2010
2010
2010
2009
2008
2011
2011
2011
2011
2010
2010
2010
2011
2011
2011
2011
2011
2011
2010
2010
2010
2009
2008
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
30/6/2012
–
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
30/6/2012
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
30/6/2012
30/6/2012
–
30/6/2012
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
30/6/2012
30/6/2015
30/6/2014
30/6/2013
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
30/6/2012
30/6/2012
–
nil
nil
nil
nil
nil
nil
–
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
–
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
–
76,072
68,991
55,954
57,577
42,452
9,717
–
23,160
21,000
17,036
15,029
11,081
2,536
19,729
17,889
14,508
14,933
11,010
2,520
1,354
–
12,337
8,823
8,002
6,485
6,510
4,800
1,099
6,615
5,996
4,862
7,442
6,748
5,469
5,704
4,205
963
665
–
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.
Insurance of Directors and Officers
Insurance premiums were paid for the year ended 30 June 2011 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:
n Costs and expenses incurred by relevant Directors and Officers in defending any proceedings; and
n Other liabilities that may arise from their position, with the exception of conduct involving dishonesty, wrongful acts, or improper use of
information or position to gain personal advantage.
Mortgage Choice annual Report 2011 Directors’ Report
13
Directors’ Report (continued)
The Company has entered into deeds of access, insurance and indemnity with the Directors, 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 non-audit services provided during the year are set out
below.
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
Consolidated
2011
$
2010
$
9,000
9,000
8,000
8,000
23,900
10,645
34,545
23,700
30,610
54,310
43,545
62,310
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
24 august 2011
14
Corporate Governance Statement
for the year ended 30 June 2011
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 (including 2010 amendments to the extent that they apply to the
Company’s financial year ended 30 June 2011).
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.
Principle 2: Structure the Board to add value
The Board comprises two non-Executive Directors and four independent non-Executive Directors including the Chairman, Peter Ritchie,
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.
Mortgage Choice annual Report 2011 Corporate Governance Statement
15
Corporate Governance Statement (continued)
Corporate Governance Statement (continued)
Corporate Governance Statement (continued)
Board size, composition and independence
The Charter states that:
n
n
there must be a minimum of five Directors and a maximum of seven Directors;
the Board must comprise:
– a majority of independent non-Executive Directors;
– Directors with an appropriate range of skills, experience and expertise;
– Directors who can understand and competently deal with current and emerging business issues; and
– Directors who can effectively review and challenge the performance of management and exercise independent 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 2011.
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.
16
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.
Diversity policy
The Company believes that embracing diversity in its workforce contributes to the achievement of its corporate objectives and enhances its
reputation. as a result the Company has developed a diversity policy. It enables the Company to:
n
recruit the right people from a diverse pool of talented candidates;
n make more informed and innovative decisions, drawing on the wide range of ideas, experiences, approaches and perspectives that
employees from diverse backgrounds, and with differing skill sets, bring to their roles; and
n better represent the diversity of all our stakeholders.
The Company is committed to achieving the goals of:
(a) providing access to equal opportunities at work based on merit; and
(b) fostering a corporate culture that embraces and values diversity.
We are an equal opportunity employer and welcome people from a diverse set of backgrounds.
The diversity policy includes requirements for the Board to establish measurable objectives for achieving gender diversity, and for the Board
to assess annually both the objectives, and the Company’s progress in achieving them.
a copy of the Diversity Policy is 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.
Mortgage Choice annual Report 2011 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 information that a reasonable person would expect to have a material effect on the price of
the Company’s securities 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;
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.
18
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, Rodney Higgins and Sean Clancy.
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.
Mortgage Choice annual Report 2011 Corporate Governance Statement
19
20
Financial Report
for the year ended 30 June 2011
The financial statements were
authorised for issue by the
Directors on 24 August 2011.
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.
contents
22 ⁄ Consolidated income statement
23 ⁄ Consolidated statement of comprehensive income
24 ⁄ Consolidated balance sheet
25 ⁄ Consolidated statement of changes in equity
26 ⁄ Consolidated statement of cash flows
27⁄ notes to the consolidated financial statements
61⁄ Directors’ declaration
62 ⁄ Independent audit report to members of Mortgage Choice limited
Mortgage Choice annual Report 2011 Financial Report
21
Consolidated Income Statement
for the year ended 30 June 2011
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
8
30
30
2011
$’000
2010
$’000
169,002
170,513
504
815
(95,099)
(103,417)
(5,005)
(7,629)
(1,955)
(4,808)
(15,681)
39,329
(11,870)
27,459
Cents
22.9
22.7
(4,677)
(8,378)
(1,800)
(4,709)
(14,879)
33,468
(9,989)
23,479
Cents
19.7
19.5
The above consolidated income statement should be read in conjunction with the accompanying notes.
Mortgage Choice annual Report 2011 Consolidated Income Statement
22
Consolidated Statement of
Comprehensive Income
for the year ended 30 June 2011
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners
of Mortgage Choice Limited
notes
2011
$’000
27,459
–
2010
$’000
23,479
–
27,459
23,479
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Mortgage Choice annual Report 2011 Consolidated Statement of Comprehensive Income
23
Consolidated Balance Sheet
as at 30 June 2011
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
2011
$’000
2010
$’000
9
10
11
12
13
14
15
16
17
18
19
20
21(a)
21(b)
9,027
92,082
101,109
10,042
83,315
93,357
208,262
184,326
1,534
847
3,159
1,759
813
3,516
213,802
190,414
314,911
283,771
60,673
1,899
807
63,379
126,121
34,704
397
58,372
2,664
539
61,575
114,795
29,615
507
161,222
144,917
224,601
206,492
90,310
77,279
1,207
1,141
87,962
1,207
597
75,475
90,310
77,279
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Mortgage Choice annual Report 2011 Consolidated Balance Sheet
24
Consolidated Statement of
Changes in Equity
for the year ended 30 June 2011
Balance at 1 July 2009
notes
Contributed
equity
$’000
808
Reserves
$’000
471
Retained
earnings
$’000
65,117
Total
$’000
66,396
Total comprehensive income for the year as reported in the
2010 financial statements
–
–
23,479
23,479
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
Balance at 30 June 2010
Total comprehensive income for the year as reported in the
2011 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
31
22
31
31
22
31
399
–
–
399
1,207
–
–
–
–
(59)
–
185
126
597
–
–
–
544
544
–
(13,121)
–
340
(13,121)
185
(13,121)
(12,596)
75,475
77,279
27,459
27,459
–
–
(14,972)
(14,972)
–
544
(14,972)
(14,428)
Balance at 30 June 2011
1,207
1,141
87,962
90,310
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Mortgage Choice annual Report 2011 Consolidated Statement of Changes in Equity
25
Consolidated Statement of Cash Flows
for the year ended 30 June 2011
notes
2011
$’000
2010
$’000
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Interest received 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 property, plant and equipment
Interest received
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
29
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.
123,653
(111,377)
12,276
25,280
(15,681)
(7,580)
14,295
(934)
–
5
591
(338)
–
(14,972)
(14,972)
(1,015)
10,042
9,027
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
Mortgage Choice annual Report 2011 Consolidated Statement of Cash Flows
26
Notes to Consolidated
Financial Statements
for the year ended 30 June 2011
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, 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.
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 2011 and the results of all subsidiaries for the year then ended. Mortgage Choice
limited and its subsidiaries together are referred to in this financial report as the Group or the Consolidated entity.
Subsidiaries are all those entities 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 deconsolidated from the date that
control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1G).
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.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
27
Note 1. Summary of significant accounting policies (continued)
(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.
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.
28
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
standalone 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
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.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
29
Note 1. Summary of significant accounting policies (continued)
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.
H.
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). nonfinancial assets that have suffered impairment are reviewed for possible reversal
of that impairment at each reporting date.
I. Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial
institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value. Overdrafts are shown in borrowings in
current liabilities on the balance sheet.
J. 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.
K. Trailing commissions receivable
Receivables related to trailing commissions are recognised in accordance with the revenue recognition policy outlined in note 1D.
L.
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.
Loans and receivables
loans and receivables are nonderivative 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.
30
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
Furniture and fittings
5 – 10 years
3 – 4 years
10 – 15 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (note 1H).
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).
O. 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.
P. Trailing commissions payable
Payables related to trailing commissions are recognised in accordance with the revenue recognition policy outlined in note 1D.
Q. Borrowing costs
Borrowing costs are recognised as expenses.
R. 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.
S. Employee benefits
Short-term obligations
liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 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 12 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.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
31
Note 1. Summary of significant accounting policies (continued)
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 31.
The fair value of options granted under the Mortgage Choice Executive Performance Option Plan and performance shares 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 performance shares 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 performance shares granted under the Mortgage Choice Performance
Share Plan are administered by the Mortgage Choice Performance Share Plan Trust; see note 1B (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
12 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.
Where any group company purchases the company’s equity instruments, for example as the result of a share buy-back or a share-
based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted
from equity attributable to the owners of Mortgage Choice limited as treasury shares until the shares are cancelled or reissued. Where
such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction
costs and the related income tax effects, is included in equity attributable to the owners of Mortgage Choice limited.
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.
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.
32
X. 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.
Y. New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2011 reporting periods.
The Group’s assessment of the impact of these new standards and interpretations is set out below.
AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and
AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1
January 2013)
aaSB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities.
The standard is not applicable until 1 January 2013 but is available for early adoption. When adopted, the standard will affect in
particular 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.
There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The
derecognition rules have been transferred from aaSB 139 Financial Instruments: Recognition and Measurement and have not been
changed. 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 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (effective for
annual reporting periods beginning on or after 1 July 2011)
amendments made to aaSB 7 Financial Instruments: Disclosures in november 2010 introduce additional disclosures in respect of
risk exposures arising from transferred financial assets. The amendments will affect particularly entities that sell, factor, securitise, lend
or otherwise transfer financial assets to other parties. They are not expected to have any significant impact on the group’s disclosures.
The group intends to apply the amendment from 1 July 2011.
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 32 has been prepared on the same basis as
the consolidated financial statements, except as set out below.
(i)
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.
(ii) 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
standalone 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
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
33
Note 1. Summary of significant accounting policies (continued)
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.
(iii) 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
2011
$’000
2010
$’000
9,027
92,082
10,042
83,315
208,262
309,371
184,326
277,683
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 2011 the weighted average interest rate on its
cash balances was 4.6% (2010 4.5%). If interest rates were to increase by 100 basis points, the Group’s after tax result would increase
by $97,000 (2010 $68,000). a decrease of 100 basis points would reduce the Group’s after tax result by $97,000 (2010 $68,000).
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.
34
2011
aDIs
non aDIs
Total receivable
2010
aDIs
non aDIs
Total receivable
Current assets
Standard &
Poor’s credit
rating
Trade
receivables
NPV future
trailing
commissions
receivable
Non-current
assets
NPV future
trailing
commissions
receivable
aa
a+
a
BBB+
BBB
BBB-
not rated
a+
not rated
$’000
7,862
1,452
227
703
193
77
40
10,554
13
220
233
10,787
$’000
56,230
12,843
909
4,846
1,322
304
357
76,811
–
1,226
1,226
78,037
Current assets
Standard &
Poor’s credit
rating
Trade
receivables
NPV future
trailing
commissions
receivable
aa
a+
a
BBB+
BBB
not rated
a+
not rated
$’000
8,294
1,025
643
440
232
398
$’000
52,221
6,915
4,388
2,114
1,335
2,843
11,032
69,816
180,026
8
315
323
11,355
–
1,648
1,648
71,464
–
4,250
4,250
184,276
$’000
150,063
34,274
2,426
12,933
3,529
811
953
204,989
–
3,273
3,273
208,262
Non-current
assets
NPV future
trailing
commissions
receivable
$’000
134,656
17,830
11,314
5,452
3,441
7,332
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
35
Note 2. Financial Risk Management (continued)
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 2011
Non-derivatives
Interest bearing
Cash and cash equivalents
Other receivables
Non-interest bearing
Cash and cash equivalents
Trade receivables
Other receivables
Future trailing commissions
receivable
At 30 June 2010
Non-derivatives
Interest bearing
Cash and cash equivalents
Non-interest bearing
Cash and cash equivalents
Trade receivables
Other receivables
Future trailing commissions
receivable
C. Liquidity risk
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
9,024
88
3
11,078
1,979
42,082
64,254
–
85
–
–
5
–
166
–
–
39
–
466
–
–
–
–
603
–
–
–
9,024
1,408
3
11,078
2,023
9,024
944
3
11,078
2,023
39,942
40,032
69,937
70,142
136,694
137,160
103,485
104,088
392,140
415,676
286,299
309,371
Less than 6
months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years Over 5 years
$’000
$’000
Total cash
flows
$’000
Carrying
amount
$’000
10,039
3
11,355
479
40,409
62,285
–
–
–
17
–
–
–
33
–
–
–
17
–
–
–
–
3
11,355
546
10,039
10,039
38,666
38,683
65,494
65,527
121,341
121,358
90,596
90,596
356,506
378,449
3
11,355
546
255,740
277,683
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 2011
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Future trailing commissions
payable
Less than 6
months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years Over 5 years
$’000
$’000
Total cash
flows
$’000
Carrying
amount
$’000
9,675
3,987
25,292
38,954
–
108
24,023
24,131
–
82
42,222
42,304
–
46
61,804
61,850
–
–
9,675
4,223
83,744
83,744
237,085
250,983
9,675
4,223
172,896
186,794
36
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
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years Over 5 years
$’000
$’000
Total cash
flows
$’000
Carrying
amount
$’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
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)
2011
2010
4.1 years
3.9 years
10.2%
10.9%
60%
62%
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:
– an increase in net assets of $5.2 million (made up of increases in current assets of $0.7 million, non-current assets of $18.2 million,
current liabilities of $0.5 million, non-current liabilities of $11.0 million and deferred tax liabilities of $2.2 million) if favourable; or
– a decrease in net assets of $4.6 million (made up of decreases in current assets of $0.7 million, non-current assets of $16.1 million,
current liabilities of $0.4 million, non-current liabilities of $9.8 million and deferred tax liabilities of $2.0 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 2011 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
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
37
Note 3. Critical accounting estimates and judgements (continued)
extension of the current economic environment for the short to medium term. These refinements to the trailing commission model
resulted in a $12.3 million adjustment after tax to the Group’s profit and loss for FY2011 (2010 - $9.0 million).
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 financials.
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.
The Chief Executive Officer 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.
B.
Information provided to the Chief Executive Officer
Information provided to the Chief Executive Officer for the year ended 30 June 2011 is as follows:
2011
2010 % change
2011
2010 % change
Origination commission income
Trailing commission income
Origination commission paid
Trailing commission paid
Net core commissions
non-core products net revenue
Help Me Choose and loanKit
net revenue
Other income
Gross profit
Operating expenses
Share based remuneration
net profit before tax
Net profit after tax
$’000
49,093
83,777
Cash*
$’000
52,150
82,931
132,870
135,081
34,752
50,540
85,292
47,578
525
881
1,906
37,237
51,329
88,566
46,515
460
144
1,804
50,890
48,923
28,284
27,900
–
22,606
15,915
–
21,023
14,825
(6%)
1%
(2%)
(7%)
(2%)
(4%)
2%
14%
512%
6%
4%
1%
8%
7%
$’000
49,093
114,336
163,429
34,752
63,832
98,584
64,845
525
881
1,906
68,157
28,284
544
39,329
27,459
Reported
$’000
52,150
115,150
167,300
37,237
70,920
108,157
59,143
460
144
1,804
61,551
27,900
185
33,466
23,479
(6%)
(1%)
(2%)
(7%)
(10%)
(9%)
10%
14%
512%
6%
11%
1%
194%
18%
17%
* 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.
38
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.
Revenue reconciles to total revenue from continuing operations as follows:
Origination commission income
Trailing commission income
non-core gross revenue
non-core cost
non-core net revenue
Help Me Choose and loanKit revenue
Help Me Choose and loanKit costs
Help Me Choose and loanKit net revenue
Franchise income
Interest
Other income
Total other income
2011
$’000
49,093
114,336
163,429
2,421
1,750
811
591
2,421
(1,896)
525
1,750
(869)
881
811
591
504
1,906
2010
$’000
52,150
115,150
167,300
2,080
144
616
373
2,080
(1,620)
460
144
–
144
616
373
815
1,948
Total revenue from continuing operations
169,002
170,513
(ii) Net profit after tax
The cash net profit after tax reconciles to the reported profit after tax as follows:
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
Plus reversal of amortisation of trail liability*
less 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.
2011
$’000
15,915
14,007
(14,776)
12,325
188
344
(544)
2010
$’000
14,825
13,042
(13,810)
8,991
252
364
(185)
27,459
23,479
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
39
Note 5
Revenue
Revenue from continuing operations
Sales revenue
Services
Other revenue
Interest (note a)
2011
$’000
2010
$’000
143,132
146,069
25,870
169,002
24,444
170,513
A.
Interest
Interest income comprises the unwinding of discount in relation to the receipt of trailing commission and interest earned on deposits
and loans.
Note 6
Other income
Conference sponsorships (note a)
Other
A. Conference sponsorships
2011
$’000
485
19
504
2010
$’000
813
2
815
lenders sponsor Mortgage Choice’s national Conference, High Flyers’ Conference, quarterly state conferences, and periodic training
days and workshops.
Note 7
Expenses
Profit from ordinary activities before income tax includes the following specific expenses:
Finance costs
Interest and finance charges (note a)
Net loss on disposal of property, plant and equipment
Depreciation
Plant and equipment
Amortisation
leasehold improvements
Computer software
Other provisions
Employee entitlements
Rental expense relating to operating leases
Defined contribution superannuation expense
Termination benefits
A.
Interest and finance charges
Interest expense comprises the unwinding of the discount in relation to payment of trailing commission to franchisees.
2011
$’000
2010
$’000
15,681
14,879
–
339
222
953
158
953
33
–
323
222
560
13
914
105
40
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% (2010 – 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
A. Risk exposure
2011
$’000
6,865
5,055
(50)
11,870
2010
$’000
5,886
4,161
(58)
9,989
11,870
9,989
(4,106)
9,161
5,055
(5,769)
9,930
4,161
39,329
33,468
11,799
10,040
121
11,920
(50)
11,870
7
10,047
(58)
9,989
2011
$’000
9,027
2010
$’000
10,042
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.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
41
Note 10
Current assets – Trade and other receivables
Trade receivables (1)
net present value of future trailing commissions receivable
Franchisee receivables
Other receivables
Prepayments
2011
$’000
11,078
78,037
1,151
571
1,245
2010
$’000
11,355
71,464
124
147
225
92,082
83,315
(1) Subject to a limited charge in favour of The loan Book Security Trust (refer to note 15).
A. Other receivables
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
B. Effective interest rates and credit risk
Information about the Group’s exposure to credit risk and interest rate risk is provided in note 2.
C. Fair values
The carrying amounts of trade and other receivables at year end is a reasonable approximation of their fair values with the exception of
the net present value of future trailing commissions receivable which are accounted for at amortised cost.
Note 11
Non-current assets – Receivables
net present value of future trailing commissions receivable
Other receivables
A.
Impaired receivables and receivables past due
none of the non-current receivables are impaired.
B. Risk exposure
Information about the Group’s exposure to credit risk and interest rate risk is provided in note 2.
2011
$’000
2010
$’000
208,262
184,276
–
50
208,262
184,326
42
Note 12
Non-current assets – Property, plant and equipment
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
Year ended 30 June 2011
Opening net book amount
additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2011
Cost
accumulated depreciation
net book amount
Plant and
equipment
$’000
Leasehold
improvements
$’000
1,191
255
(1)
(323)
1,122
2,029
(907)
1,122
1,122
334
–
(339)
1,117
2,362
(1,245)
1,117
855
4
–
(222)
637
1,406
(769)
637
637
4
(2)
(222)
417
1,397
(980)
417
Total
$’000
2,046
259
(1)
(545)
1,759
3,435
(1,676)
1,759
1,759
338
(2)
(561)
1,534
3,759
(2,225)
1,534
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 12 months
Deferred tax assets to be recovered after more than 12 months
2011
$’000
2010
$’000
51,869
47,797
639
99
109
52,716
(51,869)
847
14,326
38,390
52,716
580
108
125
48,610
(47,797)
813
14,046
34,564
48,610
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
43
Note 13. Non-current assets – Deferred tax assets (continued)
Movements
At 30 June 2009
Charged/(credited) to the income
statement
At 30 June 2010
Charged/(credited) to the income
statement
At 30 June 2011
NPV of
future trailing
commissions
payable
Employee
benefits
Depreciation
and
amortisation
Accrued
expenses
$’000
42,166
5,631
47,797
4,072
51,869
$’000
224
356
580
59
639
$’000
62
46
108
(9)
99
$’000
389
(264)
125
(16)
109
Other
$’000
–
–
–
–
–
Total
$’000
42,841
5,769
48,610
4,106
52,716
Note 14
Non-current assets – intangible assets
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
Year ended 30 June 2011
Opening net book amount
additions
amortisation charge
Closing net book amount
At 30 June 2011
Cost
accumulated amortisation
net book amount
Computer
software*
$’000
5,531
(2,806)
2,725
2,725
1,351
(560)
3,516
6,849
(3,333)
3,516
3,516
596
(953)
3,159
7,445
(4,286)
3,159
* Capitalised computer software includes internally generated software development costs. a significant component of these costs was
installed in December 2010 at which time amortisation commenced.
44
Note 15
Current liabilities – Trade and other payables
Trade payables(1)
net present value of future trailing commissions payable
licence fees repayable
Other payables
2011
$’000
9,675
46,905
154
3,939
60,673
2010
$’000
10,754
44,588
98
2,932
58,372
(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. The
independent trustee is aET Structured Finance Services Pty 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 2011, 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 $3,550,057 (2010 - $3,416,867). This is included as part of
the balance of trade payables at 30 June 2011 and would be subject to charge until disbursed to the eligible franchisees. The amount
subject to the charge would vary dependent 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 a
Employee entitlements – annual leave
Employee entitlements – long service leave
A. Make good provision
2011
$’000
130
558
119
807
2010
$’000
–
428
111
539
Mortgage Choice is required to restore the leased premises of its offices to their original condition at the end of the respective
lease terms. a provision has been recognised for the present value of the estimated expenditure required to remove any leasehold
improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of
the term of the lease or the useful life of the assets. Make good costs that are not expected to be settled within 12 months have been
included in non-current liabilities – provisions as detailed in note 19.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
45
Note 17
Non-current liabilities – Trade and other payables
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
Set-off of deferred tax assets pursuant to set-off provisions (note 13)
net deferred tax liabilities
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
Movements – Consolidated
At 30 June 2009
Charged to the income statement
At 30 June 2010
Charged to the income statement
At 30 June 2011
NPV of future
trailing
commissions
payable
$’000
67,056
9,666
76,722
9,168
85,890
Note 19
Non-current liabilities – Provisions
Make good provision (refer note 16)
Employee entitlements – long service leave
2011
$’000
2010
$’000
125,991
114,735
130
60
126,121
114,795
2011
$’000
2010
$’000
85,890
76,722
635
48
86,573
(51,869)
34,704
23,454
63,119
86,573
Intangibles
Prepayments
and other
receivables
$’000
$’000
426
229
655
(20)
635
–
35
35
13
48
2011
$’000
278
119
397
655
35
77,412
(47,797)
29,615
24,351
53,061
77,412
Total
$’000
67,482
9,930
77,412
9,161
86,573
2010
$’000
408
99
507
46
Note 20
Contributed equity
A. Share capital
Ordinary shares – fully paid
2011
shares
$’000
2010
shares
$’000
2011
$’000
2010
$’000
118,438
118,438
1,207
1,207
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.
Total contributed equity as at 30 June 2011:
Details
Total ordinary shares on issue
Treasury shares (note (i))
Total ordinary shares held as contributed equity
Number of
shares
119,948,255
(1,510,350)
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 31 for further information).
Date
30 June 2009
23 July 2009
Details
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
7 October 2010
30 June 2011
Balance
Shares issued to the Mortgage Choice Performance Share Plan Trust
Balance
Movements in ordinary share capital:
Date
30 June 2009
6 October 2009
15 July 2009
23 December 2009
23 December 2009
30 June 2010
8 October 2010
8 October 2010
30 June 2011
Details
Balance
Shares issued on exercise of options
Shares vested to employees under the Performance Share Plan
Shares issued to the Mortgage Choice Performance Share Plan Trust
Held as treasury shares
Balance
Shares issued to the Mortgage Choice Performance Share Plan Trust
Held as treasury shares
Balance
Number of
shares
833,162
(8,900)
355,538
1,179,800
330,550
1,510,350
$’000
808
387
12
–
–
1,207
–
–
1,207
Number of
shares
118,105,805
323,200
8,900
355,538
(355,538)
118,437,905
330,550
(330,550)
118,437,905
B. Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 31.
C. 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 – 13 of the remuneration report.
Mortgage Choice annual Report 2011 Notes to 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)
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
2011
$’000
597
597
544
–
–
1,141
2011
$’000
75,475
27,459
(14,972)
87,962
2010
$’000
597
471
185
(12)
(47)
597
2010
$’000
65,117
23,479
(13,121)
75,475
C. Nature and purpose of reserves
(i)
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.
48
Note 22
Dividends
A. Ordinary shares
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
Final dividend declared out of profits of the Company for the year ended 30 June 2010 of 6.5 cents
per fully paid share paid on 20 September 2010:
Fully franked based on tax paid @ 30%
6.5 cents per share
Interim dividend declared out of profits of the Company for the half-year ended 31 December 2010 of
6.0 cents per fully paid share paid 21 March 2011:
Fully franked based on tax paid @ 30%
6.0 cents per share
B. Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended the payment of
a final dividend of 7.0 cents per fully paid ordinary share, (2010 – 6.5 cents) fully franked based on tax
paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 19 September
2011 out of retained profits at 30 June 2011, but not recognised as a liability at year end, is
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% (2010 – 30%)
2011
$’000
2010
$’000
–
–
7,775
7,197
14,972
6,542
6,579
–
–
13,121
8,398
7,775
2011
$’000
2010
$’000
3,560
3,161
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 $3,599,000 (2010: $3,332,000).
Mortgage Choice annual Report 2011 Notes to 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
Share-based payments
Payments to KMP whose services are provided through external companies
Balance 30 June
Detailed remuneration disclosures are provided in the Directors’ report on pages 5 – 9 of the remuneration report.
B. Equity instrument disclosures relating to key management personnel
2011
$
2010
$
2,291,425
2,106,978
93,827
7,942
373,290
216,798
90,788
(15,171)
112,129
221,105
2,983,282
2,515,829
(i) Options and performance shares provided as remuneration and shares issued on exercise of such options
Details of options and performance shares provided as remuneration and shares issued on the exercise of such options,
together with terms and conditions of the options, can be found in Directors’ report on pages 10 – 13 of the remuneration report.
(ii) Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each Director of Mortgage Choice
limited and other key management personnel of the Group, including their personally related parties, are set out below.
2011
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
2,500,000
–
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
5050
Performance shares
The number of performance shares 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.
2011
Name
Key management personnel of the Group
M I Russell
S R Mitchell
n C Rose-Innes
a J Russell
S C Dehne
K Rampal
J a Hanka
D M Hoskins
2010
Balance
at the start
of the year
Granted as
compensation
Vested
Forfeited
Balance at
the end of
the year
Unvested
239,250
62,450
125,050
–
27,050
–
–
–
239,300
72,850
62,050
20,000
27,750
–
–
20,800
–
–
–
–
–
–
–
–
–
–
(29,300)
–
–
–
–
–
478,550
135,300
157,800
20,000
54,800
–
–
478,550
135,300
157,800
20,000
54,800
–
–
20,800
20,800
Name
Key management personnel of the Group
Balance
at the start
of the year
Granted as
compensation
Vested
Forfeited
Balance at
the end of
the year
Unvested
M I Russell
D l Ennis
n C Rose-Innes
M n Writer
S R Mitchell
D M Hoskins
S C Dehne
K Rampal
–
89,450
63,000
51,850
–
–
–
–
239,250
54,500
62,050
36,350
62,450
–
27,050
–
–
–
–
–
–
–
–
–
–
239,250
239,250
(143,950)
–
–
–
125,050
125,050
(88,200)
–
–
–
–
–
–
62,450
62,450
–
–
27,050
27,050
–
–
Mortgage Choice annual Report 2011 Notes to 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.
2011
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
S R Mitchell
n C Rose-Innes
a J Russell
S C Dehne
K Rampal
J a Hanka
D M Hoskins
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
Balance at the
start of the year
Received during
the year on the
vesting of
shares
Other changes
during the year
Balance at the
end of the year
350,125
50,000
822,939
15,226,215
2,000,000
50,000
–
–
–
–
–
–
–
67,730
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
–
20,000
–
–
–
–
–
–
350,125
50,000
822,939
15,226,215
2,000,000
100,000
–
20,000
–
–
–
–
–
67,730
Balance at the
start of the year
Received during
the year on the
vesting of
shares
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
–
–
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.
52
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
nonrelated audit firms:
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
Contingent liabilities
2011
$
2010
$
189,600
189,600
193,214
193,214
9,000
9,000
8,000
8,000
23,900
10,645
34,545
43,545
23,700
30,610
54,310
62,310
The Group had contingent liabilities at 30 June 2010 in respect of:
Guarantees
Guarantees given in respect of premises leases $975,322 (2010: $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 2011 and 30 June 2010, 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.
Mortgage Choice annual Report 2011 Notes to 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.
2011
$’000
2010
$’000
1,131
1,310
–
2,441
1,090
2,068
–
3,158
2011
$’000
2010
$’000
112
–
112
–
–
–
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 production 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.
B. Subsidiaries
The loanKit business is operated through Beagle Finance Pty limited, a wholly owned subsidiary of Mortgage Choice limited.
C. 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.
D Loans to/from related parties
The Group has formed a trust to administer the Group’s employee share scheme. This is funded by the parent entity. This trust is
consolidated, as the substance of the relationship is that the trust is controlled by the Group.
no provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in
respect of bad or doubtful debts due from related parties.
54
Note 28
Events occurring after the balance sheet date
A. Dividend payment
a final ordinary dividend of $8,398,000 (7.0 cents per fully paid share) was declared out of profits of the Company for the year ended
30 June 2011 on 24 august 2011 to be paid on 19 September 2011.
The financial effects of the above transaction have not been brought to account at 30 June 2011.
Note 29
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
Interest received
net (gain)/loss on sale of non-current assets
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in deferred tax asset
(Increase)/decrease in other operating assets
(Decrease)/increase in trade payables
Increase/(decrease) in other operating liabilities
(Decrease)/increase in provision for income taxes payable
Increase/(decrease) in provision for deferred income tax
Increase/(decrease) in other provisions
net cash inflow from operating activities
2011
$’000
27,459
1, 514
(30,559)
13,573
544
(591)
(3)
(1,124)
(34)
(1,020)
(1,009)
1,063
(765)
5,089
158
14,295
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
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
55
Note 30
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:
Options
Weighted average number of ordinary shares and potential ordinary
shares used as the denominator in calculating diluted earnings per share
Information concerning the classification of securities
A. Options
Consolidated
2011
Cents
22.9
22.7
$’000
27,459
2010
Cents
19.7
19.5
$’000
23,479
2011
Number
2010
number
119,859,505
119,361,350
916,629
1,251,341
120,776,134
120,612,691
Options granted to employees under the Mortgage Choice Executive Performance Option Plan are considered to be potential
ordinary shares and have been included in the determination of diluted earnings per share. The options have not been included
in the determination of basic earnings per share. Details relating to the options are set out in the remuneration report.
B. Performance Share Plan
Share issued to employees under the Mortgage Choice Performance Share Plan are considered to be ordinary shares and have
been included in the determination of basic earnings per share. Details relating to the shares are set out in the remuneration
report.
Note 31
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
2011, 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
10 years after the date of offer;
three months, or such other period determined by the Board, after the participant ceases employment for a reason other than a
‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or any other reason determined by the Board); and
n
12 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
56
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 12 and 13 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 nontradeable
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 riskfree 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.
Set out below are summaries of options granted under the plan:
Exercise
price
Balance at
start of the
year
number
Granted
during the
year
number
Exercised
during the
year
number
Expired
during the
year
number
Forfeited
during the
year
number
Balance at
end of the
year
number
Exercisable
at end of
the year
number
Grant date
Expiry date
2011
1 May
2009
Total
1 May
2019
$0.76
2,500,000
2,500,000
Weighted average exercise price
$0.76
2010
10 august
2004
2 September
2005
1 May
2009
Total
10 august
2014
2 September
2015
1 May
2019
$1.05
415,400
$1.43
287,820
$0.76
2,500,000
3,203,220
Weighted average exercise price
$0.86
–
–
–
–
–
–
–
–
–
–
–
(323,200)
–
–
(323,200)
$1.05
–
–
–
–
–
–
–
–
–
–
–
2,500,000
2,500,000
2,500,000
2,500,000
$0.76
$0.76
(92,200)
(287,820)
–
–
–
–
-
2,500,000
1,700,000
(380,020)
2,500,000
1,700,000
$1.34
$0.76
$0.76
The weighted average remaining contractual life of share options outstanding at the end of the period was 7.82 years (2010 – 8.82
years).
B. Performance Share Plan (PSP)
The PSP permits eligible employees as identified by the Board to be offered allocated unvested shares from the outset of the
applicable performance period, with the shares to be held on trust for the participants by a share plan trustee. 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 vested shares will lapse if the performance criteria have not been met
at the end of the performance period. Offers made under the PSP subsequent to the year ended 30 June 2009 are based on service
requirements.
Shares will be acquired for participants following their acceptance of an offer made under the Plan. The shares will be acquired by
the plan trustee and held on trust for participants until they are withdrawn from the Plan (after they have vested or are deemed to be
vested) or are forfeited, in circumstances outlined below. Shares will be acquired only at times permitted under the Company’s share
trading policy. Shares may be acquired by on-market or off-market purchases, by subscribing for new shares to be issued by the
Company, or through the reallocation of forfeited shares. The method of acquisition for each share allocation will be determined by the
Board. The costs of all share acquisitions under the Plan will be funded by the Group. Participants will not be required to make any
payment for the acquisition of shares under the Plan.
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.
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
57
Note 31. Share-based payments (continued)
a notice of Withdrawal may be lodged by a participant following the earlier of:
n
n
n
n
1 July in the year (being a period commencing 1 July and ending 30 June) that is 10 years after the year in which the offer is
made and is accepted by the participant;
the participant ceasing to be an employee of the Company;
a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the Company) occurring; or
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). If a participant resigns from his or her employment with the Company, or otherwise ceases employment in
circumstances not involving “special circumstances”, the participant will be required to forfeit any unvested shares held under the Plan
on the participant’s behalf, unless the Board otherwise determines. Vested shares will be eligible for withdrawal in accordance with the
usual procedure.
If a participant ceases to be employed by the Company or retires from office as a result of special circumstances (including death,
disability, retirement, redundancy, corporate restructure, or any other circumstances determined by the Board), the Board may in
its discretion determine that all or a portion of the participant’s unvested shares are to be treated as vested shares, notwithstanding
the fact that the vesting conditions applicable to the shares have not been met because the applicable performance period has not
expired.
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 performance shares 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 performance shares, 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 performance shares. 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
Balance at
start of the
year
Granted
during the
year
Vested
during the
year
Expired
during the
year
Forfeited
during the
year
Balance at
end of the
year
Vested at
end of the
year
number
number
number
number
number
number
number
2011
31 august
2007
31 august
2008
9 December
2009
9 December
2009
9 December
2009
20 September
2010
20 September
2010
20 September
2010
24 December
2010
Total
31 august
2010
31 august
2011
31 august
2011
31 august
2012
31 august
2013
3 September
2012
3 September
2013
3 September
2014
1 December
2011
$2.20
73,700
$1.00
167,900
$1.24
194,133
$1.24
194,133
$1.24
194,133
–
–
–
–
–
$1.16
$1.17
$1.19
$1.37
–
–
–
–
210,999
210,999
211,002
20,000
823,999
653,000
Weighted average price
$1.28
$1.18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(73,700)
–
–
167,900
(11,433)
182,700
(11,433)
182,700
(11,433)
182,700
(7,283)
203,716
(7,283)
203,716
(7,284)
203,718
–
20,000
(129,849)
1,347,150
$1.77
$1.18
–
–
–
–
–
–
–
–
–
–
58
Offer date
Vesting date
Value
Balance at
start of the
year
Granted
during the
year
Vested
during the
year
Expired
during the
year
Forfeited
during the
year
Balance at
end of the
year
Vested at
end of the
year
number
number
number
number
number
number
number
2010
12 December
2006
31 august
2007
31 august
2008
9 December
2009
9 December
2009
9 December
2009
Total
31 august
2009
31 august
2010
31 august
2011
31 august
2011
31 august
2012
31 august
2013
$2.21
62,100
$2.20
142,550
$1.00
319,350
–
–
–
$1.24
$1.24
$1.24
–
–
–
524,000
236,483
236,483
236,483
709,449
(4,550)
–
(4,350)
–
–
–
(8,900)
Weighted average price
$1.47
$1.24
$1.62
–
–
–
–
–
–
–
–
(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
–
–
–
–
–
–
–
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 0.68 years
(2010 – 1.79 years).
Two tranches of performance shares were issued in the year to 30 June 2011. The model inputs for performance shares granted on 20
September 2010 included:
(a) performance shares are granted for no consideration and vest over a period of four years;
(b) grant date: 20 September 2010 (2010 – 9 December 2009);
(c) share price at grant date: $1.16 (2010 – $1.25);
(d) expected price volatility of the company’s shares: 30% (2010 – 40%);
(e) expected dividend yield: 9.4% (2010 – 9.2%); and
(f)
risk-free interest rate: 2 years 4.20%, 3 years 4.15% and 4 years 4.16% (2010 – 5.25%).
The shares granted on 24 December 2010 were valued at the closing price on the day due to the short term nature of the grant.
C. Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense
were as follows:
Options issued under EPOP
Shares issued under PSP
Consolidated
2011
$’000
11
533
544
2010
$’000
33
152
185
Mortgage Choice annual Report 2011 Notes to Consolidated Financial Statements
59
Note 32
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
2011
$’000
2010
$’000
101,921
315,455
63,474
224,671
1,207
1,141
88,282
90,630
27,779
27,779
93,885
283,873
61,548
206,486
1,207
597
75,583
77,387
23,587
23,587
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
$975,322 (2010 $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 2011 or 30 June
2010.
60
Director’s Declaration
for the year ended 30 June 2011
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 21 – 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 2011 and of their performance, for the financial
year ended on that date; and
(b) note 1a 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
24 august 2011
Mortgage Choice annual Report 2011 Director’s Declaration
61
62
Mortgage Choice annual Report 2011 Independent Audit Report
63
Shareholder Information
as at 23 August 2011
The shareholder information set out below was applicable as at 23 august 2011.
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 80 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
Ochoa Pty ltd
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