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Flushing FinancialMORTGAGE CHOICE AnnuAl fInAnCIAl REPORT 2012
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Mortgage Choice was established in 1992 with
a vision of building a national network of
ethical, credible and professional mortgage
brokers who local communities could trust.
Today, we have sourced a home loan for well
over 350,000 clients thanks to our network of
hundreds of franchises that have access to an
extensive panel of lenders. Our brokers
empower clients by guiding them through the
mortgage maze and the process of becoming
a mortgage holder, without playing favourites.
Importantly, we pay franchisees the same
commission rate for the home loans they write,
regardless of the rate paid by the lender
selected by our clients.
A strong commitment to client convenience
and our ‘duty of care’ is why many of our
brokers now also access personal loans,
commercial loans, asset finance and risk
and general insurances.
Australia’s largest independently-operated
mortgage broker, Mortgage Choice has no
balance sheet funding risk, and consistently
delivers strong profits and attractive yields.
We listed on the Australian Stock Exchange in
2004 and are a member of the Mortgage &
Finance Association of Australia (MFAA).
Mortgage Choice holds an Australian Credit
Licence no. 382869, issued by ASIC.
contents
IFC Corporate directory
1
directors’ report
15 Corporate governance statement
21
62
64 shareholder information
financial report
Independent auditor’s report to the members
OCTOBER
18
notice of annual general Meeting
tHe annual general Meeting of
Mortgage cHoice liMited will Be Held at:
Mortgage cHoice liMited
level 10, 100 Pacific HigHway
nortH sydney nsw 2060
tiMe: 10.00 aM
date: 18 octoBer 2012
directors
P d ritcHie
CHAIRMAn
s J clancy
P g Higgins
r g Higgins
s c JerMyn
d e ralston
cHief executive officer
M i russell
secretary
d M Hoskins
executives
s r MitcHell
CHIEf fInAnCIAl OffICER
n c rose-innes
GEnERAl MAnAGER, OPERATIOns
a J russell
GEnERAl MAnAGER,
PROduCT And dIsTRIbuTIOn
s c deHne
CEO Of lOAnKIT
MORTGAGE CHOICE lIMITEd ACn 009 161 979
PrinciPal registered office
in australia
level 10, 100 Pacific HigHway
nortH sydney nsw 2060
(02) 8907 0444
sHare register
link Market services liMited
level 12, 680 george street
sydney nsw 2000
(02) 8280 7111
auditor
PricewaterHousecooPers
cHartered accountants
darling Park tower 2
201 sussex street
sydney nsw 2000
solicitors
Minter ellison
aurora Place, 88 PHilliP street
sydney nsw 2000
Bankers
anZ Banking grouP liMited
116 Miller street
nortH sydney nsw 2060
stock excHange listing
Mortgage cHoice liMited sHares
are listed on tHe australian
securities excHange.
weBsite address
www.MortgagecHoice.coM.au
1
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 2012, 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:
■■ 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 $8.396 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 and paid on 19 September 2011.
An interim ordinary dividend of $7.219 million (6.0 cents per fully paid share) was declared out of profits of the Company for the half-year
ended 31 December 2011 on 22 February 2012 and paid on 19 March 2012.
A final ordinary dividend of $8.422 million (7.0 cents per fully paid share) was declared out of profits of the Company for the year ended
30 June 2012 on 23 August 2012 to be paid on 18 September 2012.
Review of operations
Operational results for the year
The core Mortgage Choice brokerage business saw an increase in the number of franchisees recruited in FY2012 as well as a strong
increase in the level of approvals and settled loans despite subdued credit growth in the housing finance market over the period. This
increase in approvals and settlements was spurred by a reduction in the cash rate of 50 basis points over November and December 2011
and a further reduction of 75 basis points over May and June 2012. The cash rate reductions coupled with intense competition among
lenders led to an increased level of refinancing and first homebuyer enquiries in the Mortgage Choice brokerage business.
Mortgage Choice – residential, excluding LoanKit
Loans approved – $m
Change
Loans settled – #
Change
Loans settled – $m
Change
2012
10,144
6.5%
31,443
3.2%
8,725
4.9%
2011
9,527
(4.5%)
30,473
(10.6%)
8,319
(6.4%)
The Company’s residential loan book grew by 5.2% to $43.3bn. The Group’s loan book, including the residential loan book of LoanKit and
diversified lending, grew by 6.6% to $45.1bn.
for the year ended 30 June 2012DIRECTORS’ REPORTMortgage ChoiCe annual report 2012 Directors’ report During the year the Group continued to invest in its newer initiatives. LoanKit, a mortgage brokerage aggregation business purchased
in November 2009, experienced an increase in the number of brokers utilising LoanKit software and aggregation services leading to
increased settlements of approximately 188% as compared to FY2011. HelpMeChoose.com.au, a comparison website for health insurance
as well as life insurance and home loans purchased in October 2010, continued to improve its lead generation activities and backend
processes to attract a higher volume of visitors at a cheaper cost. This improvement resulted in a tripling of the gross profit per health
insurance sale, the primary profit driver of this business, over the financial year. The year also saw the beginnings of our new financial
planning business take shape with the team on track to deliver a pilot program in October 2012.
Financial results for the year
The profits for FY2012 reflect year on year growth in settlements as well as the Group’s continued investment in its new businesses.
The total investment in these diversified businesses before tax amounted to $1.9m but the strong performance of the Mortgage Choice
brokerage business during the year resulted in a limited reduction of 4.2% in the underlying result before tax.
The annual review of the historical trail book found that the run-off over the past year was less than expected and a positive 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 $15.1m adjustment to revenue and a $5.9m adjustment before tax to the Group’s profit for FY2012.
Approximately 92% of the $5.9m adjustment to pre-tax results arises from the change in forward assumptions.
The effect of the adjustment is summarised below.
Financial summary
Operating income
Underlying operating income
Adjustment to receivable loan book valuation
Total operating income
Profit before tax
Underlying result before tax
Adjustment to net loan book valuation
Total profit before tax
2012
$’000
2011
$’000
141,997
15,051
157,048
20,801
5,875
26,676
134,125
35,381
169,506
21,722
17,607
39,329
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
Over the past three years Mortgage Choice has focused its strategy on broadening its customer proposition to introduce new revenue
streams and on attracting new franchise owners into the network. This inward facing strategy was targeted at insulating the Group
against the effect of any further economic downturn and reversing the negative trends caused by the GFC and lender commission cuts.
While these initiatives remain important to the Group, Mortgage Choice is now turning its focus outwards towards business growth.
It is time to ACT:
■■ Acquire greater market share in our core mortgage business
■■ Cross-sell our mortgage customers into our financial planning business
■■ Transition the Group into a diversified financial services and wealth solutions business
Over the next three years the Group will focus on acquiring increased market share through focused marketing and public relations
campaigns, and sales and recruitment initiatives. The Group will introduce its mortgage customers to an irresistible consumer proposition
offered by its new financial planning business. These initiatives will begin the transition of Mortgage Choice from a mortgage broker to a
diversified financial services and wealth solutions business. Mortgage Choice’s investment in LoanKit and HelpMeChoose.com.au will
continue to play an important role in this transition by offering a wider net of customers and in the case of HelpMeChoose.com.au, a source
of leads to feed both the mortgage broking business as well as the risk insurance offering of the financial planning business.
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 2012 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.
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 3
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 Group Holdings Limited 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 70.
Sean Clancy Dip Mkt
Independent Non-Executive Director
Member of Audit and
Remuneration Committees
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 52.
Peter Higgins
Non-Executive Director
Member of Audit Committee
Rodney Higgins
Non-Executive Director
Member of Nomination and
Remuneration Committees
Steve Jermyn FCPA
Independent Non-Executive Director
Chairman of Audit Committee
Peter is 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 52.
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 57.
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 63.
Deborah Ralston PhD, FAICD, SFFin, FCPA
Independent Non-Executive Director
Member of Audit Committee
Deborah is Executive 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 59.
The table below sets out the Directors’ interests at 30 June 2012:
Director
P D Ritchie
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Particulars of Directors’ interests in share and options
350,125 ordinary shares
50,000 ordinary shares
822,939 ordinary shares
15,226,215 ordinary shares
2,000,000 ordinary shares
100,000 ordinary shares
Company Secretary
The Company Secretary is Mr David 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 2012,
and the numbers of meetings attended by each Director were:
Mortgage ChoiCe annual report 2012 Directors’ report
Full meetings of
Directors
A
9
8
7
7
8
8
B
9
9
9
9
9
9
Audit
A
*
3
2
*
3
3
B
*
3
3
*
3
3
Meetings of committees
Nomination
Remuneration
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, Steve Jermyn and Sean Clancy retire by rotation and, being eligible, offer themselves for re-election.
Remuneration report
The Directors are pleased to present the 2012 remuneration report which sets out remuneration information for the Company’s
Non-Executive Directors, Chief Executive Officer and other key management personnel (collectively KMP).
Directors and other key management personnel disclosed in this report
Name
Directors
Peter D Ritchie
Sean J Clancy
Peter G Higgins
Rodney G Higgins
Stephen C Jermyn
Deborah E Ralston
Other key management personnel
Michael I Russell
Susan R Mitchell
Neill C Rose-Innes
Andrew J Russell
Simon C Dehne
Justin A Hanka
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer
General Manager, Operations
General Manager, Product and Distribution
CEO of LoanKit
CEO of HelpMeChoose.com.au (to 28 November 2011)
Role of the Remuneration Committee
The Remuneration Committee is a committee of the Board which has the primary responsibility for making recommendations to the Board on:
■■ Non-Executive Director fees;
■■ remuneration levels of the Chief Executive Officer; and
■■ the over-arching executive remuneration framework and operation of the incentive plan.
Their objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the long-term interests of the
Company. In doing this, the Remuneration Committee seeks advice from independent remuneration consultants (see page 8 below).
The Corporate Governance Statement provides further information on the role of this committee.
Non-Executive Director remuneration policy
Fees paid to the Chairman and the Non-Executive Directors take into account the demands made on, and the responsibilities of, the
Directors. Initially the Board sought independent research material to ensure Non-Executive Directors fees, including those of the
Chairman, were appropriate and in-line with market. Subsequently the fees have been reviewed annually by the Board. The Chairman and
other Non-Executive Directors do not receive any short term cash incentives or share-based payments; nor do they receive additional
payments for representation on Board committees.
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 5
Directors’ fees
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 (including super) applied during the period of this report:
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 remuneration policy and framework
In determining executive remuneration, the Board aims to ensure that remuneration practices are:
■■ competitive and reasonable, enabling the company to attract and retain key talent
■■ aligned to the company’s strategic and business objectives and the creation of shareholder value;
■■ transparent, and
■■ acceptable to shareholders.
The executive remuneration framework has three components:
■■ base pay and non-cash benefits, including superannuation
■■ short term performance incentive, and
■■ medium- and long-term incentives through participation in the Mortgage Choice Executive Performance Option Plan (EPOP) and the
Performance Share Plan (PSP).
The remuneration policies described below apply to the senior executive officers and senior managers (‘executives’). All KMPs other than
Directors would be classified as either a senior executive officer or a senior manager and would therefore adhere to these policies.
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 plus any associated fringe benefits tax.
Executives are offered a competitive base pay that is reviewed annually in conjunction with external benchmarks to ensure it remains
competitive with the market. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases in any
executive 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 performance incentives
Should the Group achieve the profit target set by the Board each year, a pool of short-term incentive funds (STI) is made available for
allocation during the annual review. Any amounts awarded as STI are payable in cash following the signing of the annual report each year.
Using a profit target ensures variable reward is available only when value has been created for shareholders and when this value has
been achieved in a manner consistent with the business plan. In addition, some executives have a target STI opportunity based solely on
achieving a key performance indicator (KPI) related to the accountabilities of the role and its impact on the organisation’s or business unit’s
performance. These KPI’s are set annually between the executive and the Chief Executive Officer.
For executives, the maximum STI opportunity ranges from 52% of cash salary for the Chief Executive Officer to 25% to 32% of cash
salary for other executives. From time to time, bonuses may be paid outside this structure in relation to special projects or in special
circumstances. No such special bonuses were paid in the period covered by this report.
Medium and long-term incentives
Medium and 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 5-9 for further information.
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, performance period and service criteria.
Participation in the EPOP provides one component of the long-term incentive available to the selected executives within their aggregate
remuneration package. At the present time this is a legacy plan as options have not been issued under the plan since May 2009.
Mortgage ChoiCe annual report 2012 Directors’ report 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 years ending
30 June 2012, 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:
■■ ten years after the date of offer;
■■ three months, or such other period determined by the Board, after the participant ceases employment for a reason other than a
‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or any other reason determined by the Board); and
■■ twelve months, or such other period determined by the Board, after the participant ceases employment for a ‘qualifying reason’.
When a participant ceases to be employed by the Company prior to the end of the performance period, other than because of a ‘qualifying
reason’, any options that have not become exercisable will lapse. However, if there is cessation of employment due to a ‘qualifying reason’,
the Board may determine that some or all of the options may vest. In the event of a change of control of the Company, options will vest on
a pro-rata basis or in their entirety for certain senior executives.
If the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of harassment or discrimination, is in
serious breach of any duty to Mortgage Choice, or, in the Board’s reasonable opinion, has brought Mortgage Choice into serious disrepute,
any options held by the participant will lapse.
Offers made under the plan rules contain a restriction on removing the ‘at risk’ aspect of the instruments granted to executives.
Plan participants may not enter into any transaction designed to remove the ‘at risk’ aspect of an instrument before it vests.
Performance Share Plan (PSP)
The PSP permits eligible employees as identified by the Board to be granted 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 granted to those employees
are subject to the achievement of performance and service requirements as specified by the Board. The PSP is designed to provide
the medium-term to long-term incentive component of remuneration for executives and other designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees are granted shares to a value determined by reference to the
Company’s reward policy and market practice with regard to share-based incentive arrangements provided by peer organisations.
The right to receive vested shares will lapse if the performance and service criteria are not met.
Vesting criteria
Up to 30 June 2009, grants under the PSP vested based on performance criteria utilising a relative total shareholder return (TSR) calculation
given certain service requirements were also met. In response to the need to retain and incentivise talented staff in the economic aftermath
of the GFC when there was so much uncertainty in the economic climate, grants under the PSP dropped performance criteria as a vesting
requirement. In the financial years 2010 and 2011, grants under the PSP vested solely on service requirements over a four year period.
At the November 2011 Annual General Meeting (AGM) the Company received a “no” vote on its FY2011 remuneration report in excess of
the 25% hurdle for a “first strike.” The company did not receive any specific feedback at the AGM on its remuneration practices. However,
in response, the Company redesigned its share-based incentive plans in conjunction with a remuneration specialist. In the February 2012,
the grants made under the PSP, which comprise the grants for the 2012 financial year, the Company reintroduced performance hurdles
for 75% of the shares issued. These hurdles require the achievement of cash EPS targets or the achievement of TSR hurdles relative to a
comparator group to be met over a three year period for the shares to vest.
Details of FY2009 grant
Shares granted in FY2009 vest at the end of a three year period based on the performance of the Company’s TSR relative to that of a
comparator group established at offer date. Vesting is also dependent on continued employment to the end of the period. Partial vesting
is allowed if a base performance hurdle is achieved.
For example should Mortgage Choice’s TSR for the three year period exceed the 51st percentile of the TSR of the comparator group,
shares vest in accordance with the following vesting scale:
Company performance (TSR percentile ranking)
Percentage of TSR based performance shares granted
At or below the 50th percentile
At the 51st percentile
75th percentile or above
0%
52%
100%
Between the 51st percentile and 75th percentiles, an additional 2% of the TSR based performance shares vest for every percentile increase
in TSR ranking.
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 7
The TSR is the percentage increase in the Company’s share price plus reinvested dividends, expressed as a percentage of the initial
investment, and reflects the increase in value delivered to shareholders over the period. The Company’s TSR is compared to that of a
comparator group comprised of selected S&P ASX Top 300 companies. The comparator group excludes mining and resource companies,
as well as property related trusts or companies. The market capitalisation of the companies in the comparator group is within an
approximate range of 40% to 200% of the market capitalisation of the Company.
The initial comparator group for the year ended 30 June 2009 comprised: Allco Finance Group Limited, Austin Engineering Limited,
ASG Group Limited, Australian Vintage Limited, Avexa Limited, Amazing Loans Limited, Becton Property Group, Biota Holdings Limited,
Bravura Solutions Limited, Codan Limited, Costaexchange Limited, Clean Seas Tuna Limited, Customers Limited, Cedar Woods Properties
Limited, Coote Industrial Limited, DKN Financial Group Limited, DWS Advanced Business Solutions Limited, Dyesol Limited, Eservglobal
Limited, Forest Place Group Limited, Finbar Group Limited, Flexigroup Limited, GRD Limited, Gazal Corporation Limited, Infomedia Limited,
Keybridge Capital Limited, Maryborough Sugar Factory Limited, Orotongroup Limited, PRO Medicus Limited, Quantum Energy Limited, RCR
Tomlinson Limited, Regional Express Holdings Limited, Resource Generation Limited, Retail Food Group Limited, RP Data Limited, Specialty
Fashion Group Limited, SP Telemedia Limited, Sirtex Medical Limited, Structural Systems Limited, Southern Cross Electrical Engineering
Limited, Tox Free Solutions Limited, Thinksmart Limited, Universal Biosensors Inc., United Overseas Australia Limited, Vision Group Holdings
Limited, Viridis Clean Energy Group, VDM Group Limited, Webjet Limited, Wilson HTM Investment Group Limited, Wattyl Limited.
If any of the companies in the comparator group ceases to exist in its current form for any reason other than its liquidation, or if the Board
determines in its discretion that a company should no longer be in the comparator group because of an anomaly, distortion or other event
that is not directly related to the financial performance of that company, that company will cease to form part of the comparator group.
Details FY2010 and FY2011 grants
Shares offered in FY2010 and FY2011 vest over a four year period with a third vesting two years into the period, a third three years in and
the remaining third vesting at year four. The criterion for vesting is based on continuous service over the period to the vesting date. Detailed
vesting dates are shown for each tranche on page 11.
Details FY2012 grant
Shares granted in FY2012 are divided into three tranches each with its own vesting criteria. The two largest tranches (which comprise 75%
of the year’s grant) vest at the end of a three year period based on performance criteria as described below.
FY2012 grant first tranche
Shares offered in the first FY2012 tranche vest over a three year period with a third vesting one year into the period, a third two years in
and the remaining third vesting at year three. The criterion for vesting is based on continuous service over the period to the vesting date.
Detailed vesting dates are shown for each tranche on page 11.
FY2012 grant second tranche
The second tranche vests based on achieving a target compound growth in cash EPS (as declared to the market). The shares will vest at
the end of the three year performance period if the Company’s annual growth in cash based EPS on a compounded basis for the three
year period exceeds 2%. Above 2%, shares will vest in accordance with the following vesting scale:
Company compound annual growth in Cash EPS
Percentage of EPS based performance shares granted
Below 2%
At 2%
At or above 5%
0%
35%
100%
Between 2 percent and 5 percent, the percentage of EPS based performance shares to vest will increase from 35% to 100% as calculated
on a straight line basis.
FY2012 grant third tranche
The third tranche will vest based on a target TSR performance relative to a comparator group at the end of a three year period. Should the
Company’s TSR for the three year period exceed the 40th percentile of the TSR of the comparator group, shares vest in accordance with
the following vesting scale:
Company performance (TSR percentile ranking)
Percentage of TSR based performance shares granted
Below the 40th percentile
At the 40th percentile
90th percentile or above
0%
25%
100%
Between the 25th percentile and 90th percentiles, the TSR based performance shares will vest on a straight line basis.
The TSR is the percentage increase in the Company’s share price plus reinvested dividends, expressed as a percentage of the initial
investment, and reflects the increase in value delivered to shareholders over the period. The Company’s TSR is compared to that of a
comparator group comprised of selected listed companies included within ASX Financials with a market capitalisation of less than $1 billion
but more than $40 million at 30 January, 2012. The comparator group excludes property related trusts or companies.
Mortgage ChoiCe annual report 2012 Directors’ report The initial comparator group for the PSP offers made in FY2012 comprises: Perpetual Limited, SFG Australia Limited, FKP Property Group,
Peet Limited, NIB Holdings Ltd/Australia, Magellan Financial Group Limited, FlexiGroup Limited/Australia, Cedar Woods Properties Limited,
BT Investment Management Limited, Finbar Group Limited, United Overseas Australia Limited, ClearView Wealth Limited, Austbrokers
Holdings Limited, Euroz Limited, MyState Limited, The Trust Co Limited, Servcorp Limited, IMF Australia Limited, Wide Bay Australia
Limited, Bell Financial Group Limited, Forest Place Group Limited, Sunland Group Limited, Countplus Limited, RHG Limited, Equity
Trustees Limited, Devine Limited, K2 Asset Management Holdings Limited, Hunter Hall International Limited, AVJennings Limited, Payce
Consolidated Limited, HFA Holdings Limited, Treasury Group Limited, Phileo Australia Limited, Homeloans Limited, CIC Australia Limited,
Ozgrowth Limited, ThinkSmart Limited, Lifestyle Communities Limited, InvestorFirst Limited, Centrepoint Alliance Limited, ASF Group
Limited, Plan B Group.
If any of the companies in the comparator group ceases to exist in its current form for any reason other than its liquidation, or if the Board
determines in its discretion that a company should no longer be in the comparator group because of an anomaly, distortion or other event
that is not directly related to the financial performance of that company, that company will cease to form part of the comparator group.
PSP features applicable to all grants
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 Company. Participants will not be required to make any payment for the acquisition
of shares under the Plan.
A Notice of Withdrawal may be lodged by a participant following the earlier of:
■■ a date ten years from grant date;
■■ 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.
Use of remuneration consultants
During the year ending 30 June 2012, the Company’s Remuneration Committee employed the services of Guerdon Associates to review its
existing remuneration policies and to provide recommendations in respect of short-term and long-term incentive plan design for executives,
including KMP, as well as senior managers.
Under the terms of the engagement, Guerdons provided remuneration recommendations as defined in section 9B of the Corporations Act
2001 (Cth) and was paid $40,500 for these services. Guerdons has confirmed that the above recommendations have been made free from
undue influence by members of the group’s key management personnel.
The following arrangements were made to ensure that the remuneration recommendations were free from undue influence:
■■ Guerdons was engaged by, and reported directly to, the chair of the Remuneration Committee
■■ The agreement for the provision of remuneration consulting services was executed by the chair of the Remuneration Committee under
delegated authority of the Board
■■ The report containing the remuneration recommendations was provided by Guerdons directly to the chair of the Remuneration
Committee; and
■■ Guerdons was permitted to speak to management throughout the engagement to understand company processes, practices and
other business issues and obtain management perspectives. However, Guerdons was not permitted to provide any member of
management with a copy of their draft or final remuneration recommendations.
As a consequence, the Board is satisfied that the recommendations were made free from undue influence from any members of the key
management personnel.
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 9
Performance of Mortgage Choice Limited
Payments made under the STI plan are conditional upon the Company achieving a pre-determined profit target. A component of the grants
made under PSP in FY2012 is conditional on EPS growth. The following table lists Mortgage Choice Limited’s earnings per share (EPS):
Year
2008
2009
2010
2011
2012
EPS (cents per share)
16.4
22.6
19.7
22.9
15.4
Grants under the PSP, in FY2009 and a component of grants made under PSP in FY2012 are conditional 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 shows the Company’s TSR expressed as a percentage of the opening value of the investment for each period:
Year
2008
2009
2010
2011
2012
TSR
-73%
41%
24%
21%
14%
Details of remuneration
The following tables detail remuneration received for the 2011 and 2012 financial years by the Directors and other key management
personnel in place during the year ending 30 June 2012.
2012
Name
Non-Executive Directors
P D Ritchie
Chairman
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Cash
salary
$
125,000
75,000
75,000
75,000
75,000
75,000
Other key management personnel:
M I Russell
Chief Executive Officer
S R Mitchell
N C Rose-Innes
A J Russell
S C Dehne
J A Hanka
(from 1/7/11 to 23/2/12)
553,883
288,949
250,433
252,543
199,710
124,699
Short-term benefits
Non-
monetary
benefits
$
STI
$
–
–
–
–
–
–
–
–
–
–
–
–
286,915
91,392
80,000
76,800
48,925
29,259
384
384
8,213
–
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long
service
leave
$
Share-based
payments
Termination
benefits
$
Performance
shares
$
Total
$
11,250
6,750
6,750
6,750
6,750
6,750
15,775
15,775
15,775
15,775
15,775
–
–
–
–
–
–
7,302
3,969
5,532
824
1,948
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
136,250
81,750
81,750
81,750
81,750
81,750
219,808
64,033
58,904
23,864
26,427
1,112,942
464,502
411,028
378,019
292,785
–
134,397
–
–
10,112
(414)
Mortgage ChoiCe annual report 2012 Directors’ report 2011
Name
Non-Executive Directors
P D Ritchie
Chairman
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Cash
salary
$
121,250
71,250
71,250
71,250
71,250
71,250
Other key management personnel:
M I Russell
Chief Executive Officer
S R Mitchell
N C Rose-Innes
A J Russell
(from 2/12/10 to 30/6/11)
S C Dehne
J A Hanka
(from 1/10/10 to 30/6/11)
563,597
270,662
244,583
138,659
162,183
144,987
Short-term benefits
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long
service
leave
$
Share-based
payments
Termination
benefits
$
Performance
shares
$
Total
$
10,913
6,413
6,413
6,413
6,413
6,413
15,199
15,199
15,199
8,866
15,199
10,133
–
–
–
–
–
–
2,944
1,671
2,406
–
507
414
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
132,163
77,663
77,663
77,663
77,663
77,663
210,425
55,557
62,623
1,093,723
432,689
401,110
14,963
22,798
204,307
232,687
–
195,981
Non-
monetary
benefits
$
STI
$
–
–
–
–
–
–
286,915
89,600
76,299
41,819
32,000
40,447
–
–
–
–
–
–
14,643
–
–
–
–
–
The relative proportions of remuneration that are linked to fixed remuneration and performance based criteria are as follows:
Name
Fixed/ service based remuneration
At risk/performance based remuneration
Fixed
remuneration
Share
Based
Total
STI
Share
based
Other key management personnel of Group
M I Russell
S R Mitchell
N C Rose-Innes
A J Russell
S C Dehne
J A Hanka
54%
66%
65%
72%
74%
100%
18%
13%
13%
5%
8%
0%
72%
79%
78%
77%
82%
100%
26%
20%
20%
21%
17%
0%
2%
1%
2%
3%
1%
0%
Total
28%
21%
22%
23%
18%
0%
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 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 ending April 2016. The periods of notice required to terminate employment are
set out below:
■■ The employment contract of Mr M I Russell is terminable by either the Company or the executive with six months notice.
■■ The employment contracts of Messrs Rose-Innes and A J Russell and Ms Mitchell are terminable by either the Company or the
executive with three months notice.
■■ The employment contract of Mr Dehne is terminable by either the Company or the executive with four weeks notice.
No provision is made for termination payments other than amounts paid in respect of notice of termination.
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 11
Share-based compensation
The terms and conditions of each offer of performance shares affecting remuneration in this or future reporting periods are as follows:
Grant 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
16 February 2012
16 February 2012
16 February 2012
16 February 2012
16 February 2012
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
14 September 2012
13 September 2013
12 September 2014
12 September 2014
12 September 2014
Value per
performance
share at
grant date*
$1.00
$1.24
$1.24
$1.24
$1.16
$1.17
$1.19
$1.37
$1.26
$1.26
$1.26
$1.26
$0.63
Performance
achieved
>75th percentile
service based
service based
service based
service based
service based
service based
service based
service based
service based
service based
to be determined
to be determined
%
Vested
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
*
The value at grant date calculated in accordance with AASB 2 Share-based Payments of shares granted during the year as part
of remuneration.
Details of performance shares in the Company provided as remuneration to other key management personnel are set out below.
Further information on the performance shares is set out in note 32 to the financial statements.
Name
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**
Other key management personnel
M I Russell
S R Mitchell
N C Rose-Innes
A J Russell
S C Dehne
212,100
65,850
57,650
55,350
30,100
216,979
67,365
58,976
56,623
30,793
79,750
20,817
54,383
20,000
9,017
–
–
–
–
–
–
–
–
–
–
*
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 lattice-based trinomial valuation method 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.
Shares provided on vesting of performance share entitlements
Details of shares issued in the company as a result of the vesting of performance share entitlements during the year ended 30 June 2012
are set out below:
Name
Other key management personnel
M I Russell
S R Mitchell
N C Rose-Innes
A J Russell
S C Dehne
Vesting date
31 August 2011
31 August 2011
31 August 2011
1 December 2011
31 August 2011
Number of
ordinary shares
issued on vesting
of share rights
79,750
20,817
54,383
20,000
9,017
Value at
vesting date*
103,675
27,062
70,698
26,800
11,722
*
The value at vesting date of shares that were granted as part of remuneration and vested during the year is the closing market price on
the day of vesting.
Mortgage ChoiCe annual report 2012 Directors’ report 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 9-12, the percentage of the available grant
that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service or
performance criteria is set out below. The 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.
STI
Performance shares and options
Name
M I Russell
Paid
%
100
S R Mitchell
100
N C Rose-Innes
100
A J Russell
100
S C Dehne
100
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
$
–
–
–
–
–
2012
2012
2012
2011
2011
2011
2010
2010
2010
2012
2012
2012
2011
2011
2011
2010
2010
2010
2012
2012
2012
2011
2011
2011
2010
2010
2010
2009
2012
2012
2012
2011
2012
2012
2012
2011
2011
2011
2010
2010
2010
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
100
100
–
–
–
100
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30/6/2015
30/6/2014
30/6/2013
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
–
30/6/2015
30/6/2014
30/6/2013
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
–
30/6/2015
30/6/2014
30/6/2013
30/6/2015
30/6/2014
30/6/2013
30/6/2014
30/6/2013
–
–
30/6/2015
30/6/2014
30/6/2013
–
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
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
–
147,675
17,050
8,089
52,107
37,312
8,549
31,003
6,150
–
45,847
5,295
2,511
15,864
11,353
2,607
8,093
1,605
–
40,139
4,634
2,198
13,519
9,674
2,215
8,041
1,595
–
–
38,536
4,449
2,110
–
20,957
2,419
1,148
6,046
4,330
983
3,505
695
–
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 13
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
Exercise
price
Number
under
option
1 May 2019
$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 2012 in respect of Directors’ and Officers’ liability and legal expenses for
Directors and Officers of the Company and all controlled entities. The insurance contract prohibits disclosure of the premium paid.
The insurance premiums relate to:
■■ Costs and expenses incurred by relevant Directors and Officers in defending any proceedings; and
■■ Other liabilities that may arise from their position, with the exception of conduct involving dishonesty, wrongful acts, or improper use
of information or position to gain personal advantage.
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 (Cth). 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 (Cth) 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 (Cth).
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 (Cth). 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 (Cth) 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.
Mortgage ChoiCe annual report 2012 Directors’ report 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
2012
$
2011
$
–
–
9,000
9,000
23,900
92,045
115,945
115,945
23,900
10,645
34,545
43,545
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth) 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 (Cth).
This report is made in accordance with a resolution of the Directors.
Peter Ritchie
Director
Sydney
23 August 2012
DIRECTORS’ REPORT continuedfor the year ended 30 June 2012 15
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 2012).
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:
■■ overseeing the Company, including its control and accountability systems;
■■ appointing and removing the Chief Executive Officer;
■■ monitoring the performance of the Chief Executive Officer;
■■ monitoring senior management’s implementation of strategy, and ensuring appropriate resources are available;
■■ reporting to shareholders;
■■ providing strategic advice to management;
■■ approving management’s corporate strategy and performance objectives;
■■ determining and financing dividend payments;
■■ approving and monitoring the progress of major capital expenditure, capital management, acquisitions and divestitures;
■■ approving and monitoring financial and other reporting;
■■ reviewing and ratifying systems of risk management, internal compliance and control, and legal compliance to ensure appropriate
compliance frameworks and controls are in place;
■■ reviewing and overseeing the implementation of the Company’s corporate code of conduct and code of conduct for Directors and
senior executives;
■■ approving charters of Board committees;
■■ monitoring and ensuring compliance with legal and regulatory requirements and ethical standards and policies; and
■■ monitoring and ensuring compliance with best practice corporate governance requirements.
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.
Board size, composition and independence
The Charter states that:
■■ there must be a minimum of five Directors and a maximum of seven Directors;
for the year ended 30 June 2012Mortgage ChoiCe annual report 2012 corporate governance statementcorporate governance statement ■■ 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;
■■ the Nomination Committee is responsible for recommending candidates for appointment to the Board; and
■■ 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:
■■ is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder
of the Company;
■■ within the last three years has not been employed in an executive capacity by the Company or another Group member, or been
a Director after ceasing to hold any such employment;
■■ within the last three years has not been a principal of a material professional adviser or a material consultant to the Company or another
Group member, or an employee materially associated with the service provided;
■■ is not a material supplier or customer of the Company or other Group member, or an officer of or otherwise associated directly
or indirectly with a material supplier or customer;
■■ has no material contractual relationship with the Company or another Group member other than as a Director of the Company;
■■ has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability
to act in the best interests of the Company; and
■■ is free from any interest in any business or other relationship which could, or could reasonably be perceived to, materially interfere with
the Director’s ability to act in the best interests of the Company.
All Directors are required to complete an independence questionnaire.
Independent professional advice
Board committees and individual Directors may seek independent external professional advice for the purposes of proper performance
of their duties.
Performance assessment
The performance of the Board, the Directors and key executives is reviewed annually. The Nomination Committee is responsible for reviewing:
■■ the Board’s role;
■■ the processes of the Board and Board committees;
■■ the Board’s performance; and
■■ each Director’s performance before the Director stands for re-election.
The process for performance evaluation of the Board, its committees and individual Directors, and key executives 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 2012.
Board committees
Mortgage Choice has three Board committees comprising the Remuneration Committee, the Audit Committee and the Nomination
Committee. These committees serve to support the functions of the Board and will make recommendations to Directors on issues relating
to their area of responsibility.
The Nomination Committee
The objective of the Nomination Committee is to help the Board achieve its objective of ensuring the Company has a Board of an effective
composition of skill, diversity, 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.
As a general matter and without limiting the responsibilities of the Nomination Committee in identifying and considering potential
candidates, the Nomination Committee believes it is in the best interests of the Company that candidates be independent of material
suppliers to the Company, its subsidiaries or clients (including financial institutions).
The Nomination Committee charter is available in the Shareholders section of the Company’s website at www.MortgageChoice.com.au.
for the year ended 30 June 2012corporate governance statement continued
17
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:
■■ articulate the high standards of honesty, integrity, ethical and law-abiding behaviour expected of Directors and senior executives;
■■ encourage the observance of those standards to protect and promote the interests of shareholders and other stakeholders (including
franchisees, employees, customers, suppliers and creditors);
■■ guide Directors and senior executives as to the practices thought necessary to maintain confidence in the Company’s integrity; and
■■ set out the responsibility and accountability of Directors and senior executives to report and investigate any reported violations of this
code or unethical or unlawful behaviour.
The Company requires that its Directors and senior executives adhere to a share trading policy that restricts the purchase and sale of
Company securities to three six-week periods following the release of the half-yearly and annual financial results to the market, and the
Annual General Meeting.
Copies of the Corporate Code of Conduct, the Code of Conduct for Directors and Senior Executives and the Share Trading Policy are
available 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:
■■ recruit the right people from a diverse pool of talented candidates;
■■ 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
■■ 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.
Mortgage Choice has historically displayed a commitment to gender diversity through policies that encourage participation by women
in all levels of the business. Examples of these are:
■■ Paid parental leave
■■ Flexible work practices including the promotion of part time female employees to senior roles.
■■ Awareness in all employees of their rights and responsibilities in regards to fairness, equity and respect for all aspects of diversity.
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.
Measurable objectives for achieving gender diversity and the progress toward those objectives are as follows:
■■ Appoint an executive responsible for achieving gender diversity. The Head of Human Resources has assumed responsibility
for this function.
■■ Strive to maintain a fair and balanced level of gender representation in the overall Mortgage Choice workforce. The percentage
of women in the Mortgage Choice workforce currently stands at 54%.
■■ Subject to vacancies and circumstances, strive to maintain a fair and balanced level of gender representation in the Senior
Management Team. Currently 45% of the Senior Management Team are women.
■■ Subject to vacancies and circumstances, increase female representation on the Board of Directors. Currently one of the six Directors
on the Board is a woman.
■■ Actively encourage the representation of women in senior executive roles through participation in the Talent Management program.
Currently 50% of participants in the Talent Management program are women.
■■ Increase the opportunities for women to advance in the organisation through the establishment of a Leadership Program. The program
is expected to commence in the 2012/13 financial year.
A copy of the Diversity Policy is available in the Shareholders section of the Company’s website at www.MortgageChoice.com.au.
Mortgage ChoiCe annual report 2012 corporate governance statement 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:
■■ financial reporting;
■■ the application of accounting policies;
■■ business policies and practices;
■■ legal and regulatory compliance; and
■■ internal risk control and management systems.
The Audit Committee comprises Steve Jermyn (Chairman), Sean Clancy, Peter Higgins and Deborah Ralston. The objective of the
Audit Committee is to:
■■ maintain and improve the quality, credibility and objectivity of the financial accountability process; and
■■ provide a forum for communication between the Board and senior financial and compliance management.
The Audit Committee charter is available in the Shareholders section of the Company’s website at www.MortgageChoice.com.au.
External auditor
The Company has adopted procedures for the selection and appointment of the external auditor which are 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:
■■ 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);
■■ ensure officers and employees are aware of the Company’s continuous disclosure obligations; and
■■ establish procedures for:
–
the collection of all potentially price-sensitive information;
– assessing if information must be disclosed to ASX under the ASX Listing Rules or the Corporations Act 2001 (Cth);
–
–
releasing to ASX information determined to be price-sensitive information and to require disclosure; and
responding to any queries from ASX (particularly queries under Listing Rule 3.1B).
The protocol is carried out through a Market Disclosure Committee comprised of management representatives. The Market Disclosure
Committee is responsible for:
■■ ensuring compliance with continuous disclosure obligations;
■■ establishing a system to monitor compliance with continuous disclosure obligations and this protocol;
■■ monitoring regulatory requirements so that this protocol continues to conform with those requirements;
■■ monitoring movements in share price and share trading to identify circumstances where a false market may have emerged in company
securities; and
■■ making decisions about trading halts.
All relevant information provided to the 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.
for the year ended 30 June 2012corporate governance statement continued
19
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:
■■ communicate effectively with shareholders;
■■ give shareholders ready access to balanced and understandable information about the Company and its corporate goals; and
■■ make it easy for shareholders to participate in general meetings.
Information is communicated to shareholders through ASX announcements, the Company’s annual report, the Annual General Meeting,
half and full year results announcements and the Company’s website, www.MortgageChoice.com.au.
The Board has adopted a communications strategy to facilitate and promote effective communication with shareholders and encourage
participation at general meetings. Arrangements the Company has to promote communication with shareholders are set out in the
Shareholders section of the Company’s website at www.MortgageChoice.com.au.
Principle 7: Recognise and manage risk
The Company has adopted and endorsed a compliance policy. The policy is a commitment to:
■■ promote a culture of compliance throughout the Company and franchise network;
■■ create an understanding of the relevant laws at all levels;
■■ minimise the possibility of a contravention of the law and manage any legal risk;
■■ enhance the Company’s corporate image and customer service; and
■■ market, promote and sell the Company’s services in a way that is competitive, ethical, honest and fair, and in compliance with the law.
The Company has developed and implemented a compliance program. The aim of the program is to promote a culture of compliance
through a number of measures including staff and franchise network training, compliance procedures, support systems and the
appointment of staff responsible for compliance.
The centrepiece of the program is a web based compliance education and evaluation tool. A self paced system, it covers the key legislative
and regulatory obligations applicable to the business. Each major regulatory area (Trade Practices, Privacy, Equal Opportunity, Occupational
Health and Safety, Technology, Franchising, 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:
■■ analysing all aspects of the business to determine what operational risks are faced, either on a continuous or isolated basis;
■■ having determined these risks, assessing each of them to allocate a rating based upon the likelihood of occurrence and consequence
of occurrence;
■■ 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
■■ 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:
■■ has coherent remuneration policies and practices to attract and retain executives and Directors who will create value for shareholders;
■■ observes those remuneration policies and practices; and
■■ fairly and responsibly rewards executives and other employees having regard to the performance of the Company, the performance
of the executive or employee and the general and specific remuneration environment.
Non-Executive Directors are not entitled to retirement benefits with the exception of statutory superannuation.
The Remuneration Committee charter is available in the Shareholders section of the Company’s website at www.MortgageChoice.com.au.
Mortgage ChoiCe annual report 2012 corporate governance statement AUDITOR’S INDEPENDENCE DECLARATION
21
financial
report
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
The financial statements were authorised for
issue by the Directors on 23 August 2012.
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.
MORTGAGE CHOICE ANNUAL REPORT 2012 AUDITOR’S INDEPENDENCE DECLARATION/FINANCIAL REPORT
for the year ended 30 June 2012
CONSOLIDATED
income
statement
Revenue
Origination commissions
Trailing commissions excluding discount unwind
Trailing commissions discount unwind
Diversified products commissions
LoanKit service fees
HelpMeChoose.com.au income
Franchise income
Interest
Other income
Direct costs
Origination commissions
Trailing commissions excluding discount unwind
Trailing commissions discount unwind – finance costs
Diversified products commissions
HelpMeChoose.com.au direct costs
Gross profit
Operating Expenses
Sales
Technology
Marketing
Finance
Corporate
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
The above consolidated income statement should be read in conjunction with the accompanying notes.
Notes
5
6
7
7
8
2012
$’000
51,062
70,373
26,571
2,617
713
2,958
1,019
612
1,123
157,048
(36,380)
(41,711)
(16,040)
(2,047)
(1,422)
59,448
(12,802)
(5,433)
(7,730)
(1,952)
(4,855)
26,676
(8,221)
18,455
2011
$’000
49,093
89,057
25,279
2,421
394
1,356
811
591
504
169,506
(34,752)
(48,151)
(15,681)
(1,896)
(869)
68,157
(9,431)
(5,005)
(7,629)
(1,955)
(4,808)
39,329
(11,870)
27,459
Cents
Cents
31
31
15.4
15.2
22.9
22.7
for the year ended 30 June 2012 CONSOLIDATED STATEMENT OF
23
comprehensive
income
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners of Mortgage Choice Limited
Notes
2012
$’000
18,455
–
18,455
2011
$’000
27,459
–
27,459
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
MORTGAGE CHOICE ANNUAL REPORT 2012
INCOME STATEMENT/COMPREhENSIvE INCOME
for the year ended 30 June 2012 CONSOLIDATED
balance
sheet
as at 30 June 2012
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
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Notes
2012
$’000
2011
$’000
9
10
11
12
13
14
15
16
17
18
19
20
21(a)
21(b)
10,662
92,683
103,345
221,801
1,125
–
2,208
225,134
328,479
61,968
2,935
889
65,792
133,672
34,913
483
169,068
234,860
93,619
1,558
1,260
90,801
93,619
9,027
92,082
101,109
208,262
1,534
847
3,159
213,802
314,911
60,673
1,899
807
63,379
126,121
34,704
397
161,222
224,601
90,310
1,207
1,141
87,962
90,310
CONSOLIDATED STATEMENT OF
changes
in equity
25
Contributed
equity
$’000
Notes
Reserves
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 July 2010
1,207
597
75,475
77,279
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
Balance at 30 June 2011
Total comprehensive income for the year as reported in the 2012
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
Balance at 30 June 2012
20
22
32
20
22
32
–
–
27,459
27,459
–
–
–
–
1,207
–
–
544
544
1,141
–
(14,972)
–
(14,972)
87,962
–
(14,972)
544
(14,428)
90,310
–
–
18,455
18,455
351
–
–
351
1,558
(351)
–
470
119
1,260
–
(15,616)
–
(15,616)
90,801
–
(15,616)
470
(15,146)
93,619
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
MORTGAGE CHOICE ANNUAL REPORT 2012 BALANCE ShEET/ChANgES IN EqUITy
for the year ended 30 June 2012 CONSOLIDATED STATEMENT OF
cash flows
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
Proceeds from sale of property, plant and equipment
Interest received
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Dividends paid to company’s shareholders
Net cash (outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of year
Notes
2012
$’000
2011
$’000
130,037
(117,437)
12,600
26,590
(16,040)
(6,129)
17,021
(382)
–
612
230
(15,616)
(15,616)
1,635
9,027
10,662
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
30
9
The above consolidated statement cash flows should be read in conjunction with the accompanying notes.
for the year ended 30 June 2012
NOTES TO CONSOLIDATED
financial
statements
27
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 and
Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 (Cth). Mortgage Choice Limited
is a for-profit entity for the purpose of preparing the financial statements.
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 financial assets
and liabilities (including derivative instruments) at fair value through profit and loss.
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.
Changes to presentation – classification of expenses
Mortgage Choice Limited decided in the current financial year to change the classification of its expenses in the income statement
to separately disclose direct costs that are associated with generating revenues, rather than including them in sales costs. We believe
that this will provide more relevant information to our stakeholders as it is more in line with common practice in the industries
Mortgage Choice Limited is operating in. The comparative information has been reclassified accordingly.
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 2012 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.
(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.
MORTGAGE CHOICE ANNUAL REPORT 2012 CASh FLOwS/NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2012 NOTE 1 Summary of Significant accounting policieS (continued)
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 Company 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 Company 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 providing 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. The Group receives origination commissions for health insurance policies which are recognised as revenue when the
policy is written.
(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 makes trailing commission payments to franchisees based on the outstanding loan book balance of
the individual franchisees. The Group also receives trailing commissions from health funds for two years commencing on the
first anniversary of the health insurance policy being written. No trailing commissions are payable for health insurance policies.
On initial recognition at settlement or at the date the health policy is written, 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, franchise consumables and compliance costs. 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
in accordance with this schedule. Contributions for training, franchise consumables and compliance costs 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
The Group also provides 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) Mortgage lead income
The Group also sells leads generated by its comparison website to mortgage brokers. This income is recognised at the time
the lead is delivered.
(vi)
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.
(vii) 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.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 29
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 elected to consolidate under 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.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of Significant accounting policieS (continued)
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.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value 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). Non-financial 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 that 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, re-evaluates this designation at each reporting date.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 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).
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 31
M. Property, plant and equipment
All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives or, in the case of leasehold improvements, the shorter lease term as follows:
Office equipment
Computer equipment
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.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of Significant accounting policieS (continued)
S. Employee benefits (continued)
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.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer
settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.
Retirement benefit obligations
Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Share-based payments
Share-based compensation benefits are provided to employees via the Mortgage Choice Executive Performance Option Plan (EPOP)
and the Mortgage Choice Performance Share Plan (PSP). Information relating to these schemes is set out in note 32.
The fair value of options granted under the Mortgage Choice EPOP and performance shares granted under the Mortgage Choice PSP
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 EPOP and performance shares granted under the Mortgage Choice PSP 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 approved by the Directors on or before the end of the financial year
but not yet at the reporting date.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 33
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 that are
recoverable from, or payable to the taxation authority, are presented as operating cash flow.
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 2012 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. The group has yet to conduct a detailed
analysis of the new standard and its likely impact on the financial results. 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.
*
In December 2011, the IASB delayed the application date of IFRS 9 to 1 January 2015. The AASB is expected to make an
equivalent amendment to AASB 9 shortly.
AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other
Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures
and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint
Arrangements Standards (effective 1 January 2013)
In August 2011, the AASB issued a suite of five new and amended standards that address the accounting for joint arrangements,
consolidated financial statements and associated disclosures.
AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements,
and Interpretation 12 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its
subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard
introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure
to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can
be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also
new guidance on participating and protective rights and on agent/principal relationships. While the group does not expect the new
standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance in the context
of its various investees that may or may not be controlled under the new rules.
AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure
of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the
assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures
are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a
joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous
standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control.
As the group does not have any joint arrangements, AASB 11 will not have any impact on its financial statements.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of Significant accounting policieS (continued)
y. New accounting standards and interpretations (continued)
AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces
the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by the group will not affect any
of the amounts recognised in the financial statements.
Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its
retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also
introduce a “partial disposal” concept. Application of this standard by the group will not affect any of the amounts recognised in the
financial statements.
The group does not expect to adopt the new standards before their operative date. They would therefore be first applied in the
financial statements for the annual reporting period ending 30 June 2014.
AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from
AASB 13 (effective 1 January 2013)
AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures.
The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new
guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial
statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial
statements. The group does not intend to adopt the new standard before its operative date, which means that it would be
first applied in the interim reporting period ending 31 December 2013.
There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current
or future reporting periods and on foreseeable future transactions.
Z. Parent entity financial information
The financial information for the parent entity, Mortgage Choice Limited, disclosed in note 33 has been prepared on the same basis
as the consolidated financial statements, except as set out below.
Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Mortgage
Choice Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted
from the carrying amount of these investments.
Tax consolidation legislation
Mortgage Choice Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
The head entity, Mortgage Choice Limited, and the controlled entities in the tax consolidated group account for their own current and
deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a 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
Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the
wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim
funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised
as a contribution to (or distribution from) wholly-owned tax consolidated entities.
Financial guarantees
Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation,
the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 35
NOTE 2
financial riSk management
The Group has limited exposure to financial risks with the exception of credit risk. 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
Financial liabilities
Current
Trade and other payables
Non-current
Trade and other payables
2012
$’000
2011
$’000
10,662
92,683
9,027
92,082
221,801
325,146
208,262
309,371
2012
$’000
2011
$’000
61,968
60,673
133,672
195,640
126,121
186,794
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 2012 the weighted average interest rate on
its cash balances was 3.5% (2011 4.6%). If interest rates were to increase by 100 basis points, the Group’s after tax result would
increase by $101,000 (2011 $97,000). A decrease of 100 basis points would reduce the Group’s after tax result by $101,000
(2011 $97,000).
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.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 financial riSk management (continued)
Standard & Poor’s
credit rating
Current assets
Non-current assets
Trade
receivables
$’000’s
NPV future trailing
commissions
receivable
$’000’s
Receivables
$’000’s
NPV future trailing
commissions
receivable
$’000’s
AA
A+
A
BBB+
BBB
BBB-
Not rated
AA
A+
A-
BBB+
Not rated
7,728
608
1,332
394
352
36
382
10,832
2
8
92
17
699
818
11,650
Standard & Poor’s
credit rating
AA
A+
A
BBB+
BBB
BBB-
Not rated
A+
Not rated
57,397
4,835
8,815
2,117
2,093
282
1,803
77,342
–
–
184
–
1,172
1,356
78,698
–
–
–
–
–
–
–
–
–
–
–
–
1,076
1,076
1,076
161,032
13,566
24,732
5,940
5,873
791
5,058
216,992
–
–
445
–
3,288
3,733
220,725
Current assets
Non-current assets
Trade
receivables
$’000’s
NPV future trailing
commissions
receivable
$’000’s
NPV future trailing
commissions
receivable
$’000’s
7,862
1,452
227
703
193
77
40
10,554
13
220
233
10,787
56,230
12,843
909
4,846
1,322
304
357
76,811
–
1,226
1,226
78,037
150,063
34,274
2,426
12,933
3,529
811
953
204,989
–
3,273
3,273
208,262
2012
ADIs
Non ADIs
Total receivable
2011
ADIs
Non ADIs
Total receivable
C. Liquidity risk and fair value estimation
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 assets into relevant maturity groupings based on the expected future cashflows.
No financial assets are past due or impaired.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
37
Less than
6 months
$’000
6 -12
months
$’000
Between
1 and
2 years
$’000
Between
2 and
5 years
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
amount
$’000
10,659
110
3
11,650
2,281
42,422
67,125
–
105
–
–
39
–
172
–
–
37
–
326
–
–
17
40,333
40,477
70,938
71,147
142,114
142,457
106,067
107,804
–
1,737
10,659
2,450
10,659
1,036
–
–
–
3
11,650
2,374
401,874
429,010
3
11,650
2,374
299,424
325,146
At 30 June 2012
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
The fair value of the future trailing commissions receivable is $326,104,000. The fair value of all other assets is the same as their carrying amount.
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
Less than
6 months
$’000
6 -12
months
$’000
Between
1 and
2 years
$’000
Between
2 and
5 years
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
amount
$’000
9,024
88
3
11,078
1,979
42,082
64,254
–
85
–
–
5
39,942
40,032
–
166
–
–
39
69,937
70,142
–
466
–
603
–
–
–
136,694
137,160
–
–
–
103,485
104,088
9,024
1,408
3
11,078
2,023
392,140
415,676
9,024
944
3
11,078
2,023
286,299
309,371
The fair value of the future trailing commissions receivable is $308,381,000. The fair value of all other assets is the same as their carrying amount.
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 2012
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
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
amount
$’000
9,980
4,602
25,535
40,117
–
102
24,217
24,319
–
64
42,829
42,893
–
14
86,132
86,146
–
–
64,401
64,401
9,980
4,782
243,114
257,876
9,980
4,782
180,878
195,640
The fair value of the future trailing commissions payable is $197,085,000. The fair value of all other liabilities is the same as their carrying amount.
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
$’000
Over
5 years
$’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
–
–
83,744
83,744
9,675
4,223
237,085
250,983
9,675
4,223
172,896
186,794
The fair value of the future trailing commissions payable is $186,256,000. The fair value of all other liabilities is the same as their carrying amount.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 amortised cost 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 amortised
cost 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)
2012
2011
4.1 years
9.2%
4.1 years
10.2%
60%
60%
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:
■■
■■
a decrease in net assets of $4.9 million (made up of decreases in current assets of $0.7 million, non-current assets of
$17.0 million, current liabilities of $0.4 million, non-current liabilities of $10.3 million and deferred tax liabilities of $2.1 million)
if run-off rates increase by 10%; or
an increase in net assets of $5.5 million (made up of increases in current assets of $0.7 million, non-current assets of
$19.1 million, current liabilities of $0.4 million, non-current liabilities of $11.6 million and deferred tax liabilities of $2.3 million)
if run-off rates decrease by 10%.
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 2012 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 the basis for determining the relevant future commission rates was improved and assumptions
used in the valuation of future trailing commissions were changed to reflect an extension of the current economic environment for
the short to medium term. These refinements to the trailing commission model resulted in a $4.1 million adjustment after tax to the
Group’s profit and loss for FY2012 (2011 – $12.3 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.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 39
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 and operating decisions.
The Chief Executive Officer considers the business from both a product and cash versus IFRS presentation of the results.
Therefore the management has identified four reportable product segments, Mortgage Choice franchised mortgage broking (MOC),
HelpMeChoose.com.au health insurance, life insurance and home loan comparison website (HMC), LoanKit aggregation mortgage
broking (LoanKit) and Mortgage Choice Financial Planning (MCFP). The Group operates only in Australia.
B.
Information provided to the Chief Executive Officer
Information provided to the Chief Executive Officer for the year ended 30 June 2012 is as follows:
Product Segments
2012
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
Income tax expense
NPAT (IFRS)
NPAT (cash)
2011
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
Income tax expense
NPAT (IFRS)
NPAT (cash)
Cash versus IFRS
Total
$’000
MOC
$’000
157,048
153,289
59,448
54,002
1,664
8,221
18,455
15,022
Total
$’000
169,506
68,157
50,890
1,514
11,870
27,459
15,915
57,111
52,293
1,413
8,679
19,780
16,761
MOC
$’000
167,741
67,261
49,994
1,328
12,199
28,226
16,682
HMC
$’000
2,961
1,539
911
142
(250)
(585)
(1,025)
HMC
$’000
1,356
487
487
78
(192)
(447)
(447)
LoanKit
$’000
MCFP
$’000
798
798
798
109
(208)
(601)
(575)
LoanKit
$’000
409
409
409
108
(137)
(320)
(320)
–
–
–
–
–
(139)
(139)
MCFP
$’000
–
–
–
–
–
–
–
Origination commission income
Trailing commission income**
Origination commission paid
Trailing commission paid**
Net core commissions
Diversified products net revenue
HelpMeChoose.com.au and LoanKit net revenue
Other income
Gross Profit
Operating Expenses
Share based remuneration
Net profit before tax
Net profit after tax
2012
2011 % change
2012
2011 % change
Cash*
$000’s
$000’s
IFRS
$000’s
$000’s
51,062
84,448
135,510
36,380
50,073
86,453
49,057
570
1,621
2,754
54,002
32,302
–
21,700
15,022
49,093
83,777
132,870
34,752
50,540
85,292
47,578
525
881
1,906
50,890
28,284
–
22,606
15,915
4%
1%
2%
5%
(1%)
1%
3%
9%
84%
44%
6%
14%
(4%)
(6%)
51,062
96,944
148,006
36,380
57,751
94,131
53,875
570
2,249
2,754
59,448
32,302
470
26,676
18,455
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
4%
(15%)
(9%)
5%
(10%)
(5%)
(17%)
9%
155%
44%
(13%)
14%
(14%)
(32%)
(33%)
*
Cash is based on accruals accounting and excludes share-based remuneration and the net present value of future trailing
commissions receivable and payable.
**
Trailing commission income and trailing commission paid include discount unwind as itemised in the consolidated income statement.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 Segment information (continued)
The following provides additional detail to assist in reconciliation of the above table to the consolidated income statement:
2012
2011 % change
2012
2011 % change
Cash
$000’s
$000’s
IFRS
$000’s
$000’s
Diversified products commission
Diversified products direct costs
Diversified products net income
HelpMeChoose.com.au income*
HelpMeChoose.com.au direct costs
HelpMeChoose.com.au net income
LoanKit service fees
HelpMeChoose.com.au and LoanKit net income
Franchise income
Interest
Other Income
Other income
2,617
2,047
570
2,330
1,422
908
713
1,621
1,019
612
1,123
2,754
2,421
1,896
525
1,356
869
487
394
881
811
591
504
1,906
8%
8%
9%
72%
64%
86%
81%
84%
26%
4%
123%
44%
2,617
2,047
570
2,958
1,422
1,536
713
2,249
1,019
612
1,123
2,754
2,421
1,896
525
1,356
869
487
394
881
811
591
504
1,906
8%
8%
9%
118%
64%
215%
81%
155%
26%
4%
123%
44%
*
HelpMeChoose.com.au cash income is based on accruals accounting and excludes the net present value of future trailing
commissions’ receivable on health insurance policies written during the year. An adjustment of $93,000 was included in the current
year IFRS income that relates to FY2011.
C. Other information
(i) Operating income
Operating income 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.
(ii) Net profit after tax
The cash net profit after tax (as shown above) reconciles to the IFRS profit after tax as follows:
Cash Net profit after tax
NPV future trails on new loans originated, net of payout
Less net cash from trail previously recognised under IFRS
Plus adjustments to loan book assumptions
Plus gain on prepayment of trail liability
Plus reversal of amortisation of trail liability*
NPV future trails on HelpMeChoose.com.au health insurance policies written
Less share-based payments expense
Net IFRS after tax profit for the year
* Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
2012
$000’s
15,022
15,596
(16,549)
4,112
–
304
440
(470)
18,455
2011
$000’s
15,915
14,007
(14,776)
12,325
188
344
–
(544)
27,459
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 41
(iii) Gross profit and net core commissions
The cash gross profit and net core commissions reconcile to their IFRS equivalents as follows:
Cash
NPV future trails on new loans originated, net of payout
Less net cash from trail previously recognised under IFRS
Plus adjustments to loan book assumptions
Plus gain on prepayment of trail liability
Plus reversal of amortisation of trail liability*
NPV future trails on HelpMeChoose.com.au health insurance policies written
IFRS
Gross Profit
Net Core Commissions
2012
$000’s
54,002
22,281
(23,642)
5,875
–
304
628
59,448
2011
$000’s
50,890
20,010
(21,108)
17,606
267
492
–
68,157
2012
$000’s
49,057
22,281
(23,642)
5,875
–
304
–
53,875
2011
$000’s
47,578
20,010
(21,108)
17,606
267
492
–
64,845
* Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
NOTE 5
revenue
Revenue from continuing operations
Sales revenue
Services
Other revenue
Interest earned on deposits and loans
Interest in relation to discount unwind of trailing commissions
NOTE 6
other income
Conference sponsorships (note (a))
Other
A. Conference sponsorships
2012
$’000
2011
$’000
128,742
143,132
612
26,571
155,925
591
25,279
169,002
2012
$’000
1,102
21
1,123
2011
$’000
485
19
504
Lenders sponsor Mortgage Choice’s National Conference, High Flyers’ Conference, quarterly state conferences, and periodic
training days and workshops. No National or High Flyers’ conferences were held during the year ended 30 June 2011.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
2012
$’000
2011
$’000
16,040
15,681
27
364
143
1,157
219
1,059
1,141
38
–
339
222
953
158
1,074
953
33
A.
Interest and finance charges
Interest expense comprises the unwinding of the discount in relation to payment of trailing commission to franchisees.
NOTE 8
income tax
Income tax expense
A.
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)
2012
$’000
7,034
1,056
131
8,221
2011
$’000
6,865
5,055
(50)
11,870
8,221
11,870
(2,635)
3,691
1,056
(4,106)
9,161
5,055
B. Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
26,676
39,329
Income tax calculated @ 30% (2011 – 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.
8,003
87
8,090
131
8,221
11,799
121
11,920
(50)
11,870
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
43
NOTE 9
current aSSetS – caSh and caSh equivalentS
Cash at bank and on hand
A. Risk exposure
2012
$’000
10,662
2011
$’000
9,027
The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the reporting date is the
carrying amount of each class of cash and cash equivalents mentioned above.
NOTE 10
current aSSetS – trade and other receivableS
Trade receivables*
Net present value of future trailing commissions receivable
Franchisee receivables
Other receivables
Prepayments
2012
$’000
11,650
78,698
179
613
1,543
92,683
2011
$’000
11,078
78,037
1,151
571
1,245
92,082
* 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. Risk exposure
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
Franchisee 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.
2012
$’000
220,725
1,076
221,801
2011
$’000
208,262
–
208,262
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12
non-current aSSetS – property,
plant and equipment
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
Year ended 30 June 2012
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2012
Cost
Accumulated depreciation
Net book amount
Plant and
equipment
$’000
Leasehold
improvements
$’000
1,122
334
–
(339)
1,117
2,362
(1,245)
1,117
1,117
176
(12)
(364)
917
2,508
(1,591)
917
637
4
(2)
(222)
417
1,397
(980)
417
417
–
(66)
(143)
208
1,188
(980)
208
Total
$’000
1,759
338
(2)
(561)
1,534
3,759
(2,225)
1,534
1,534
176
(78)
(507)
1,125
3,696
(2,571)
1,125
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
Setoff of deferred tax assets pursuant to setoff 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
2012
$’000
2011
$’000
54,263
747
220
121
55,351
(55,351)
–
14,906
40,445
55,351
51,869
639
99
109
52,716
(51,869)
847
14,326
38,390
52,716
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Movements
At 30 June 2010
Charged/(credited) to the income statement
At 30 June 2011
Charged/(credited) to the income statement
At 30 June 2012
NPV of future
trailing
commissions
payable
$’000
47,797
4,072
51,869
2,394
54,263
Employee
benefits
$’000
Depreciation
and
amortisation
$’000
Accrued
expenses
$’000
580
59
639
108
747
108
(9)
99
121
220
125
(16)
109
12
121
NOTE 14
non-current aSSetS – intangible aSSetS
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
Year ended 30 June 2012
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 30 June 2012
Cost
Accumulated amortisation
Net book amount
45
Other
$’000
–
–
–
–
–
Total
$’000
48,610
4,106
52,716
2,635
55,351
Computer
software*
$’000
6,849
(3,333)
3,516
3,516
596
(953)
3,159
7,445
(4,286)
3,159
3,159
206
(1,157)
2,208
7,651
(5,443)
2,208
*
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.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15
current liabilitieS – trade and other payableS
Trade payables A
Net present value of future trailing commissions payable
Licence fees repayable
Other payables
A. Loan Book Security Trust
2012
$’000
9,980
47,284
199
4,505
61,968
2011
$’000
9,675
46,905
154
3,939
60,673
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 2012, 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 $3,774,507 (2011 – $3,550,057). This is included as
part of the balance of trade payables at 30 June 2012 and would be subject to charge until disbursed to the eligible franchisees.
The amount subject to the charge would vary dependant on trailing commission due to be received by Mortgage Choice Limited
from month to month.
The second charge is a floating charge over all of the assets of Mortgage Choice Limited. It is limited in the powers it allows the
security trustee to exercise prior to liquidation. Its primary purpose is to ensure that the loan book security structure need not be
subject to the moratorium arising if an administrator were to be appointed to Mortgage Choice Limited. Only after liquidation does
this charge confer comprehensive mortgagee powers on the security trustee.
B. 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
2012
$’000
2011
$’000
40
683
166
889
130
558
119
807
Mortgage Choice is required to restore the leased premises of its offices to their original condition at the end of the respective
lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold
improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter
of the term of the lease or the useful life of the assets. Make good costs that are not expected to be settled within twelve months
have been included in non-current liabilities – provisions as detailed in note 19.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 47
NOTE 17
non-current liabilitieS – trade and other payableS
Net present value of future trailing commissions payable
Licence fees repayable
2012
$’000
133,594
78
133,672
2011
$’000
125,991
130
126,121
NOTE 18
non-current liabilitieS – deferred tax liabilitieS
2012
$’000
2011
$’000
The balance comprises temporary differences attributable to:
NPV of future trailing commissions receivable
Intangibles
Prepayments and other receivables
Setoff of deferred tax assets pursuant to setoff provisions (note 13)
Net deferred tax liabilities
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
Movements – Consolidated
At 30 June 2010
Charged to the income statement
At 30 June 2011
Charged to the income statement
At 30 June 2012
89,827
393
44
90,264
(55,351)
34,913
23,654
66,610
90,264
NPV of future
trailing
commissions
payable
$’000
Prepayments
and other
receivables
$’000
Intangibles
$’000
76,722
9,168
85,890
3,937
89,827
655
(20)
635
(242)
393
35
13
48
(4)
44
85,890
635
48
86,573
(51,869)
34,704
23,454
63,119
86,573
Total
$’000
77,412
9,161
86,573
3,691
90,264
NOTE 19
non-current liabilitieS – proviSionS
Make good provision (refer note 16)
Employee entitlements – long service leave
2012
$’000
318
165
483
2011
$’000
278
119
397
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20
contributed equity
A. Share capital
Ordinary shares – fully paid
2012
shares
‘000
2011
shares
‘000
118,787
118,438
2012
$’000
1,558
2011
$’000
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 2012:
Details
Total ordinary shares on issue
Treasury shares (note (i))
Total ordinary shares held as contributed equity
Number
of shares
120,319,572
(1,532,334)
118,787,238
(i)
Treasury shares
Treasury shares are shares in Mortgage Choice Limited that are held by the Mortgage Choice Performance Share Plan Trust for
the purpose of issuing shares under the Mortgage Choice Performance Share Plan (PSP) (see note 32 for further information).
Date
Details
30 June 2010
7 October 2010
30 June 2011
31 August 2011
1 December 2011
16 February 2012
30 June 2012
Balance
Shares issued to the Mortgage Choice Performance Share Plan Trust
Balance
Treasury shares issues under the PSP to employees
Treasury shares issues under the PSP to employees
Shares issued to the Mortgage Choice Performance Share Plan Trust
Balance
Movements in ordinary share capital:
Date
Details
30 June 2010
8 October 2010
8 October 2010
30 June 2011
31 August 2011
1 December 2011
16 February 2012
16 February 2012
30 June 2012
Balance
Shares issued to the Mortgage Choice Performance Share Plan Trust
Held as treasury shares
Balance
Treasury shares issues under the PSP to employees
Treasury shares issues under the PSP to employees
Shares issued to the Mortgage Choice Performance Share Plan Trust
Held as treasury shares
Balance
Number
of shares
1,179,800
330,550
1,510,350
(329,333)
(20,000)
371,317
1,532,334
Number of
shares
118,437,905
330,550
(330,550)
118,437,905
329,333
20,000
371,317
(371,317)
118,787,238
$’000
1,207
–
–
1,207
324
27
–
–
1,558
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 49
B. Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 32.
C. Options
Information relating to the Mortgage Choice EPOP 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 4-12 of the remuneration report.
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
Balance 30 June
B. Retained profits
Balance 1 July
Net profit for the year
Dividends
Balance 30 June
2012
$’000
1,260
1,141
470
(351)
1,260
2011
$’000
1,141
597
544
–
1,141
2012
$’000
87,962
18,455
(15,616)
90,801
2011
$’000
75,475
27,459
(14,972)
87,962
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.
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22
dividendS
A. Ordinary shares
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
Final dividend declared out of profits of the Company for the year ended 30 June 2011
of 7.0 cents per fully paid share paid on 19 September 2011:
Fully franked based on tax paid @ 30%
7.0 cents per share
Interim dividend declared out of profits of the Company for the half-year ended 31 December 2011
of 6.0 cents per fully paid share paid 19 March 2012:
Fully franked based on tax paid @ 30%
6.0 cents per share
2012
$’000
2011
$’000
–
–
7,775
7,197
8,396
–
7,219
15,615
–
14,972
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, (2011 – 7.0 cents) fully franked based on tax paid
at 30%. The aggregate amount of the proposed dividend expected to be paid on 18 September 2012
out of retained profits at 30 June 2012, but not recognised as a liability at year end, is
8,422
8,398
C. Franked dividend
The franked portions of the final dividends recommended after 30 June 2012 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 2012.
Franking credits available for subsequent financial years to the equity holders
of the parent entity based on a tax rate of 30% (2011 – 30%)
2012
$’000
2011
$’000
4,033
3,560
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 $3,610,000 (2011 – $3,599,000).
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
51
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
2012
$’000
2011
$’000
2,292,489
88,988
19,161
348,872
–
2,749,510
2,291,425
93,827
7,942
373,290
216,798
2,983,282
Detailed remuneration disclosures are provided in the Directors’ Report on pages 4-13 of the remuneration report.
B. Equity instrument disclosures relating to key management personnel
(i) Options and performance shares provided as remuneration and shares issued on exercise of such options
Details of options and performance shares provided as remuneration and shares issued on the exercise of such options,
together with terms and conditions of the options, can be found in Directors’ Report on pages 5-13 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 and 2012
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
(iii) Performance shares
–
–
–
2,500,000
2,500,000
–
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.
2012
Name
Key management personnel of the Group
M I Russell
S R Mitchell
N C Rose-Innes
A J Russell
S C Dehne
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
Balance at
the start of
the year
Granted as
compensation
Vested
Forfeited
Balance
at the end
of the year
Unvested
478,550
135,300
157,800
20,000
54,800
212,100
65,850
57,650
55,350
30,100
(79,750)
(20,817)
(54,383)
(20,000)
(9,017)
–
–
–
–
–
Balance at
the start of
the year
Granted as
compensation
Vested
Forfeited
239,250
62,450
125,050
–
27,050
–
–
–
239,300
72,850
62,050
20,000
27,750
–
–
20,800
–
–
–
–
–
–
–
–
–
–
(29,300)
–
–
–
–
–
610,900
180,333
161,067
55,350
75,883
Balance
at the end
of the year
478,550
135,300
157,800
20,000
54,800
–
–
20,800
610,900
180,333
161,067
55,350
75,883
Unvested
478,550
135,300
157,800
20,000
54,800
–
–
20,800
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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.
2012
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
J A Hanka
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
Balance
at the start
of the year
Received during
the year on the
vesting of shares
Other changes
during the year
350,125
50,000
822,939
15,226,215
2,000,000
100,000
–
20,000
–
–
–
–
–
–
–
–
–
–
79,750
20,817
54,383
20,000
9,017
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance
at the start
of the year
Received during
the year on the
vesting of shares
Other changes
during the year
350,125
50,000
822,939
15,226,215
2,000,000
50,000
–
–
–
–
–
–
–
67,730
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
–
20,000
–
–
–
–
–
–
Balance
at the end
of the year
350,125
50,000
822,939
15,226,215
2,000,000
100,000
79,750
40,817
54,383
20,000
9,017
–
Balance
at the end
of the year
350,125
50,000
822,939
15,226,215
2,000,000
100,000
–
20,000
–
–
–
–
–
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.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 53
NOTE 24
remuneration of auditorS
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
non-related audit firms:
A. Audit 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
2012
$’000
2011
$’000
188,100
188,100
189,600
189,600
–
–
9,000
9,000
23,900
92,045
115,945
115,945
23,900
10,645
34,545
43,545
Contingent liabilities
The Group had contingent liabilities at 30 June 2012 in respect of:
Guarantees
Guarantees given in respect of premises leases $960,826 (2011 – $975,322).
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 2012 and 30 June 2011, 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 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26
commitmentS
A. Lease commitments
Non-cancellable operating leases
The Group leases various offices under non-cancellable operating leases expiring within one to six years. The leases have varying
terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Group also leases various
pieces of office equipment under non-cancellable operating leases.
Operating leases
Operating lease expenditure contracted for at the reporting date but not recognised as liabilities payable:
Within one year
Later than one year but not later than five years
Later than five years
B. Other commitments
Commitments in relation to non-cancellable obligation for the supply of media 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
2012
$’000
2011
$’000
1,112
509
–
1,621
1,131
1,310
–
2,441
2012
$’000
2011
$’000
–
–
–
112
–
112
NOTE 27
related party tranSactionS
A. Parent entity
The ultimate parent entity within the Group is Mortgage Choice Limited.
B. Subsidiaries
Interests in subsidiaries are set out in note 28.
C. Key management personnel
Disclosures relating to key management personnel are set out in note 23. 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.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 55
NOTE 28
SubSidiarieS
Significant investments in subsidiaries
AASB 124(13) The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in
accordance with the accounting policy described in note 1(B):
Name of entity
MC Loan Book Security Pty Limited
Beagle Finance Pty Limited
HelpMeChoose.com.au Pty Limited
Mortgage Choice Financial Planning Pty Limited
Country of
Incorporation
Class of
Shares
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Equity holding *
2012
%
100
100
100
100
2011
%
100
100
–
–
These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued
by the Australian Securities and Investments Commission.
* The proportion of ownership interest is equal to the proportion of voting power held.
NOTE 29
eventS occurring after the balance Sheet date
Dividend payment
A final ordinary dividend of $8,422,000 (7.0 cents per fully paid share) was declared out of profits of the Company for the year ended
30 June 2012 on 23 August 2012 to be paid on 18 September 2012.
The financial effects of the above transaction have not been brought to account at 30 June 2012.
NOTE 30
reconciliation of profit after income tax to
net caSh inflow from operating activitieS
Profit for the year
Depreciation and amortisation
Change in net present value of future trailing inflows
Change in net present value of future trailing outflows
Employee expense benefits – share-based payments
Interest received
Net loss/(gain) on sale of non-current assets
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
Decrease/(increase) in deferred tax asset
(Increase)/decrease in other operating assets
Increase/(decrease) in trade payables
Increase/(decrease) in other operating liabilities
Increase/(decrease) in provision for income taxes payable
Increase/(decrease) in deferred tax liabilities
Increase/(decrease) in other provisions
Net cash inflow from operating activities
2012
$’000
18,455
1,664
(13,124)
7,982
470
(612)
78
(718)
847
(298)
253
611
1,036
209
168
17,021
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
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 31
earningS per Share
Basic earnings per share
Diluted earnings per share
Earnings used in calculating earnings per share – profit from continuing operations
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
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
2012
Cents
15.4
15.2
2011
Cents
22.9
22.7
$’000
18,455
$’000
27,459
2012
Number
2011
Number
120,081,158 119,859,505
1,032,768
916,629
121,113,926 120,776,134
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
Shares 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.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 57
NOTE 32
Share-baSed paymentS
A. Executive Performance Option Plan (EPOP)
The Executive Performance Option Plan may be offered on an annual basis to eligible executives as determined by the Board.
The details of each offer may differ as to the particulars, especially with regard to performance criteria, performance period and
service criteria. At the present time this is a legacy plan as options have not been issued under the plan since May 2009. In the year
ending 30 June 2012, no options were offered.
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 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:
■■
■■
ten years after the date of offer;
three months, or such other period determined by the Board, after the participant ceases employment for a reason other than
a ‘qualifying reason’ (i.e. death, total and permanent disability, redundancy, or any other reason determined by the Board); and
■■
twelve months, or such other period determined by the Board, after the participant ceases employment for a ‘qualifying reason’.
When a participant ceases to be employed by the Company prior to the end of the performance period, other than because of a
‘qualifying reason’, any options that have not become exercisable will lapse. However, if there is cessation of employment due to
a ‘qualifying reason’, the Board may determine that some or all of the options may vest. In the event of a change of control of the
Company, options will vest on a pro-rata basis or in their entirety for certain senior executives.
If the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of harassment or
discrimination, is in serious breach of any duty to Mortgage Choice, or, in the Board’s reasonable opinion, has brought Mortgage
Choice into serious disrepute, any options held by the participant will lapse.
The assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to vesting
date, and the amount is included in the remuneration tables on pages 9-11 of this report. Fair values at grant date are independently
determined using a Monte Carlo simulation model utilising a lattice-based trinomial valuation method that takes into account the
exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the
option, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the
risk-free interest rate for the term of the option.
Details of options over ordinary shares in the Company provided as remuneration to other 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:
Grant
Date
Expiry
date
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
2012 and 2011
1 May
2009
Total
Weighted average exercise price
1 May
2019
$0.76
2,500,000
2,500,000
$0.76
–
–
–
–
–
–
–
–
–
–
–
–
2,500,000
2,500,000
$0.76
2,500,000
2,500,000
$0.76
The weighted average remaining contractual life of share options outstanding at the end of the period was 6.82 years (2011 – 7.82 years).
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 32 Share-baSed paymentS (continued)
B. Performance Share Plan (PSP)
The PSP permits eligible employees as identified by the Board to be granted 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
granted to those employees are subject to the achievement of performance and service requirements as specified by the Board.
The PSP is designed to provide the medium-term to long-term incentive component of remuneration for executives and other
designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees are granted shares to a value determined by reference
to the Company’s reward policy and market practice with regard to share-based incentive arrangements provided by peer
organisations. The right to receive vested shares will lapse if the performance and service criteria are not met.
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.
A Notice of Withdrawal may be lodged by a participant following the earlier of:
■■
■■
■■
■■
a date ten years from grant date;
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 lattice-based trinomial
valuation method 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.
Details of performance shares in the Company provided as remuneration to each Director and other key management personnel are
set out below. Further information on the performance shares and the detailed vesting criteria are set out in the remuneration report.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 59
Set out below are summaries of performance shares conditionally issued under the Plan:
Offer Date
Vesting date
Value
Balance
at start of
the year
Number
Granted
during the
year
Number
Vested
during the
year
Number
Expired
during the
year
Number
Forfeited
during the
year
Number
Balance
at end of
the year
Number
2012
31 August 2008
9 December 2009
9 December 2009
9 December 2009
20 September 2010
20 September 2010
20 September 2010
24 December 2010
16 February 2012
16 February 2012
16 February 2012
16 February 2012
Total
Weighted average price
31 August 2011
31 August 2011
31 August 2012
31 August 2013
3 September 2012
3 September 2013
3 September 2014
1 December 2011
14 September 2012
13 September 2013
12 September 2014
12 September 2014
$1.00
$1.24
$1.24
$1.24
$1.16
$1.17
$1.19
$1.37
$1.26
$1.26
$1.26
$0.63
167,900
182,700
182,700
182,699
203,716
203,716
203,718
20,000
–
–
–
–
1,347,150
$1.18
–
–
–
–
–
–
–
–
51,097
51,097
281,031
229,925
613,150
$1.02
(160,600)
(169,333)
–
–
–
–
–
(20,000)
–
–
–
–
(349,933)
$1.14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,300)
(13,367)
(13,367)
(13,367)
(14,017)
(14,017)
(14,016)
–
–
–
–
–
(89,451)
$1.19
–
–
169,333
169,332
189,699
189,699
189,702
–
51,097
51,097
281,031
229,925
1,520,915
$1.13
Offer Date
Vesting date
Value
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
Weighted average price
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
$1.00
$1.24
$1.24
$1.24
$1.16
$1.17
$1.19
$1.37
Balance
at start of
the year
Number
Granted
during the
year
Number
Vested
during the
year
Number
Expired
during the
year
Number
Forfeited
during the
year
Number
Balance
at end of
the year
Number
73,700
167,900
194,133
194,133
194,133
–
–
–
–
823,999
$1.28
–
–
–
–
–
210,999
210,999
211,002
20,000
653,000
$1.18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(73,700)
–
(11,433)
(11,433)
(11,433)
(7,283)
(7,283)
(7,284)
–
(129,849)
$1.77
–
167,900
182,700
182,700
182,700
203,716
203,716
203,718
20,000
1,347,150
$1.18
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 1.38 years (2011 – 1.49 years).
The model inputs for performance shares granted on 16 February 2012 included:
(a) performance shares are granted for no consideration and vest over a period of four years;
(b) grant date: 16 February 2012 (2011 – 20 September 2010);
(c) share price at grant date: $1.26 (2011 – $1.16);
(d) expected price volatility of the company’s shares: 12.59% (2011 – 30%);
(e) expected dividend yield: 0% (2011 – 9.4%); and
(f) risk-free interest rate: 3.78% (2010 – 2 years 4.20%, 3 years 4.15% and 4 years 4.16%).
Mortgage ChoiCe annual report 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 32 Share-baSed paymentS (continued)
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
NOTE 33
parent entity financial information
A. Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Share-based payments reserve
Retained profits
Profit or loss for the year
Total comprehensive income
2012
$’000
–
470
470
2011
$’000
11
533
544
2012
$’000
2011
$’000
106,017
330,290
65,697
234,760
101,921
315,455
63,474
224,671
1,558
1,260
92,712
95,530
19,780
19,780
1,207
1,141
88,436
90,784
27,779
27,779
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
$960,826 (2011 $975,322). 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 2012 or 30 June 2011.
for the year ended 30 June 2012NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 61
director’s
declaration
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 21-60 are in accordance with the Corporations Act 2001 (Cth), 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 2012 and of their performance, for the
financial year ended on that date; and
(b) Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board; and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by Section 295A
of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of the Directors.
Peter Ritchie
Director
Sydney
23 August 2012
MORTGAGE CHOICE ANNUAL REPORT 2012 DIRECTOR’S DECLARATION
for the year ended 30 June 2012
INDEPENDENT AUDIT REPORT
to the members of mortgage choice limited
63
MORTGAGE CHOICE ANNUAL REPORT 2012
INDEPENDENT AUDIT REPORT
shareholder
information
The shareholder information set out below was applicable as at 21 August 2012
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 63 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:
Class of equity security
Ordinary
Shares
Options
459
1,088
693
805
52
3,097
1
1
Ordinary Shares
Number held
Percentage of
issued shares
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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