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ii
We believe that every Australian has the right to home
loan and financial advice they can trust and afford. And
to reach every Australian. We are going to need more
people. And increased brand awareness. We’re off to a
good start.
Mortgage Choice Annual Report 2016
Mortgage Choice Annual Report 2016
1
1
Our national network of mortgage brokers has access
to a panel of over 20 leading lenders offering hundreds
of loans. We’ve written a home loan for over 360,000
customers and continue to write a home loan every
15 minutes in Australia.
But our brokers also help customers to source credit
cards, car loans, commercial loans, asset finance, deposit
bonds, and risk and general insurances. They also refer
customers to our growing network of Mortgage Choice
financial advisers, who are committed to the concept of
driving ‘real, relevant results’ for everyday Australians.
Our network of franchises right across Australia all
operate with a commitment to helping our customers
make better choices for a better life via expert advice and
great service.
Contents
2016 Performance
Chairman’s Report
Chief Executive Officer’s Report
2016 Financial Report
Shareholder Information
Corporate Directory
page 2
3
5
10
92
95
2
2
2016 performance
2016
performance
NPAT Cash $m
)
s
n
o
i
l
l
i
m
$
(
$15.0m
2012
$15.8m
2013
$18.7m
2014
$18.6m
2015
$20.5m
2016
Year
Loan Book
$51.7 billion
FY 16
Others
2.2%
HMC
0.4%
Financial
Planning
4.3%
Diversifi ed
products
3.4%
Total settlements $bn
Gross revenue
by division
)
s
n
o
i
l
l
i
b
$
(
MC
Broking
89.7%
$8.7bn
2012
$8.8bn
2013
$10.4bn
2014
$11.5bn
2015
$12.2bn
2016
Year
Funds under advice
and premiums in force
Total dividends ¢
)
s
n
o
i
l
l
i
m
$
(
e
c
i
v
d
a
r
e
d
n
u
s
d
n
u
F
350
300
250
200
150
100
50
0
20
16
12
8
4
0
Jun
2014
Dec
2014
Jun
2015
Dec
2015
Jun
2016
Year
)
s
n
o
i
l
l
i
m
$
(
e
c
r
o
f
n
i
s
m
u
m
e
r
P
i
)
s
t
n
e
c
(
13.0
2012
13.0
2013
15.5
2014
Year
15.5
2015
16.5
2016
Mortgage Choice Annual Report 2016
Mortgage Choice Annual Report 2016
3
3
Chairman’s
Report
Throughout FY2016, we invested in the capability
of our people to position the group for
continued growth whilst maintaining a
discipline in relation to expense and revenue
management for a NPAT cash result of $20.5 million
– up 11% YoY. This allowed us to deliver a final dividend of 8.5 cents per share,
taking the full year dividend to 16.5 cents per share fully franked – which is our
largest ever annual dividend.
P E T E R R I T C H I E , C H A I R M A N
This year was a very positive one for Mortgage
Choice, our customers, franchisees, employees
and shareholders.
We brought on more new customers than ever before,
and delivered solutions for more of their needs.
This resulted in franchisee revenue growing by 7% year
on year to record levels.
In addition, we managed to grow our loan book
by 4.4% to a new high of $51.7 billion, and settle
$12.2 billion worth of home loans – up 6.3% on the
previous year, marking another milestone.
I am very much encouraged by the fact that these
results were achieved at a time when our chief
executive officer John Flavell and his executive team
were laying down good foundations for future growth.
In April 2015, I welcomed John as our newly appointed
chief executive officer.
John immediately set about understanding the business
more deeply, and focused on putting a plan in place
that will enable Mortgage Choice to prosper.
This plan was set against an expected backdrop of
volatility and change in the economy.
We also delivered a record cash profit after tax result of
$20.5 million – up 11% on FY2015.
Twelve months on and I believe John’s first full financial
year results speak for themselves.
We increased our number of credit represenatives to
more than 600, while our number of financial advisers
also grew slightly over the course of the year.
The Business achieved all of the goals we set for
ourselves in FY2016 and is well progressed against our
plans for 2020.
Pleasingly, our loan writers and financial advisers (both
new and established), were able to take advantage of
the continued growth in the housing finance market
and superannuation system.
Over the course of FY2016, we saw a significant
increase in the productivity of our loan writers and
financial advisers.
These solid business results are a testament to the
ongoing strength of Mortgage Choice as a company and
a brand.
Mortgage Choice continues to evolve and build our
capability to deliver a broader range of financial services
to our customers.
Whether our customers wish to interact with us online,
over the telephone, face to face, or a combination of all
three, we are well positioned to do just that.
Beyond meeting our customers’ debt needs,
Mortgage Choice is also well positioned to provide
value to our customers by meeting their broader
wealth requirements.
4
Chairman’s Report
Building a wealth offering from the ground up has
required significant conviction and investment by
the group. I am pleased to see these convictions and
subsequent investments are now starting to pay off for
our customers, franchisees, and shareholders.
The growth of our wealth business over the last four
years has been impressive. In February 2016, we were
pleased to announce that our wealth business had – for
the first time – delivered a monthly profit result.
Pleasingly, this milestone occurred before the deadline
we had set ourselves and the Business has continued
to go from strength to strength since then. We will
continue to invest in our wealth business as we believe
it plays a powerful role in the Group’s profitability
growth over this next year and beyond.
Mortgage Choice Glenelg franchisee Keith Caine discusses
home loan options with a customer.
Heading into FY2017, our expectation is that there will
continue to be a high degree of volatility in the markets
we participate in, driven out of both domestic and
global events.
But, if our success over the last financial year has
proven anything, it has shown us that in periods of
uncertainty and volatility, people value expert advice
and Mortgage Choice is well positioned to be our
customers’ trusted adviser.
Mortgage Choice loan book
reaches record high of
$51.7bn
Mortgage Choice Annual Report 2016
5
CEO
Overview
The future looks bright for Mortgage Choice
as we continue our transition into an
omni-channel, integrated financial
services company that delivers value to
our customers.
J O H N F L AV E L L , C H I E F E X E C U T I V E O F F I C E R
What a year it has been.
Throughout FY2016, there was a great deal of volatility
in the economic, political and regulatory environment
– both globally and domestically. This provided
Mortgage Choice with both opportunities and challenges
in the markets we operate within.
In June, we saw Britain’s withdrawal from the European
Union, negatively impacting consumer and investor
confidence across the globe – albeit very briefly as the
case would seem.
Closer to home, historically low interest rates and strong
lender competition helped to keep the property market
moving. Property prices rose 8.3% across the combined
capital cities over the 12 months to July 2016. Sydney and
Melbourne were the standout performers, with price
growth of 11.3% and 11.5% respectively.
A cap on growth in investment lending, put in place
by the prudential regulator, changed the composition
of the overall residential mortgage system. Thankfully
however, the cap did nothing to restrict overall growth.
Data from the Australian Bureau of Statistics found
approximately 36% of the value of all home loan
approvals in June 2016 were for investment purposes,
down from 42% the year prior.
Meanwhile, home loan demand remained at all-time
highs, with the value of all home loans approved
averaging $32 billion a month.
On the domestic political front, the 2016 financial year
brought with it a Federal Budget that should best be
described as ‘frightening’.
In the face of a much needed structural overhaul of
our taxation system designed to stimulate growth and
business investment, I believe we received a Federal
Budget that did its best not to offend anyone in the
midst of one of the longest and drawn out election
campaigns on record.
Amongst all of this volatility, Mortgage Choice continued
to invest in the business to help us deliver solid results,
today, tomorrow and long into the future.
With our strategy for 2020 set over 12 months ago, we
have started to build our capabilities in order to better
cater to our customers’ growing financial needs.
We are positioning Mortgage Choice to become
Australia’s leading provider of financial choices and
advice, while delivering exceptional customer value.
As we do this, we will continue to generate
profitability for our franchisees and deliver strong
returns to our shareholders.
At the beginning of FY2016, I shared with the market our
four short term priorities for the period. They were:
Franchisee revenue growth;
Integration of Mortgage Choice Financial Planning;
Market share growth; and
Net Profit After Tax growth driven by positive
revenue and managed expenses.
In addition, I shared our long term business priorities
and where I would like to see Mortgage Choice in 2020.
Those priorities included:
The development of an Omni-Channel
Customer experience;
6
CEO Overview
Mortgage Choice Glenelg, SA franchisee Keith Caine and
financial adviser Malcom Simpson display some of the
Company’s key branding material.
This business is now at the next stage of maturity and
will make a positive contribution to the Group’s results
from here on.
A Broader range of services;
Increased distribution growth; and
A shift to a Customer Centric culture.
Twelve months on, and I am pleased to announce that
we have managed to achieve or exceed all of the targets
we set for the business in FY2016, and progressed further
than predicted against our 2020 priorities.
Franchisee revenue grew 7% year on year, which has
allowed our franchisees to increase their profitability
and re-invest in their own businesses.
The proportion of our debt customers whose
wealth needs we are meeting, has doubled over the last
12 months, hitting 10%. As a result, we have seen revenue
for our financial advice business surge more than 40%
year on year.
We had said to the market that our financial advice
business would deliver profitability on a month on
month basis by the fourth quarter of FY2016, and we are
happy to report that we achieved this outcome ahead of
schedule in February.
In addition to the ongoing strength of our financial
planning business, our core broking business continued
to prosper, with national home loan lead volumes
surging 23%.
This growth in national leads helped us to achieve a new
settlement record, with $12.2 billion in residential home
loans settled throughout FY2016.
Mortgage Choice’s national
lead volumes
+23%
We also managed to grow our loan book by 4.4% from
$49.5 billion to $51.7 billion.
The growth we saw in settlements, loan book and
market share can be attributed to growth in our loan
writer numbers and enhanced productivity levels. At
the end of FY2016, we had 618 credit representatives on
Mortgage Choice Annual Report 2016
Mortgage Choice Annual Report 2016
7
7
board. Looking ahead, I am confident of returning even
better results in FY2017 and beyond as our new loan
writers continue to embed themselves in the business.
our brokers to send personalised, engaging marketing
content, which has led to the proliferation of stickier
customers and client enquiries.
At the half year we reported strong growth in our NPAT
cash result of 10.4% on the prior corresponding period.
Over the second half of the year, we managed to steepen
this trajectory even further, delivering a record NPAT cash
result of $20.5 million for FY2016 – up 10.7% year on year.
In the same way that we delivered to all of our goals for
FY2016, I am confident that we are on the right path to
deliver to our 2020 goals.
In fact, I am pleased to announce that we have already
made significant inroads into all of our aforementioned
2020 ambitions.
On the omni-channel customer experience front, we
have developed new tools and platforms that allow our
franchisees to communicate with their customers on a
regular basis.
We have integrated a new state-of-the art Customer
Relationship Management (CRM) platform that allows
At the end of FY2016,
Mortgage Choice had
618
credit representatives
We launched Web Chat functionality to improve the
customer experience, and enhanced the capability and
scale of our telephone based Customer Contact Centre.
Mortgage Choice franchisee Julie Brown outside her shop.
8
8
CEO Overview
We also launched a powerful and industry leading
Retirement Income Calculator in a bid to digitise part of
our wealth capability and further integrate the financial
planning business into Mortgage Choice.
At the same time, we have grown our suite of services
with the launch of Mortgage Choice Asset Finance, and
strengthened our capabilities in the area of property
referrals and personal loans.
At Mortgage Choice, we are advocates for the
diversified business model because we understand
that 1 plus 1 can equal something more than 2 for
our customers and stakeholders. As such, we will
continue to concentrate on developing a multi-channel,
multi-service hub that successfully caters to our
customers’ growing financial needs.
We are committed to delivering any product, through
any channel at any time.
While our future direction is clear, it is also important for
us to identify our imperatives for the coming 12 months.
Strategic focus for FY2017
Just as we did in FY2016, Mortgage Choice’s success in
FY2017 will be measured against four key metrics/short
term priorities:
Mortgage Choice’s customer service expert,
Meghan Castledine chats with a customer.
Increased and further diversifying
franchisee revenue;
Enhanced brand awareness and engagement;
Profitable market share growth; and
Growth in net profit.
To achieve our first priority, we understand that
we must increase the footprint and productivity of
the network. We will improve our productivity by
leveraging off the efficiencies provided to us by our new
CRM platform, and grow our broker numbers by focusing
on recruitment.
Further, we will continue to review and enhance our
portfolio of financial services to ensure we are meeting
the growing needs of our customers.
Our second priority is to increase brand awareness and,
in turn, lead volumes to the network.
Growth in brand awareness and subsequent lead
volumes was incredibly strong over FY2016. We
will carry the momentum we have generated from
our collaborative marketing activities and national
Mortgage Choice Annual Report 2016
Mortgage Choice Annual Report 2016
9
9
growth outpaces growth in expenses – delivering
positive jaws.
I am incredibly proud of what Mortgage Choice has
achieved throughout FY2016. We have accomplished a
lot – all of which has been done against a backdrop of
economic uncertainty and market challenges. I have
every expectation that the market will continue to
be complex in FY2017 – perhaps more so than FY2016.
Thankfully, our track record of delivering exceptional
results in a challenging environment, gives me the
confidence to state that we have set ourselves up to
thrive in FY2017.
Total settlements in FY2016 for
Mortgage Choice reached
$12.2bn
radio advertising campaign into FY2017 and continue
to further expand our points of presence in the
communities we serve.
Our third priority is to grow our market share and
we will do this by investing more in our business
technology, franchisee platforms, loan writer and
financial adviser recruitment and onboarding.
For FY2017 and beyond we will continue to invest in
the business for growth, while ensuring gross revenue
A Mortgage Choice customer jumps online to search for the
best deals on the market.
10
10
Financial Report
Mortgage Choice continues to grow its brand awareness across
Australia thanks to more branded cars, more shopfronts and
more marketing activities.
2016 Financial Report
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.
The financial statements were authorised for issue
by the Directors on 24 August 2016.
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.
Contents
Directors’ Report
page 11
Auditor’s Independence Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
39
40
41
42
43
44
45
89
90
11
Directors’ Report
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 2016, 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 loans or other
products; and
the submission of 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 $9.945 million (8.0 cents
per fully paid share) was declared for the year
ended 30 June 2015 on 18 August 2015 and paid on
11 September 2015.
An interim ordinary dividend of $9.957 million (8.0 cents
per fully paid share) was declared for the half-year
ended 31 December 2015 on 17 February 2016 and paid on
11 March 2016.
A final ordinary dividend of $10.579 million (8.5 cents
per fully paid share) was declared for the year
ended 30 June 2016 on 24 August 2016 to be paid on
16 September 2016.
Corporate Governance Statement
The Company’s Corporate Governance Statement can be
found at http://www.mortgagechoice.com.au/about-us/
shareholder-centre/corporate-governance.
Review of Operations
A review of the Group’s operations is set out in the
Operating and Financial Review below
Operating and Financial Review
At the end of FY2015, Mortgage Choice’s newly appointed
chief executive officer John Flavell identified the
Company’s four strategic priorities to achieve success in
the 2016 financial year.
These priorities included:
Enhanced franchisee revenue growth;
Integration of Mortgage Choice Financial Planning;
Market share growth; and
Net Profit After Tax growth driven by positive
revenue and managed expenses.
Throughout the 2016 financial year, the Company not
only achieved, but in some instances exceeded, all of
these business targets.
Franchisee revenue growth climbed 7% throughout
FY2016, while the Company’s diversified services
– including financial planning – outperformed
expectations. The Company’s financial planning arm
delivered its first monthly profit result in February
2016, and repeated the achievement in May and June.
This business is now at the next stage of maturity and
will continue to make positive contributions to the
Group’s results.
On a market share front, Mortgage Choice managed to
arrest the fall and reverse the trend. Heading into the
new financial year, market share growth will form one of
the Company’s key FY2017 priorities – more details will
be provided in ‘Strategic Focus for FY2017’ section.
In terms of Net Profit After Tax, the Company achieved a
statutory result of $19.5 million – up from $18.9 million
in FY2015. The Group’s Net Profit After Tax cash result was
$20.5 million – up from $18.6 million. This result was
driven by strategic expense management and significant
growth in the Company’s gross revenue generated from
the core broking business.
Throughout FY2016, home loan settlements rose 6.3%,
from $11.5 billion to $12.2 billion. Meanwhile, the
Mortgage Choice Annual Report 2016 12
Company’s loan book reached $51.7 billion – up from
$49.5 billion.
These financial results can be attributed to a number
of factors including successful business initiatives and
ongoing strength in the property and lending markets.
Strong market conditions present opportunities
Australia’s property and lending markets were strong in
FY2016. Record low home loan rates helped keep heat in
the property market, with data from CoreLogic showing
property prices rose 8.3% across the combined capital
cities over the 12 months to 30 June 2016.
This lift in property values was reflected in the value of
home loans being written, with data from the Australian
Bureau of Statistics showing approximately $32 billion in
home loan approvals were written each month.
The Australian Bureau of Statistics also found that more
than 50,000 home loans were written every single
month, the majority of which was being written by
Australia’s third party distribution channel. According to
the Mortgage and Finance Association of Australia, more
than 50% of all home loans written are now written by
mortgage brokers – a new high for the industry.
Demand for professional mortgage advice from a trusted
third party adviser continues to grow year on year.
Heading into FY2017, this is a trend Mortgage Choice
expects to continue as the home loan market becomes
increasingly complex.
Greater lending regulation and a significant change in
the investment lending policies of Australia’s lenders
over the last 18 months, has made the home loan market
more complex than ever before.
In December 2014, the Australian Prudential Regulation
Authority (APRA) put a benchmark on growth in
investment lending, forcing lenders to tweak their
investment policy and pricing. Following that time, APRA
and the Australian Securities Investments Commission
increased the level of regulatory scrutiny on the lending
market. In times of uncertainty and confusion, people
look to trusted experts for advice so it is not surprising
to see an increase in the percentage of people turning to
mortgage brokers for assistance with their home loan.
Mortgage Choice has
successfully taken advantage of
the positive market conditions
to grow home loan settlements
by 6.3% throughout FY2016.
Settlements trend
)
s
n
o
i
l
l
i
m
$
(
1,300
1,200
1,100
1,000
900
800
700
600
500
Monthly settlements ($m)
6 month average settlements ($m)
Sep-13
D ec-13
M ar-14
Ju n-14
Sep-14
D ec-14
M ar-15
Ju n-15
Sep-15
D ec-15
M ar-16
Ju n-16
In addition to achieving a record settlement result, the
Company delivered an impressive underlying statutory
result. Underlying statutory revenue and profit before
tax were up 3% on revenue and 4% on profit before tax
year on year.
Underlying Statutory Results
Operating Revenue
Underlying operating
revenue
Adjustment to valuation
of loan book receivable
2016
$’000
2015
$’000
197,677
191,587
(237)
(6,792)
Total operating revenue
197,440
184,795
Profit before tax
Underlying result
before tax
Adjustment to valuation
to net loan book
receivable
29,881
28,801
(1,535)
(2,293)
Total profit before tax
28,346
26,508
It is worth noting that a spike in refinancing activity
combined with record low interest rates, resulted in
increased run-off across the industry – though this
was expected.
At Mortgage Choice, increased refinancing activity
led to record growth in loan settlements and higher
commission payments to our franchisees. These higher
commission payments affected Mortgage Choice’s net
margin, resulting in a 1% write down of the Company’s
loan book net value.
For the year ended 30 June 2016Directors’ Report
13
Throughout FY2016, Mortgage
Choice’s loan book grew 4.4%
– sitting at $51.7 billion as at
30 June 2016.
Loan Book ($’000)
50
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20 05
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20 07
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2010
2011
2012
2013
2014
2015
2016
Financial Year
Mortgage Choice Financial Planning
But it wasn’t just the core business that delivered
a strong financial result. Mortgage Choice Financial
Planning also performed well, with the business
recording a 52% increase in Net Profit After Tax on a
cash basis.
At the same time, overall revenue growth for the
financial planning business was up 40%, while Funds
Under Advice and Premiums In Force grew 19% and 28%
respectively. Pleasingly, the business also delivered its
first month of profit in February 2016 – a result that was
repeated in both May and June.
These strong business results can be attributed to a lift
in both organic growth as well as the number of referrals
coming from the Company’s core broking business. Over
the last 12 months, the number of financial planning
referrals coming from the Company’s core broking
business rose 21%.
Looking ahead, more emphasis will be placed on
growing referral numbers from the Company’s brokers
to ensure the financial planning arm continues to
make a positive profit contribution to the Group in
FY2017 and beyond.
Diversified products
The Company’s other diversified services also performed
well throughout FY2016, with total revenue rising from
$6.4 million in FY2015 to $6.7 million. In addition to an
improvement in total revenue, the Group strengthened
its diversified services offering, launching Mortgage
Choice Asset Finance in 2H2016.
Mortgage Choice is an advocate of the diversified
business model and believes diversification will help
drive greater gross profits and business opportunities in
FY2017. That said, the Company will only diversify into
services that complement the core broking business and
have the ability to thrive.
Help Me Choose
At the beginning of FY2016, the Company’s Chief
Executive Officer John Flavell completed a strategic
review of the Group and the decision was made to close
the Help Me Choose (HMC) division. The costs associated
with the closure are reflected in this year’s financial
results. Given that we continue to receive trailing
commission related to products introduced prior to the
closure of HMC, this business has been included in the
continuing operations of the Group.
Investing for future growth
Throughout FY2016, Mortgage Choice introduced
and developed a range of initiatives to position the
Company for future growth. These initiatives included
the development of a centralised marketing platform,
an industry-first retirement calculator, and the
implementation of various recruitment initiatives.
Enterprise marketing platform
In 2H2016, the Company integrated an enterprise
marketing platform into its CRM (Microsoft Dynamics).
This has enabled the automation of a centralised
email marketing program to assist franchisees, loan
writers and advisers to keep in touch with customers
on a regular basis. The targeted marketing campaigns
enabled by the system drive business efficiencies and
opportunities for the network. In FY2017, the Group will
continue to maximise the extensive functionality within
the platform to deliver highly personalised, timely and
relevant market information to every single customer
and prospect, which will in turn drive conversion, repeat
business and customer referrals.
Retirement Income Calculator
In addition to the new marketing platform, the Group
launched an industry-leading Retirement Income
Calculator that boasts a 90% accuracy rate. The
calculator, developed by fintech company Investfit,
uses stochastic modelling, pulling historical investment
market data to project a person’s income in retirement
based on their current investment strategy. Heading into
FY2017, the Group will use the calculator to drive leads
and greater client conversion.
Recruitment initiatives deliver results
Finally, Mortgage Choice also worked throughout FY2016
to launch a series of recruitment initiatives, helping the
Company grow its total loan writer and limited credit
representative numbers by 43 which will continue to
Mortgage Choice Annual Report 2016 Matters subsequent to the end of the
financial year
No matters or circumstances have arisen since 30
June 2016 that have significantly affected, or may
significantly affect:
(a) the Group’s operations in future financial years,
(b) the results of those operations in future financial
years, or
(c) the Group’s state of affairs in future financial years.
Likely developments and expected results
of operations
Information on likely developments in the operations of
the Group and the expected results of operations have
not been included in this report because the Directors
believe it would be likely to result in unreasonable
prejudice to the Group.
Environmental regulation
The Group is not subject to any significant environmental
regulation under a law of the Commonwealth or of a
State or Territory in respect of its activities.
14
deliver strong results throughout FY2017. The initiatives
included a program that transitions administration
assistants into loan writers, and a financial incentive
program that supports the cash flow of new franchisees.
Strategic focus for FY2017
Throughout FY2017, Mortgage Choice will continue down
the path of becoming Australia’s leading provider of
financial choices and advice.
The Group will deliver this through four strategic
business priorities, including:
Further diversification and growth in
franchisee revenue;
Greater brand awareness and engagement;
Improved market share;
Continued growth in Net Profit After Tax.
To meet these strategic priorities, the Company will
continue to build upon the initiatives developed in
FY2016. Further, the Group will develop and implement
new strategies to grow and diversify franchisee revenue
with a focus on continually increasing referrals to
Mortgage Choice Financial Advisers and increasing
take up of the diversified product suite, in particular,
Mortgage Choice Asset Finance.
Growing home leads and increasing brand awareness
is also on the agenda, with a key focus on increasing
local brand presence. A new marketing campaign will
be launched that will set Mortgage Choice up to position
the brand as a full financial services brand now and into
the future.
Continued network growth is imperative to the
Company’s success in FY2017 and beyond, and for that
reason, a dedicated Growth department has been
created with a clear remit to deliver network growth in
order to capture more market share.
Investment in the above focus areas will drive revenue
growth and expenses will be managed to continue to
create positive jaws.
Looking further ahead, creating an omni-channel
experience for our customers remains a strategic
imperative. Mortgage Choice will build an experience
for customers that delivers any financial product at any
time through the customer’s choice of channel.
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.
For the year ended 30 June 2016Directors’ Report 15
Rodney Higgins
Non-Executive Director
Member of nomination and
remuneration committees
Director since
30 January 1986
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 61.
Steve Jermyn
FCPA
Independent Non-Executive
Director
Chairman of audit committee
Director since 24 May 2004
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 has also been a Director of
Reverse Corp Limited since October 2005. Age 67.
Deborah Ralston
PhD, FAICD, SFFin, FCPA
Independent Non-Executive
Director
Member of audit committee
and Chairman of the
Mortgage Choice Financial
Planning investment
committee
Director since 24 May 2004
Deborah is Professor
of Finance at Monash
University and Chair of the Australian Securities and
Investment Commission Digital Finance Advisory
Committee and a Non-Executive Director of SMSF
Association. She was formerly Executive Director of
the Australian Centre for Financial Studies and prior to
that, Pro Vice Chancellor at the University of Canberra.
Deborah is a former Director of Heritage Building Society.
Age 63.
Information on Directors
Peter Ritchie
AO, Hon.DBus, BCom
Independent Non-Executive
Chairman
Chairman of nomination and
remuneration committees
Director since 5 April 2004
Peter has been Chairman
of Reverse Corp Limited
since 1999. He previously
served as Managing
Director of McDonald’s
Australia from 1974 to 1995 and as its Chairman from
1995 to 2001. Peter was deputy Chairman of Seven Group
Holdings from April 2010 to November 2014 and was a
Director of Westpac Banking Corporation from 1993 to
2002 and Solution 6 Holdings from 2000 to 2002. Age 74.
Sean Clancy
Dip Mkt FAICD
Independent Non-Executive
Director
Member of audit,
remuneration and
nomination committees
Director since 18 May 2009
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 on the Advisory Board
of the Port Adelaide Football Club and Director and
Chief Executive Officer of Transfusion Ltd, Chairman of
Metropolis Inc. and Touch to Buy, Non-Executive Director
of Gowing Brothers and of Whitecoat and Ambassador to
Business Events Sydney. Age 56.
Peter Higgins
Non-Executive Director
Member of audit committee
Director since
30 November 1989
Peter is co-founder
of Mortgage Choice.
He also is Executive
Chairman of technology
company Power & Data
Corporation Pty Ltd,
trading as Mainlinepower.com and a Director of Argosy
Agricultural Group Pty Ltd. Having been successfully
self-employed for over 30 years, Peter is an investor in
a diverse number of industries covering manufacturing,
agriculture, technology, property and finance. Age 56.
Mortgage Choice Annual Report 2016 16
The table below sets out the Directors’ interests at 30 June 2016:
Director
Particulars of Directors’ interests in shares
P D Ritchie
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Company Secretary
530,125 ordinary shares
75,000 ordinary shares
359,253 ordinary shares
15,380,212 ordinary shares
2,000,000 ordinary shares
145,000 ordinary shares.
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 2016, and the numbers of meetings attended by each Director were:
Full meetings of
Directors
Audit
Nomination
Remuneration
Meetings of committees
A
9
10
7
10
8
10
B
10
10
10
10
10
10
A
*
3
2
*
2
3
B
*
3
3
*
3
3
A
1
1
*
1
*
*
B
1
1
*
1
*
*
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
Remuneration report
(d) Executive remuneration policy and framework
This Remuneration Report sets out remuneration
information for the Company’s Non-executive
Directors, Chief Executive Officer (“CEO”) and other key
management personnel (collectively “KMP” as defined
in (i) Glossary.
(e) Executive remuneration for FY2016
(f) Relationship between remuneration and Mortgage
Choice Limited’s performance
(g) Non-executive Director remuneration
The report contains the following sections:
(h) Statutory disclosures
(a) Chairman’s introduction
(i) Glossary
(b) Directors and executive KMP disclosed in this report
(c) Remuneration governance
For the year ended 30 June 2016Directors’ Report 17
that this part of our remuneration structure clearly
aligns our executives with you, our shareholders, by
avoiding any distortion and ensuring participants focus
not only on share price but also dividend returns to
shareholders. The Board believes that this structure will
maximise shareholder return over the long run.
Peter Ritchie
Chair of the Remuneration Committee
(b) Directors and executive KMP disclosed in
this report
Table A: KMP during FY2016
Name
Position
Non-executive Directors
Peter D Ritchie
Non-Executive Chairman
Sean J Clancy
Non-Executive Director
Peter G Higgins
Non-Executive Director
Rodney G Higgins
Non-Executive Director
Stephen C Jermyn
Non-Executive Director
Deborah E Ralston
Non-Executive Director
Name
Position
Executive KMP
John L Flavell
Chief Executive Officer
Susan R Mitchell
Chief Financial Officer
Neill C Rose-Innes
Andrew J Russell
General Manager, Distribution
(appointed 2nd November 2015,
formerly Chief Operating Officer)
General Manager, Product and
Distribution (resigned effective
25th September 2015)
Melissa J McCarney General Manager, Group Marketing
Emma A
Dupont-Brown
General Manager, Product
(appointed 6th July 2015)
Tania J Milnes
Marie J Pitton
Vincent C ten
Krooden
General Manager, Financial
Planning (included as KMP from
1st July 2015)
General Manager, Human
Resources (included as KMP from
1st July 2015)
Head of IT (appointed 1st
November 2015)
a. Chairman’s introduction
Dear fellow shareholders
On behalf of the Board, I am pleased to present our
FY 2016 Remuneration Report to you.
The Board is focused on continuing to deliver value to
you our shareholders, progress its growth plans and
pursue opportunities. Having a robust remuneration
and reward framework that supports and encourages
sustainable growth and motivates our people is critical
to the successful execution of our strategy.
This year we made several changes in our executive
remuneration framework to bring our executive KMPs
in line with the remuneration arrangements introduced
for our CEO, Mr Flavell (appointed April 2015). The
structuring of Mr Flavell’s remuneration package
incorporated feedback we had previously sought from
you in response to the “No” vote we received at the 2014
AGM. During FY2016 we embedded those changes into
the remuneration structures of the remaining executive
KMPs. The changes consist of:
removing all share based remuneration vesting
solely on tenure from both the fixed and long term
incentive portions of executive pay;
–
making the LTI vesting schedule more challenging:
increasing the threshold level of performance for
the Cash EPS component as well as increasing the
level of performance required for full vesting; and
–
increasing the threshold level of performance
for the Total Shareholder Return component
so that vesting only occurs when performance
has reached the median level for the
comparator group.
This year we have adopted a new structure for our
Remuneration Report, which is aimed at more clearly
and transparently explaining our remuneration
arrangements to you. We have taken your feedback
onboard in response to our consultation following the
“No” vote on the remuneration report at the 2015 AGM
and have expanded our disclosure of the criteria under
which the short term incentive is awarded. The Board
is committed to providing you with all the information
you need to properly understand the Company’s
remuneration framework and outcomes for the
financial year.
There is one area in particular where we have
maintained our position after much discussion
and thought following feedback from some of our
shareholders. We will continue to pay dividends on
unvested performance shares. Performance shares
under our LTI plan are existing issued shares held in
trust. Dividends will be paid on these shares and the
value of expected dividends is taken into consideration
when determining the value of the LTI grants. We believe
Mortgage Choice Annual Report 2016 18
(c)
Remuneration Governance
The diagram below provides an overview of the Company’s remuneration governance framework.
Oversee and
delegate
Recommend
and inform
Engage
Advise
For the year ended 30 June 2016Directors’ ReportBoardResponsible for overseeing the Company’s remuneration structure, and ensuring that it is appropriate for the Company’s circumstances and performance, and aligned with the long-term interests of the Company and its shareholders.Remuneration ConsultantsRemuneration consultants and other independent advisors are engaged by the Remuneration Committee from time to time to advise on various issues, including structuring of remuneration, benchmarking data and market practice of other listed companies.During FY 2016, the Remuneration Committee did not engage the services of a consultant to provide remuneration recommendations.When consultants are engaged, the Remuneration Committee has put in place arrangements to ensure that any remuneration recommendations are free from undue infl uence from any members of the Group’s KMP. These arrangements include the following:• Remuneration consultants are engaged by, and report directly to, the Chair of the Remuneration Committee; and• the agreement for the provision of remuneration consulting services is executed by the Chair of the Remuneration Committee.This allows the Board to be satisfi ed that the recommendations are made free from undue infl uence from any members of the KMP.Remuneration Governance FrameworkRemuneration CommitteePrimary responsibility for remuneration governance.Makes recommendations to the Board on:• Non-executive Director fees;• Executive remuneration; and• operation of the incentive plan.Seeks advice from independent remuneration consultants.The Corporate Governance Statement, which can be found on the Mortgage Choice website (at http://www.mortgagechoice.com.au/about-us/shareholder-centre/corporate-governance.aspx), provides information on the role and composition of the Remuneration Committee. 19
(d) Executive remuneration policy and framework
As stated in last year’s Remuneration Report, the Board introduced a new executive remuneration structure during
FY2015 and FY2016. These changes applied to the CEO, John Flavell, from his appointment in April 2015 and to other
members of executive KMP from 1 July 2015.
The following diagram shows the remuneration policy and framework that the Board, as advised by the Remuneration
Committee, applies in setting executive remuneration.
Executive Remuneration Policy & Framework
Mortgage Choice Annual Report 2016Remuneration policyAims to ensure that remuneration practices are:• fair and reasonable, enabling the Company to attract and retain key skills and experience;• aligned to the Company’s strategic and business objectives and the creation of shareholder value; • transparent; and• acceptable to shareholders.• Consists of base cash salary and superannuation.• Base salary is reviewed annually against external benchmarks to ensure it remains appropriate.• Designed to reward short term performance.• STI awards are subject to a minimum profi t gateway.• Any STI awarded is determined based on fi nancial, strategic and operational KPIs.• Paid out of a defi ned STI pool.• CEO’s STI delivered 50% in cash and 50% in performance rights. The performance rights are deferred and vest in 2 tranches (50% after 1 year and 50% after 2 years), subject to continued employment.• Other executive KMP receive cash STI.• Designed to reward longer term performance.• Delivered in performance shares.• 50% of the performance shares are subject to a relative Total Shareholder Return (“TSR”) performance hurdle and the remaining 50% subject to a cash EPS growth hurdles.• Performance is measured over a 3 year period.FixedPerformance BasedTotal Remuneration = Fixed Remuneration + STI + LTIFixed RemunerationShort term incentive (“STI”)Long term incentive (“LTI”) 20
The FY2017 remuneration mix for the CEO and the other executive KMP, assuming achievement of all performance based
performance criteria, is set out in the following table:
Table B: Remuneration mix
Position
CEO
Other executive KMP
Fixed
Performance Based
Base
remuneration
Maximum
STI
opportunity
Maximum
LTI
opportunity
37%
67%
33%
18%
30%
15%
(e) Executive remuneration for FY2016
Fixed remuneration
An executive’s fixed remuneration comprises a base cash salary plus superannuation limited to the maximum
super contribution base. Executives have an opportunity to salary sacrifice amounts from their base salary towards
additional superannuation as well as a series of prescribed benefits including any associated fringe benefits tax.
Fixed remuneration is reviewed annually by the Remuneration Committee against external benchmarks, such as
industry pay scale surveys and increases to CPI, to ensure it remains appropriate relative to the market. Although fixed
remuneration adjustments may be made after comparison to external benchmarks, or on promotion, there are no
guaranteed fixed remuneration increases in any executive contracts.
As other aspects of the remuneration package have a ‘retention’ component, share based remuneration that vests
solely based on tenure is no longer provided as part of an executive’s fixed remuneration.
Short-term incentives
A summary of the Company’s STI arrangements are set out in the table below:
Table C: Summary of FY2016 STI arrangements
What is the STI
plan?
The STI plan is an incentive plan under which participants are eligible to receive an annual
award if they satisfy pre-determined and challenging profit, operational, strategic and individual
performance conditions.
Who can
participate?
What is the
maximum
opportunity
for executives?
The STI plan and the performance conditions set are designed to motivate and reward high
performance. Under the STI plan, a portion of executive KMP’s remuneration is only delivered if
targets linked to the Company’s financial and strategic objectives are satisfied. This aligns the
executives’ interests with the Company’s performance.
The CEO and other executive KMP are eligible to participate in the STI plan.
For FY2016, the CEO’s maximum STI opportunity is 90% of fixed remuneration.
The STI opportunity for other executive KMP is structured as a target STI of between 15% and 32% of
base salary. Target STI may be exceeded if an individual exceeds his or her own KPIs.
In addition, at the Board’s sole discretion, the STI pool may be subject to a group modifier based on
the Company’s profit as compared to the target determined by the Board. An increase in the pool
may allow KMP to receive STI in excess of target. The group modifier is applicable to the CEO but not
in excess of his maximum STI opportunity.
The group modifier for FY 2106 is set at 1.
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.
For the year ended 30 June 2016Directors’ Report 21
What is the
performance
period?
What are the
requirements
for an STI
award to be
made?
What is
the profit
gateway?
What are the
performance
conditions?
The performance period is 1 year and aligns with the financial year. For FY2016, the performance
period was 1 July 2015 – 30 June 2016.
STI awards will be paid to participants where:
the executive has been continuously employed until the end of the relevant financial year;
the Company has met the profit gateway determined by the Board (see below); and
the executive has satisfied his or her individual KPIs (see below).
The Board will not authorise the payment of STI to KMP unless a minimum profit threshold has
been achieved. This means that STI payments are only available when value has been created for
shareholders in a manner consistent with the Company’s financial and strategic objectives.
CEO
At the beginning of FY2016 the Board established four areas of short term strategic focus for the CEO
as discussed in his Overview and set his KPIs directly in line with these areas of strategic focus:
KPI
Result
Achieve cash profit target through
“positive jaws”
Cash profit target exceeded by 2.3% with revenue
and gross profit growth exceeding operating
expense growth
Stop decline in market share of
residential mortgages
Market share for fourth quarter of FY2016 is 3.74%
against 3.56% for the prior comparative period
Implement structural changes to embed new
growth initiatives
Maintain high visibility in media to support
brand awareness
MCFP to achieve profit on monthly basis by end
of FY2016
Address impact of Help Me Choose business on
Group profitability
Dedicated resources deployed at national and
state level to focus on growth and productivity
of franchise network
Spokesperson rating increased from 75% to 81%
along with increase in share of voice from 72%
to 78%
Divisional profit in February, May and June
Division closed down in September with all
related redundancy and asset write downs
included in FY2016, resulting in a cash loss
of $418,000
Some details of the CEO’s KPIs are not disclosed due to the commercial sensitivity inherent in those
KPIs. All of the CEO’s STI performance conditions were achieved or exceeded in respect of FY 2106.
Other executives
The CEO annually sets KPIs that apply to other executive KMP. KPIs include the same profit target
as the CEO as well as specific operational targets closely aligned with the areas of strategic focus
identified for the CEO by the Board. Examples of individual KPIs included:
specific growth targets in the number of franchises and loan writers;
specific growth targets for settlements and group office generated leads; and
franchisee behavioural targets such as an increase in the use of customer contact tools and an
improvement in the results of compliance audits.
Mortgage Choice Annual Report 2016 22
How is
performance
assessed?
How is the
STI pool
calculated?
How is reward
delivered
under the STI
Plan?
Is there
discretion
to adjust STI
awards?
Following the audit of the Company’s accounts, the Board assesses the CEO’s performance against
his KPIs and determines the CEO’s STI award (if any). For other executive KMP, this assessment
is completed by the CEO. Other executive KMP may receive more or less than their target STI,
depending on their performance against their KPIs and their relative performance compared to
other participants.
STI awards are paid out of a defined STI pool. The STI pool is created based on the combined value
of the STI participants’ target STI, excluding the CEO. Funds forfeited by one participant, due to
the failure to achieve individual KPIs, are available to cover the excess achievements of another
participant so long as the pool in total is not exceeded. Should the total STI award determined be
smaller than the STI pool, any remaining funds would be released to profit.
The calculation of the CEO’s STI opportunity and the achievement of the related performance criteria
is a separate, stand alone calculation.
At the Board’s discretion, the STI pool may be subject to a group modifier based on Company’s profit
as compared to the target determined by the Board. This would cause the final STI awarded to be
increased or decreased by the group modifier based on the Company’s achievement of the profit
target for the year.
The group modifier is applicable to the CEO’s STI award but not in excess of his maximum
STI opportunity.
The group modifier aligns the STI outcome with the Company’s financial objectives. If profit
target is exceeded, executives are eligible to share a percentage of the additional value created for
shareholders. Likewise if a profit target is missed but the profit gateway is exceeded, executives are
penalised even if individual KPIs are achieved.
The group modifier for FY2016 is set at 1. Although the profit target is exceeded, the excess is not
sufficient to invoke the group modifier.
From FY2016, any STI awarded to the CEO is delivered 50% in cash and 50% in performance rights.
Vesting of performance rights is deferred for up to two years. Further details regarding the deferred
component of the CEO’s STI award are set out below.
For other executives, any STI awarded is paid 100% in cash.
Cash STI awards are paid following the signing of the Annual Report each year. For FY2016, this will
be on or around 26 August 2016.
In limited circumstances, the CEO may adjust the portion of the STI awarded to executive KMP (other
than himself).
Deferred STI arrangements for the CEO
How do the
deferred STI
arrangements
work?
If the CEO is granted an STI award, 50% is delivered in the form of performance rights granted under
the Company’s Share Rights Plan.
The number of performance rights granted is determined by dividing 50% of any STI awarded to the
CEO by the volume weighted average price (VWAP) of shares in the Company traded on the ASX over
the 5 trading days prior to the grant.
Performance rights are offered at no cost to the CEO.
Subject to the vesting conditions being met (see below), the CEO will be allocated one share for
every performance right that vests, plus the number of shares that would have resulted from
dividend reinvestment during the vesting period. Shares may be sourced on-market, from a new
issue of shares or from shares held by the trustee of the Company’s employee share plan trust. In
certain circumstances the Board has the discretion to pay a cash equivalent amount in lieu of an
allocation of shares.
For the year ended 30 June 2016Directors’ Report 23
Performance rights are subject to a continuous service condition. No other performance conditions
are applicable on the basis that challenging performance conditions relating to the STI award were
met before any performance rights were granted.
Vesting of performance rights occurs as follows:
50% are deferred for 12 months after the end of the STI performance period; and
50% are deferred for 2 years after the end of the STI performance period.
For FY2016, this means that 50% of the performance rights granted to the CEO will vest in September
2017, and the remaining 50% will vest in September 2018 following the approval the financial
statements for the related period, subject to his continued employment.
Performance rights do not carry any voting or dividend rights, however shares allocated upon
vesting of performance rights will carry the same rights as other ordinary shares.
Performance rights may be forfeited if a material financial misstatement is uncovered relating to the
year of the original STI award.
What are
the vesting
conditions
applicable
to the
performance
rights?
What rights
are attached
to the
performance
rights?
Does the
Board have
discretion to
clawback the
award?
What happens
if the CEO
ceases
employment?
The CEO will forfeit unvested performance rights on cessation of employment with the Company
unless cessation results from death, total and permanent disability, retirement or redundancy as
determined by the Board in its absolute discretion. In, these circumstances the Board may, in its
discretion, determine the treatment of any unvested performance rights.
What
restrictions
apply?
The CEO is prohibited from entering into any hedging (or risk reduction) arrangements in relation to
unvested performance rights. In addition, all shares allocated on vesting can only be dealt with in
accordance with the Company’s Share Trading Policy.
Long-term incentives
A summary of the Company’s LTI arrangements is set out in the table below.
Table D: Summary of FY2016 LTI arrangements
What is the LTI
plan?
The LTI plan awards executives for achieving specified performance conditions which underpin
sustainable long-term growth.
The Company believes that granting performance based equity to its executives under the LTI plan is
an effective way of aligning the interests of executives with shareholders.
Who can
participate?
CEO and other executive KMP are eligible to participate in the LTI plan. Subject to the Board’s
discretion, grants are made annually to executives.
What is the
maximum
opportunity
for executives?
For FY2016, the CEO’s maximum LTI opportunity is 80% of fixed remuneration and for other executive
KMP, it is between 0% and 30% of base salary.
Mortgage Choice Annual Report 2016 24
How is reward
delivered
under the LTI
Plan?
What is the
performance
period?
What are
the vesting
requirements
for an LTI
award?
What are the
performance
conditions?
LTI awards are delivered in the form of performance shares under the Company’s Performance Share
Plan (“PSP”).
Performance shares are shares in Mortgage Choice that are held in an employee share plan trust.
They are granted at the beginning of the performance period and vest subject to satisfaction of
specified performance conditions.
The number of performance shares to be allocated to an executive is determined by dividing the
executive’s maximum LTI opportunity by the volume weighted average price of shares in the
Company traded on the ASX over the 5 trading days prior to the grant. Performance shares may be
sourced on-market or from a new issue of shares.
Performance shares are offered at no cost to the executives.
Performance is measured over a 3 year performance period. Following testing, vesting of
performance shares (if any) occurs in September of each year.
In order for an LTI award to vest:
the executive must be continuously employed by the Group until the vesting date (unless
service ends due to death, disability, redundancy or other exceptional circumstances); and
performance conditions must be met (see below).
Performance shares are divided in two equal tranches:
50% of the performance shares are subject to a relative TSR performance hurdle (the “TSR
component”); and
50% of the performance shares are subject to a performance hurdle based on cash earnings
per share (“EPS”) growth on a compound annual growth basis with target performance
consistent with the Company’s strategic plan (the “EPS component”).
Further details about each performance hurdle are set out below.
As shown in the vesting schedules below, 40% of the LTI award will vest on achievement of
threshold performance.
Relative TSR hurdle
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 performance period. The relative TSR comparison group is comprised of companies within
the ASX Financials sector with a market capitalisation between $40 million and $1 billion as at
31 August 2015, excluding Real Estate Investment Trusts. The performance period is 1 September 2015
– 31 August 2018. Vesting (if any) will occur in September 2018.
The specific Comparator Group for the PSP offers made in FY2016 are listed in the Glossary at the end
of this Remuneration Report.
The following vesting schedule shows the proportion of the TSR component that will vest for
various performance levels.
TSR ranking relative to the Comparator Group over the
performance period
% of TSR component that vests
Threshold – 50th percentile
40%
Between 50th and 90th percentiles
Pro rata vesting between 40% and 100%
Maximum
100%
For the year ended 30 June 2016Directors’ Report 25
What are the
performance
conditions?
(continued)
What rights
are attached
to the
performance
shares?
What happens
if an executive
ceases
employment?
What
restrictions
apply?
Is there
discretion
to adjust
awards?
Cash EPS growth hurdle
Cash EPS growth is based on cash profits as presented to the market and stated in the notes of the
Company’s audited statutory accounts and the average number of ordinary shares on issue during
the performance period. Growth is measured using the compound annual growth rate (CAGR). The
performance period is 1 July 2015 – 30 June 2018. Vesting (if any) will occur in September 2018.
Cash profits are calculated by adjusting audited statutory profits for trail commission recognised on
a net present value basis and share based remuneration expense.
The following vesting schedule shows the proportion of the EPS component that will vest for
various performance levels.
CAGR of cash EPS over the performance period
% of EPS component that vests
3% (threshold)
Between 3% and 6%
6% (maximum)
40%
Pro rata vesting between 40% and 100%
100%
While performance shares remain subject to the PSP rules, participants will, in general, enjoy the
rights attached to those shares (such as voting rights etc).
Dividends on unvested performance shares are distributed to participants throughout the
performance period. The level of executive remuneration takes the receipt of dividends into
consideration. The Board considers that this approach is appropriately aligned with the interests
of shareholders, as it does not discourage the payment of dividends in preference for share price
growth. The Board believes that this structure will maximise shareholder return over the long-run.
Executives will forfeit unvested performance shares on cessation of employment with the Company
unless the cessation results from death, redundancy, disablement, retirement or other special
circumstances, in which case, unvested performance shares may vest at the Board’s discretion.
Executives are prohibited from entering into any hedging (or risk reduction) arrangements in relation
to unvested performance shares. In addition, on vesting shares can only be dealt with in accordance
with the Company’s Share Trading Policy.
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.
(f) Relationship between remuneration and Mortgage Choice Limited’s performance
The Company’s success in aligning the executive remuneration framework with shareholder value creation is
evidenced by the Company’s strong performance and the value derived by executives from the Company’s
remuneration arrangements.
The CEO and other executive KMP have a significant proportion of their remuneration structured to be dependent on
achieving performance based criteria aligned to the Company’s financial and strategic objectives. Awards made under
the STI and LTI programs all have minimum thresholds that must be achieved to receive any award at all thus ensuring
KMP are not rewarded unless value in the enterprise has been enhanced.
The KPIs established as performance criteria for STI and LTI programs are focused primarily on growth in sustainable
net profit that directly leads to increased value for shareholders whether distributed as dividends or increasing
shareholder value. The STI performance criteria tend to be more short term and operational in nature but designed to
push profits forward for the period.
LTI performance criteria are strategically focussed on long term value creation with 50% subject to sustained long
term cash profit creation (tranche 1), which is a direct component of value creation, and 50% subject to the relative
Mortgage Choice Annual Report 2016 26
shareholder value created over the performance period (tranche 2). Further information on the LTI performance criteria
is set out below.
Tranche 1: EPS Component
LTI grants made under the PSP since FY2012 have been subject to cash EPS growth hurdle. The following table shows
the Company’s cash EPS results in FY2016 and the previous four financial years:
Table E: Cash EPS for FY2012 – FY2016
Financial Year
2012
2013
2014
2015
2016
Cash EPS
(cents per
share)
12.5
12.9
16.2
15.0
16.5
The cash EPS growth hurdle is consistent with the Company’s remuneration philosophy and strategic plan, and
recognises that increasing cash results is important to our shareholders but growth may be moderate given the
Board’s relatively high dividend payout policy.
Tranche 2: TSR Component
LTI grants made under the PSP since FY2012 have also been subject to a relative TSR performance hurdle which
compares the Company’s TSR against 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 share price for each
period. The table also shows the opening and closing share price and dividends paid in FY2016 and the previous four
financial years:
Table F: Share price movements, dividends and TSR for FY2012 – FY2016
Financial Year
2012
2013
2014
2015
2016
Opening share
price
$
Closing share
price
$
Dividends
paid during
year
(cents)
1.24
1.29
2.13
2.85
2.30
1.29
2.13
2.84
2.30
1.95
13.0
13.0
14.5
15.5
16.0
TSR
14%
79%
41%
-14%
-8%
The figure below illustrates and compares the Company’s TSR performance with the ASX 200 index return performance
for the five-year period to 30 June 2016. The diagram shows the superior performance of Mortgage Choice compared to
the ASX 200 index over this period.
For the year ended 30 June 2016Directors’ Report 27
Mortgage Choice
S&P/ASX 200
Mortgage Choice TSR compared to S&P/ASX 200 Index Return
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
250%
200%
150%
100%
50%
0%
-50%
2012
2013
2014
2015
2016
Source: Guerdon Associates
(g) Non-Executive Director remuneration policy
Policy
The Company’s remuneration policy for Non-executive Directors aims to ensure it can attract and retain suitably
qualified and experienced Directors having regard to:
(i) the level of fees paid to Non-executive Directors of other major Australian companies;
(ii) the size and complexity of the Company; and
(iii) the role and responsibilities of Directors.
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 other than the chairman of the Mortgage Choice
Financial Planning Pty Ltd Investment Committee.
No element of Non-executive Director remuneration is performance-based to preserve the independence and
impartiality of Directors.
Fee levels and fee pool
Shareholders set the maximum aggregate fee pool for the Non-executive Directors of the Board at $750,000 per annum
at the 2004 Annual General Meeting.
The following table shows the annual fees payable to the Chairman and Non-executive Directors as at 30 June 2016:
Table G: Non-executive Director fees
Role
Chairman
Non-executive Director
Fees for Chair of Mortgage Choice Financial Planning Pty Ltd Investment Committee
Fees
$145,000
$95,000
$30,000
Fees paid to the Chairman and the Non-executive Directors take into account the demands made on, and the role and
responsibilities of, the Directors. The Board reviews fees paid to Non-executive Directors periodically. Since FY2015, the
fees of each of the Chairman and Non-executive Directors increased by $20,000 per annum to recognise the significant
Mortgage Choice Annual Report 2016
28
contributions involved in being a Director of the Company and to ensure fees remain market competitive. This was the
first increase since 1 October 2010.
The Board will seek shareholder approval at the 2016 Annual General Meeting for an increase in the aggregate fee
pool to $1,000,000 per annum. The Board does not propose to increase fees for the Non-executive Directors in FY2017,
however believes that the proposed increase is reasonable in light of the Company’s size and complexity, the fees
paid by peer companies and the need to ensure that the Company can continue to attract and retain directors with the
necessary skills and experience. The increased fee pool will provide a buffer for changes in Board composition or fee
level changes in the future. Further information about the proposed increase will be provided in the Notice of Meeting
for the 2016 Annual General Meeting.
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 in
addition to the fees above.
(h) Statutory disclosures
The following table sets out the statutory disclosures required under the Corporations Act 2001 (Cth) for the 2015
and 2016 financial years for Directors and executive KMP and has been prepared in accordance with the Australian
Accounting Standards.
Table H: Statutory remuneration table
2016
Name
Non-Executive Directors
P D Ritchie, Chairman
FY2016
FY2015
S J Clancy
FY2016
FY2015
P G Higgins
FY2016
FY2015
R G Higgins
FY2016
FY2015
S C Jermyn
FY2016
FY2015
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
Cash
salary
and fees
$
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
135,000
125,000
85,000
75,000
85,000
75,000
85,000
75,000
85,000
75,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,825
11,875
8,075
7,125
8,075
7,125
8,075
7,125
8,075
7,125
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
147,825
136,875
93,075
82,125
93,075
82,125
93,075
82,125
93,075
82,125
For the year ended 30 June 2016Directors’ Report 29
2016
Name
D E Ralston1
FY2016
FY2015
Executive KMP
J L Flavell, CEO2,3
FY2016
FY2015
S R Mitchell
FY2016
FY2015
N C Rose-Innes
FY2016
FY2015
A J Russell (from 1/7/15
to 25/9/15)
FY2016
FY2015
M J McCarney
FY2016
FY2015
E A Dupont-Brown (from
6/7/15 to 30/6/16)
FY2016
FY2015
T J Milnes
FY2016
FY2015
M J Pitton
FY2016
FY2015
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
Cash
salary
and fees
$
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
115,000
105,000
–
–
–
–
10,925
9,975
–
–
–
–
–
–
125,925
114,975
571,465
261,000
5,666
19,308
1,231
327,793
98,832 1,285,295
142,946
–
1,298
4,696
–
102,937
–
251,877
303,397
92,588
5,474
19,308
7,069
283,604
97,461
4,713
18,783
7,323
292,659
86,400
2,395
19,308
11,673
287,905
75,276
36,497
–
315,172
82,842
–
–
–
18,783
8,200
4,827
(10,685)
18,783
5,264
223,197
50,738
5,666
19,308
2,048
235,424
45,100
4,713
18,783
1,438
191,196
53,262
–
–
186,568
34,686
–
–
–
–
–
–
17,682
–
–
–
19,308
7,019
–
–
167,928
22,120
–
–
867
–
17,527
6,490
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
74,343
502,179
85,217
497,101
67,373
479,808
76,361
466,525
(48,886)
(18,247)
77,230
499,291
42,602
343,559
32,913
338,371
7,882
270,022
–
–
31,216
278,797
–
–
19,726
234,658
–
–
Mortgage Choice Annual Report 2016 30
2016
Name
V C ten Krooden
FY2016
FY2015
Total
FY2016
FY2015
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
Cash
salary
and fees
$
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
156,194
24,000
–
–
–
–
16,549
–
569
–
–
–
–
–
197,312
–
2,719,101
624,794
20,068
209,175
25,414
327,793
293,088 4,219,433
1,795,051
300,679
10,724
130,178
22,225
102,937
271,721 2,633,515
1 Ms D E Ralston is the Chairman of the Mortgage Choice Financial Planning Investment Committee and receives fees in addition to
her base Non-executive Director fees for this role – see section (g) for further details.
2 Share based payments relating to Mr J L Flavell include 2 components:
(a) A “make whole” performance rights grant to compensate him for the LTI value forfeited on his departure from his former
employer to join the Company. The grant was the equity equivalent of $440,500 and was granted as performance rights. The
number of performance rights was determined based on the VWAP of the Company’s shares over the 5 trading days prior to the
start of his employment on 7 April 2015. The grant will vest in three equal tranches subject to continued service on each of the
relevant vesting dates (being, September of 2015, 2016, and 2017). The terms of the performance rights are equivalent to those
described in section (e) (except that the only vesting condition is continued employment).
(b) Deferred STI of $261,000 in relation to FY2016 being 50% of the total STI to be granted as share rights with 50% due to vest in
12 months and 50% to vest in 24 months. The terms of the performance rights are described to those described in section (e).
3 As Mr Flavell only commenced employment in April 2015, he was not eligible to receive STI or LTI awards in respect of FY2015.
The following table shows the relative proportion of remuneration that each executive received during FY2016 and
whether it is fixed remuneration or performance based remuneration.
Table I: Remuneration mix
Fixed Remuneration
Performance Based Remuneration
Name
J L Flavell
S R Mitchell
N C Rose–Innes
A J Russell2
M J McCarney
E A Dupont–Brown
T J Milnes
M J Pitton
V C ten Krooden
Fixed
remuneration
%
Share Based
%
54%
68%
68%
–
2%
2%
(168%)
35%
73%
77%
77%
83%
88%
2%
–
2%
1%
–
Make whole
deferred
shares rights1
%
18%
–
–
–
–
–
–
–
–
Total
%
Cash STI
%
Share Based
%
Total
%
72%
70%
70%
(133%)
75%
77%
79%
84%
88%
20%
18%
18%
–
15%
20%
12%
9%
12%
8%
12%
12%
233%
10%
3%
9%
7%
–
28%
30%
30%
233%
25%
23%
21%
16%
12%
1 A “make whole” performance rights was granted to John Flavell to compensate him for the LTI value forfeited on his departure from
his former employer to join the Company. Footnote 2(a) in Table H describes the terms of this grant.
2 AJ Russell resigned on 25 September 2015
For the year ended 30 June 2016Directors’ Report 31
Details of share-based remuneration
The key terms of performance shares granted as LTI awards to executive KMP that were tested during, or remain on foot
at the end of, FY2016 are set out in the following table. The table also explains the vesting outcome of awards that were
tested during the year:
Table J: Performance shares on foot or tested during FY2016
Grant date
Vesting date
FY2013 LTI grants
14 September 2012
14 September 2015
14 September 2012
14 September 2015
14 September 2012
14 September 2015
FY2014 LTI grants
23 September 2013
14 September 2015
23 September 2013
14 September 2016
23 September 2013
14 September 2016
23 September 2013
14 September 2016
FY2015 LTI grants
22 September 2014
14 September 2015
22 September 2014
14 September 2016
22 September 2014
14 September 2017
22 September 2014
14 September 2017
22 September 2014
14 September 2017
FY2016 LTI grants
17 September 2015
14 September 2018
17 September 2015
14 September 2018
Value per
performance share at
grant date1
Performance
assessment
%
Vested
$1.74
$1.74
$1.08
$2.77
$2.77
$2.77
$1.68
$2.72
$2.72
$2.72
$2.72
$1.68
$2.01
$1.19
service condition
satisfied
partial vesting
partial vesting
service condition
satisfied
100
96
34
100
service based
to be determined
to be determined to be determined
to be determined to be determined
service condition
satisfied
100
service based
to be determined
service based
to be determined
to be determined to be determined
to be determined to be determined
to be determined to be determined
to be determined to be determined
1 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 key terms of performance rights granted to the CEO as deferred STI that were tested during, or remain on foot at
the end of, FY2016 are set out in the following table. The table also explains the vesting outcome of awards that were
tested during the year.
Mortgage Choice Annual Report 2016 32
Table K: Performance rights on foot or tested during FY2016
Grant date
Vesting date
Initial ‘make good’ equity grant2
7 April 2015
7 April 2015
7 April 2015
FY2016 deferred STI award3
1 July 2015
1 July 2015
15 September 2015
15 September 2016
15 September 2017
14 September 2017
14 September 2018
Value per share right
at grant date1
Performance
achieved
%
Vested
$2.60
$2.60
$2.60
service condition
satisfied
100
service based
to be determined
service based
to be determined
service based
to be determined
service based
to be determined
1 The value at grant date calculated in accordance with AASB 2 Share-based Payments of shares granted during the year as part
of remuneration.
2 See footnote 2 of the statutory remuneration table for further details.
3 Board resolved on the date of this report to grant share rights for the deferred portion of the CEO’s STI for FY2016 as per his contract.
The value of the share rights in total has been determined but the VWAP used to calculate the number of performance rights to be
issued has not yet been struck. The rights are expected to be granted in the first week of September 2016 with set vesting dates
noted above. The accounting grant date for these share rights is 1 July 2015.
Details of remuneration paid, vested, lapsed or forfeited during FY2016
The percentage of the available grant that was paid, or that vested, in FY2016, and the percentage that was forfeited
because the executive did not meet the service or performance criteria is set out below.
Table L: Remuneration forfeited and vested during FY2016 and outstanding at 30 June 2016
STI
LTI (Performance shares)
Name
J L Flavell
S R Mitchell
Potential
FY2016
bonus
paid
%
Potential
FY2016
Bonus
Forfeited
%
100
95
–
5
N C Rose–Innes
90
10
Financial
Year
granted
Vested
%
Forfeited
%
Financial
years in
which
shares
may vest
Minimum
total value
of grant
yet to vest
$
2016
2016
2015
2015
2015
2014
2014
2013
2016
2015
2015
2015
2014
2014
2013
–
–
–
–
100
–
100
68
–
–
–
100
–
100
68
– 30/6/2019
– 30/6/2019
– 30/6/2018
– 30/6/2017
–
–
– 30/6/2017
–
32
–
–
– 30/6/2019
– 30/6/2018
– 30/6/2017
–
–
– 30/6/2017
–
32
–
–
Nil
Nil
Nil
Nil
Nil
–
–
Nil
Nil
Nil
Nil
Nil
–
–
Nil
Maximum
total value
of grant
yet to
vest1
$
376,739
74,189
59,291
7,162
–
70,153
–
–
67,411
53,879
6,506
–
63,748
–
–
For the year ended 30 June 2016Directors’ Report 33
STI
LTI (Performance shares)
Name
A J Russell
Potential
FY2016
bonus
paid
%
Potential
FY2016
Bonus
Forfeited
%
–
–
M J McCarney
90
10
E A Dupont-Brown
T J Milnes
90
90
10
10
M J Pitton
91
9
V C ten Krooden
100
–
Financial
Year
granted
Vested
%
Forfeited
%
Financial
years in
which
shares
may vest
Minimum
total value
of grant
yet to vest
$
Maximum
total value
of grant
yet to
vest1
$
2015
2015
2015
2014
2014
2013
2016
2015
2015
2015
2014
2014
2016
2016
2015
2015
2015
2014
2014
2013
2016
2015
2015
2015
2014
2014
2013
–
–
100
–
100
68
–
–
–
100
–
100
–
–
–
–
100
–
100
68
–
–
–
100
–
100
68
–
100
100
–
100
–
32
–
–
–
–
–
–
– 30/6/2019
– 30/6/2018
– 30/6/2017
–
–
– 30/6/2017
–
–
– 30/6/2019
– 30/6/2019
– 30/6/2018
– 30/6/2017
–
–
– 30/6/2017
–
32
–
–
– 30/6/2019
– 30/6/2018
– 30/6/2017
–
–
– 30/6/2017
–
32
–
–
–
–
–
–
–
–
–
–
Nil
Nil
Nil
Nil
Nil
–
Nil
Nil
Nil
Nil
–
Nil
–
–
Nil
Nil
Nil
–
Nil
–
–
–
–
–
–
–
–
–
45,773
36,584
4,417
–
43,266
–
30,038
31,293
25,006
3,022
–
29,600
–
–
19,738
15,776
1,904
–
18,647
–
–
–
1 The maximum value is the fair value at grant date using a Monte Carlo simulation model utilising a lattice-based trinomial
valuation method.
Mortgage Choice Annual Report 2016 34
Name
J L Flavell2
Performance Shares
Financial
Year
granted
Vested
%
Forfeited
%
Financial
years in
which
shares
may vest
Minimum
total value
of grant
yet to vest
$
Maximum
total value
of grant
yet to
vest1
$
2015
2015
2015
–
–
100
–
–
–
2018
2017
–
Nil
Nil
–
146,834
146,834
–
1 The maximum value is the fair value at grant date using a Monte Carlo simulation model utilising a lattice-based trinomial
valuation method.
2 2015 awards relate to J L Flavell’s initial ‘make whole’ award of share rights.
Service agreements
Non-executive Directors appointed to the Board following listing as a public company 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 CEO, J L Flavell, and other executives are set out in their
respective letters of employment. The employment terms do not prescribe the duration of employment for executives.
The periods of notice required to terminate employment are set out below:
(a) The employment contract of Mr J L Flavell is terminable by either the Company or the executive with
six months notice.
(b) The employment contracts of all executive KMP are terminable by either the Company or the executive with one or
three months notice.
No provision is made in the contracts for termination payments other than amounts paid in respect of notice
of termination.
Legacy performance awards
A summary of the awards that remain on foot at the end of FY2016 or that were tested during FY2016 are set out below.
Full details of prior year equity awards are set out in the Remuneration Report for the year in which the award was
granted.
FY2013, FY2014 and FY2015 LTI grants
Shares offered under the PSP in FY2013, FY2014 and FY2015 were divided into three tranches each subject to different
vesting criteria. The two largest tranches (which comprise 75% of the year’s grant) vest at the end of a three-year period
if the relevant performance criteria were satisfied.
The first tranche (25%) vests 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, subject to continued service until the relevant vesting date. The second
tranche (37.5%) will vest based on achieving a target compound growth in cash EPS over a three-year performance
period. The third tranche (37.5%) will vest, subject to relative TSR performance condition measured over a three-year
performance period.
For the year ended 30 June 2016Directors’ Report 35
Key management personnel equity holdings
(a) Performance shares
The movements in performance shares held by executive KMP and their related parties are set out below.
Table M: Movements in performance shares during FY2016
Name
Executive KMP
J L Flavell
S R Mitchell
Balance at
the start of
the year
Granted as
compen-
sation
Value
granted
Vested
Value at
vesting date
Forfeited
Balance at
the end of
the year
–
235,462
376,739
–
–
–
235,462
115,636
46,368
74,189
(40,016)
78,031
(15,884)
106,104
N C Rose–Innes
103,417
42,132
67,412
(35,225)
68,689
(13,908)
96,416
A J Russell
106,301
–
–
(35,466)
69,159
(70,835)
–
M J McCarney
40,373
28,608
45,773
(3,524)
6,872
E A Dupont–Brown
–
18,774
30,039
–
–
–
–
65,457
18,774
T J Milnes
M J Pitton
47,709
19,558
31,293
(16,146)
31,485
(6,362)
44,759
30,329
12,336
19,738
(10,354)
20,190
(4,090)
28,221
V C ten Krooden
–
–
–
–
–
–
–
(b) Performance rights
The movements in performance rights held by executive KMP and their related parties are set out below.
Table N: Movements in performance rights during FY2016
Balance at
the start of
the year
Granted as
compen-
sation
Value
granted
Vested
Value at
vesting date
Forfeited
Balance at
the end of
the year
Name
Executive KMP
J L Flavell
169,679
–
–
(56,559)
113,215
–
113,119
Mortgage Choice Annual Report 2016 36
(c) Share holdings
The number of shares in the Company held during the financial year by each Director and member of executive KMP,
including their close family members and their controlled entities, are set out below.
Table O: Movements in KMP shareholdings during FY2016
Name
Non-executive Directors
P D Ritchie
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Executive
J L Flavell
S R Mitchell
N C Rose-Innes
A J Russell3
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
Balance at the
start of the
year
Received
during the year
on the vesting
of performance
rights1
Received
during the year
on the vesting
of performance
shares2
Purchases/
sales during
the year
Balance at the
end of the year
510,125
75,000
359,253
15,380,212
2,000,000
145,000
–
–
–
–
–
–
–
58,966
50,000
69,233
78,314
1,900
–
93,567
16,656
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40,016
35,225
35,466
3,524
–
16,146
10,354
–
20,000
530,125
–
–
–
–
–
75,000
359,253
15,380,212
2,000,000
145,000
(28,996)
–
–
–
–
–
–
–
–
29,970
90,016
104,458
–
5,424
–
109,713
27,010
–
1 Shares issued on vesting of performance rights.
2 These are the performance shares that vested during FY2016 under LTI awards.
3 AJ Russell resigned on 25 September 2015
Shares under option
There were no unissued ordinary shares of Mortgage Choice Limited under option at the date of this report.
No options were exercised during the year.
Shares provided on vesting of performance rights
The number of shares in the Company issued during the financial year on the vesting of share rights are set out below.
Table P: Shares provided on exercise of performance rights
Date share rights vested
15 September 2015
Issue price of shares
Number of shares
issued
$1.92
58,966
For the year ended 30 June 2016Directors’ Report 37
(i) Glossary
The following table defines terms used throughout this Remuneration Report:
Table Q: Glossary of terms used
Director
Particulars of Directors’ interests in shares
Comparator group
The Comparator Group for the PSP offers made in FY2016 are:
FlexiGroup Ltd/Australia, Cover More Group, Eclipx Group, Servcorp, OzForex Group,
Pepper Group Ltd, Clearview Wealth, Gateway Lifestyle, Austbrokers Holdings,
Peet, Equity Trustees, MyState Ltd, Cedar Woods Properties, HFA Holdings, Sunland
Group, Finbar Group, Lifestyle Communication, Phileo Australia, Blue Sky Alternative
Investments, AVJennings, IMF Bentham, Villa World, Australian Finance Group Ltd,
Treasury Group, ASF Group, Auswide Bank Ltd, K2 Asset Management Holdings,
Payce Consolidated, FSA Group, Folkestone, Euroz, Money3 Corp, Yellow Brick
Road Holdings, Beston Global Food Co, Wilson Group, LionHub Group, Emerchants,
Bell Financial Group, Devine, APN Property Group, HUB24, Eureka Group Holdings,
PBD Developments, Pioneer Credit, Centuria Capital, Onevue Holdings, Hunter
Hall International, Australian Ethical Investment, Homeloans, Fiducian Group,
Centrepoint Alliance, Spring FG, ThinkSmart, Austock Group.
Key management personnel, being those persons having authority and responsibility
for planning, directing and controlling the activities of the entity, directly or
indirectly, including any directors. KMP includes Executives and Non-executive
Directors and are detailed on page 17.
Key Performance Indicator
Long Term Incentive
A performance right is a right to one Mortgage Choice share, plus the number
of shares that would have resulted from reinvestment of dividends paid during
the vesting period on the shares acquired on vesting of the rights. In certain
circumstances the Board has a discretion to pay a cash equivalent amount in lieu of
an allocation of shares.
Performance rights are used to deliver the CEO’s deferred STI awards.
KMP
KPI
LTI
Performance right
Performance share
Performance shares are shares in Mortgage Choice that are held in an
employee share plan trust. LTI awards to executive KMP are delivered using
performance shares.
PSP
STI
VWAP
The Performance Share Plan used to make LTI awards to executives.
Short Term Incentive
Volume weighted average price
Insurance of Directors and Officers
Insurance premiums were paid for the year ended 30 June 2016 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
Mortgage Choice Annual Report 2016 38
Directors’ Report
For the year ended 30 June 2016
Rounding
The Company is a company of the kind referred to in ASIC
Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument amounts
in the directors’ report and the financial statements
are rounded off to the nearest thousand dollars, unless
otherwise indicated.
Auditor
Deloitte Touche Tohmatsu continues in office in
accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of
the Directors.
Peter Ritchie
Director
Sydney
24 August 2016
the Corporations Act. Subject to the terms of the deed,
it also gives each executive a right of access to certain
documents and requires the Company to maintain
insurance cover for the executives.
No indemnities were paid to current or former officers or
auditors during or since the end of the year.
Proceedings on behalf of the Company
No person has applied to the Court under section
237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene
in any proceedings to which the Company is a party,
for the purpose of taking responsibility on behalf of
the Company for all or part of those proceedings. No
proceedings have been brought or intervened in on
behalf of the Company with leave of the Court under
section 237 of the Corporations Act 2001.
Non-audit services
The Company may decide to employ the auditor on
assignments in addition to their statutory audit duties
where the auditor’s expertise and experience with
the Company or Group are important. Details of the
amounts paid or payable to the auditor (Deloitte Touche
Tohmatsu) for non-audit services provided during the
year are set out in Note 22.
The Board of Directors has considered the position
and, in accordance with the advice received from the
audit committee, is satisfied that the provision of the
non-audit services is compatible with the general
standard of independence for auditors imposed by the
Corporations Act 2001. The Directors are satisfied that
the provision of non-audit services by the auditor, as set
out below in Note 22, did not compromise the auditor
independence requirements of the Corporations Act 2001
as none of the services undermine the general principles
relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Corporations Act 2001
is set out on page 39.
Mortgage Choice Annual Report 2016
Mortgage Choice Annual Report 2016
39
39
Auditor’s Independence Declaration
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
The Board of Directors
Mortgage Choice Limited
100 Pacific Highway
Sydney NSW 2000
24 August 2016
Dear Board Members
Mortgage Choice Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Mortgage Choice Limited.
As lead audit partner for the audit of the financial statements of Mortgage Choice Limited for the
financial year ended 30 June 2016, I declare that to the best of my knowledge and belief, there
have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Philip Hardy
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
40
4040
Consolidated Income Statement
for the year ended 30 June 2016
Revenue
Origination commission
Trailing commission excluding discount unwind
Trailing commission discount unwind
Diversified products commission
Help Me Choose income excluding discount unwind
Help Me Choose income discount unwind
Financial Planning income
Franchise income
Interest
Other income
Direct costs
Origination commission
Trailing commission excluding discount unwind
Trailing commission discount unwind – finance costs
Diversified products commission
Help Me Choose direct costs
Financial planning commission
Gross profit
Operating Expenses
Sales
Technology
Marketing
Corporate
Profit before income tax
Income tax expense
Profit for the period from continuing operations
Net profit attributable to the owners of Mortgage Choice Limited
Earnings per share
From continuing operations
Basic earnings per share
Diluted earnings per share
2016
$’000
2015
$’000
Notes
5
72,306
84,652
20,056
6,711
631
104
8,396
1,231
419
2,934
69,997
70,298
22,192
6,387
5,729
83
5,996
1,504
487
2,122
197,440
184,795
(52,944)
(54,724)
(12,162)
(5,130)
(298)
(6,705)
65,477
(14,650)
(5,181)
(9,241)
(8,059)
28,346
(8,808)
19,538
19,538
Cents
(51,492)
(42,773)
(13,444)
(4,820)
(2,045)
(4,838)
65,383
(16,653)
(6,335)
(8,887)
(7,000)
26,508
(7,652)
18,856
18,856
Cents
6
7
7
8
29
29
15.7
15.7
15.2
15.2
For the year ended 30 June 2016Financial StatementsThe above consolidated income statement should be read in conjunction with the accompanying notes. 4141
Consolidated Statement of
Comprehensive Income
for the year ended 30 June 2016
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners of
Mortgage Choice Limited
Notes
2016
$’000
2015
$’000
19,538
18,856
–
–
19,538
18,856
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 42
4242
Consolidated Balance Sheet
as at 30 June 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Receivables
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
Total equity
Notes
2016
$’000
2015
$’000
9
10
10
11
12
13
14
15
16
17
15
18
19(a)
19(b)
8,068
7,827
102,140
100,399
110,208
108,226
245,717
238,209
450
–
6,475
826
–
7,148
252,642
246,183
362,850
354,409
69,940
69,931
1,159
1,084
72,183
119
1,305
71,355
150,015
142,895
37,661
664
37,476
771
188,340
181,142
260,523
252,497
102,327
101,912
6,804
1,664
93,859
102,327
5,780
1,909
94,223
101,912
For the year ended 30 June 2016Financial StatementsThe above consolidated balance sheet should be read in conjunction with the accompanying notes. 4343
Consolidated Statement of Changes
in Equity
for the year ended 30 June 2016
Notes
Contributed
equity
$’000
Reserves
$’000
Retained
earnings
$’000
Total
$’000
Balance at 30 June 2014
4,604
2,210
95,517
102,331
Total comprehensive income for
the year as reported in the 2015
financial statements
Transactions with equity holders in
their capacity as owners:
Contributions of equity net of
transaction costs
Dividends paid
Adjustment for provision
for clawbacks
Employee share plans – value of
employee services
Balance at 30 June 2015
Total comprehensive income for
the year as reported in the 2016
financial statements
Transactions with equity holders in
their capacity as owners:
Contributions of equity net of
transaction costs
Dividends paid
Employee share plans – value of
employee services
Balance at 30 June 2016
18
20
19
30
18
20
30
–
–
18,856
18,856
1,176
(1,176)
–
–
–
–
–
1,176
5,780
–
–
875
(301)
(19,227)
(19,227)
(923)
(923)
–
875
(20,150)
(19,275)
1,909
94,223
101,912
–
–
19,538
19,538
1,024
(1,024)
–
–
–
–
1,024
6,804
–
(19,902)
(19,902)
779
(245)
–
779
(19,902)
(19,123)
1,664
93,859
102,327
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 4444
Consolidated Statement of
Cash Flows
for the year ended 30 June 2016
Notes
2016
$’000
2015
$’000
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
206,602
198,237
Payments to suppliers and employees (inclusive of goods and
services tax)
Income taxes paid
(178,298)
(168,218)
28,304
30,019
(7,584)
(8,684)
Net cash inflow from operating activities
28
20,720
21,335
Cash flows from investing activities
Payments for property, plant, equipment and intangibles
(1,040)
(7,213)
Proceeds from sale of property, plant and equipment
Interest received
Net cash (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
9
44
419
–
487
(577)
(6,726)
(19,902)
(19,227)
(19,902)
(19,227)
241
(4,618)
7,827
8,068
12,445
7,827
For the year ended 30 June 2016Financial StatementsThe above consolidated statement cash flows should be read in conjunction with the accompanying notes. 454545
Notes to the Consolidated
Financial Statements
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. The financial statements comprise the consolidated
financial statements for the Group. For the purposes of
preparing the consolidated financial statements, the
Company is a for-profit entity.
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).
New and amended standards adopted by the Group
In the current year, the Group has applied a new
Interpretation issued by the Australian Accounting
Standards Board (AASB) that are mandatorily effective for
an accounting period that begins on or after 1 July 2015,
and therefore relevant for the current year end.
AASB 2015-3 ‘Amendments to Australian Accounting
Standards arising from the Withdrawal of AASB 1031
Materiality’ This amendment completes the withdrawal
of references to AASB 1031 in all Australian Accounting
Standards and Interpretations, allowing that Standard to
effectively be withdrawn.
The application of this amendment does not have
any material impact on the disclosures in the Group’s
consolidated financial statements.
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.
B. Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate
the financial statements of the Company and entities
(including structured entities) controlled by the
Company and its subsidiaries. Control is achieved when
the Company:
has power over the investee;
is exposed, or has rights, to variable returns from
its involvement with the investee; and
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an
investee if facts and circumstances indicate that there
are changes to one or more of the three elements of
control listed above.
The acquisition method of accounting is used to
account for business combinations by the Group (refer
to Note 1(G)).
Intercompany transactions, balances and unrealised
gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of
the asset transferred.
(ii) Employee Share Trust
The Group has formed two trusts to administer the
Group’s employee share scheme. These trusts are
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 464646
Note 1: Summary of significant accounting
policies (continued)
consolidated as the substance of the relationship is that
the trusts are controlled by the Group.
Shares held by the employee share scheme are disclosed
as treasury shares and deducted from contributed equity
in both the consolidated and company accounts.
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.
Revenue from sale of services is recognised as follows:
(i) Origination commissions arising from mortgage
broking activities
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
potential clawbacks are estimated and recognised at the
same time as origination commission and included in
origination commission revenue.
(ii) Trailing commissions arising from mortgage
broking activities
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.
On initial recognition at settlement, trailing commission
revenue and the related receivable are recognised at fair
value being the net present value of the expected future
trailing commissions to be received. An associated
expense and payable to the franchisees are also
recognised initially measured at fair value being the net
present value of the expected future trailing commission
payable to franchisees.
Subsequent to initial recognition and measurement,
both the trailing commission receivable and payable are
measured at amortised cost. The carrying amounts of
the receivable and payable are adjusted to reflect actual
and revised estimated cash flows by recalculating the
net present value of estimated future cash flows at the
original effective interest rate. Any resulting adjustment
to the carrying value is recognised as income or expense
in the income statement.
(iii)
Franchise fee income
Franchise fee income is derived from the sale of
franchises by the Company and comprises licence
fees and contributions for training, 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, 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) Health sales income
The Group receives origination and trailing commission
for health insurance policies sold through its comparison
website. The recognition of this revenue is consistent
with mortgage origination and trailing commissions
arising from mortgage broking activities detailed in (i)
and (ii) above.
(v) Mortgage lead income
The Group sells leads generated by its comparison
website to mortgage brokers. This income is recognised
at the time the lead is delivered.
(vi)
Financial planning revenue
Financial services revenue is derived from the provision
of financial advice and from commission revenue from
insurance products. Revenue from the provision of
financial services is recognised at the time the service
is provided.
(vii)
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.
(viii) Other income
Other income includes contributions from lenders
towards conferences and workshops which are
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 474747
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.
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.
Investment allowances
Companies within the Group may be entitled to claim
special tax deductions for investments in qualifying
assets or in relation to qualifying expenditure (eg
the Research and Development Tax Incentive regime
in Australia or other 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 are carried
forward as deferred tax assets.
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.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 484848
Note 1: Summary of significant accounting
policies (continued)
Leases in which a significant portion of the risks and
rewards of ownership are not transferred to the Group as
lessee are classified as operating leases. Payments made
under operating leases (net of any incentives received
from the lessor) are charged to the income statement on
a straight-line basis over the period of the lease.
G. Business combinations
The acquisition method of accounting is used to account
for all business combinations regardless of whether
equity instruments or other assets are acquired. The
consideration transferred for an acquisition comprises
the fair values of the assets transferred, the liabilities
incurred and the equity interests issued by the Group.
The consideration also includes the fair value of any
contingent consideration arrangement and the fair value
of any pre-existing equity interest in the subsidiary.
Acquisition related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values
at the acquisition date. On an acquisition by acquisition
basis, the Group recognises any non-controlling
interest in the acquiree either at fair value or at the
non-controlling interest’s proportionate share in the
acquiree’s net identifiable assets.
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
At the end of each reporting period, the Group reviews
the carrying amounts of its tangible and intangible
assets to determine whether there is any indication
that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent
of the impairment loss (if any). When it is not possible
to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
When a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to
individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units
for which a reasonable and consistent allocation basis
can be identified.
Intangible assets with indefinite useful lives and
intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an
indication that the asset may be impaired. Recoverable
amount is the higher of fair value less costs of disposal
and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks
specific to the asset for which the estimates of future
cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (or cash-generating
unit) is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or
loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as
a revaluation decrease
I. Cash and cash equivalents
For cash flow statement presentation purposes, cash
and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-
term, highly liquid investments with original maturities
of three months or less that are readily convertible
to known amounts of cash and which are subject to
an insignificant risk of changes in value. Overdrafts
are shown in borrowings in current liabilities on the
balance sheet.
J.
Trade receivables
Trade receivables are recognised initially at fair value
and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
Trade receivables are generally due in 30 days.
Collectability of receivables is reviewed on an ongoing
basis. Debts which are known to be uncollectible
are written off. A provision for impairment of trade
receivables is established when there is objective
evidence that the Group will not be able to collect
all amounts due according to the original terms
of receivables. The amount of the provision is the
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 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 1(D).
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 non current assets. Loans and receivables
are included in trade and other receivables in the
balance sheet (Note 10).
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:
494949
5-10 years
3-4 years
5-15 years
Office equipment
Computer equipment
Furniture and fittings
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down
immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated
recoverable amount (Note 1(H)).
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are
included in the income statement.
N.
Intangible assets
Software
Acquired computer software licences are capitalised on
the basis of the costs incurred to acquire and bring to
use the specific software. These costs are amortised over
their estimated useful lives (three to seven years).
Costs associated with developing or maintaining
computer software programs 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.
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 1(D).
Q. Borrowing costs
Borrowing costs are recognised as expenses using the
effective interest method.
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
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 505050
Note 1: Summary of significant accounting
policies (continued)
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 twelve months after the end of the period
in which the employees render the related service, are
recognised in respect of employees’ services up to the
end of the reporting period and are measured at the
amounts expected to be paid. The liability for annual
leave is included in provisions. The liability for all other
short-term employee benefits is included in trade and
other payables.
Other long-term employee benefit obligations
The liability for long service leave and any 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 period on high quality corporate bonds
with terms 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, the Mortgage Choice
Performance Share Plan and the Mortgage Choice Share
Rights Plan. Information relating to these schemes is set
out in Note 30.
The fair value of options granted under the Mortgage
Choice Executive Performance Option Plan, performance
shares granted under the Mortgage Choice Performance
Share Plan and share rights granted under the Mortgage
Choice Share Rights Plan is recognised as an employee
benefit expense with a corresponding increase in
equity. The total amount to be expensed is determined
by reference to the fair value of the options and
performance shares granted, which includes any market
performance conditions but excludes the impact of any
service and non-market performance vesting conditions
and the impact of any non-vesting conditions.
Non-market vesting conditions are included in
assumptions about the number of options that are
expected to vest. The total expense is recognised over
the vesting period, which is the period over which all of
the specified vesting conditions are to be satisfied. At
the end of each period, the entity revises its estimates of
the number of options that are expected to vest based
on the non-marketing vesting conditions. It recognises
the impact of the revision to original estimates, if any,
in profit or loss, with a corresponding adjustment
to equity.
The Mortgage Choice Executive Performance Option
Plan, the Mortgage Choice Performance Share Plan and
the Mortgage Choice Share Rights Plan are administered
by the Mortgage Choice Performance Share Plan Trust
and the Mortgage Choice Employee Incentive Trust; see
Note 1(B)(ii).
Short-term incentive plans
The Group recognises a liability and an expense where
contractually obliged or where there is a past practice
that it has created a constructive obligation.
Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or when
an employee accepts voluntary redundancy in exchange
for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either
terminating the employment of current employees
according to a detailed formal plan without possibility of
withdrawal or providing termination benefits as a result
of an offer made to encourage voluntary redundancy.
Benefits falling due more than twelve months after
balance sheet date are discounted to present value.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 515151
T. Contributed equity
(ii) Diluted earnings per share
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 paid at the
reporting date.
V. Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined by dividing net
profit after income tax attributable to members of the
Company, excluding any costs of servicing equity other
than ordinary shares, by the weighted average number
of ordinary shares outstanding during the financial year,
adjusted for bonus elements in ordinary shares issued
during the year.
Diluted earnings per share adjusts the figures used in
the determination of basic earnings per share to take
into account the after income tax effect of interest
and other financing costs associated with dilutive
potential ordinary shares and the weighted average
number of shares assumed to have been issued for
no consideration in relation to dilutive potential
ordinary shares.
W. Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the
amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is
recognised as part of the cost of acquisition of the asset
or as part of the expense. Receivables and payables
are stated inclusive of the amount of GST receivable or
payable. The net amount of GST recoverable from, or
payable to, the taxation authority is included with other
receivables or payables in the balance sheet.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or
financing activities which are recoverable from, or
payable to the taxation authority, are presented as
operating cash flow.
X. Rounding of amounts
The Company is a company of the kind referred to in ASIC
Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument amounts
in the directors’ report and the financial statements
are rounded off to the nearest thousand dollars, unless
otherwise indicated.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 525252
Note 1: Summary of significant accounting policies (continued)
Y. New accounting standards and interpretations
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue
but not yet effective.
Standard/Interpretation
Effective for annual reporting
periods beginning on or after
Expected to be initially applied
in the financial year ending
AASB 9 ‘Financial Instruments’, and the relevant
amending standards
1 January 2018
30 June 2019
AASB 15 ‘Revenue from Contracts with Customers’, AASB
2014-5 ‘Amendments to Australian Accounting Standards
arising from AASB 15’, AASB 2015-8 ‘Amendments to
Australian Accounting Standards – Effective date of
AASB 15’
AASB 16 ‘Leases’
AASB 2014-4 ‘Amendments to Australian Accounting
Standards – Clarification of Acceptable Methods of
Depreciation and Amortisation’
AASB 2015-1 Amendments to Australian Accounting
Standards – Annual Improvements to Australian
Accounting Standards 2012-2014 Cycle’
AASB 2015-2 ‘Amendments to Australian
Accounting Standards – Disclosure Initiative
Amendments to AASB101’
AASB 2016-2 ‘Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to
AASB 107’
1 January 2018
1 January 2019
30 June 2019
30 June 2020
1 January 2016
30 June 2017
1 January 2016
30 June 2017
1 January 2016
30 June 2017
1 January 2017
30 June 2018
At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations
(for which Australian equivalent Standards and Interpretations have not yet been issued) were in issue but not
yet effective:
Standard/Interpretation
Effective for annual reporting
periods beginning on or after
Expected to be initially applied
in the financial year ending
Amendments to IFRS 2 ‘Classification and Measurement
of Share-based Payment Transactions’
1 January 2018
30 June 2019
The potential effect of the revised Standards/Interpretations on the Group’s financial statements has not yet
been determined.
Z. Parent entity financial information
The financial information for the parent entity, Mortgage Choice Limited, disclosed in Note 31 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 subsidiaries and associates are recognised in the parent entity’s
profit or loss when its right to receive the dividend is established.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 535353
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 have entered 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 is due upon receipt of the funding advice from
the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also
require payment of interim funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current
amounts receivable from or payable to other entities in the Group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement
are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
Financial guarantees
Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no
compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost
of the investment.
Note 2: Financial risk management
The Group has limited exposure to financial risks with the exception of credit risk, liquidity risk and prepayment 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
* Excludes prepayments
2016
$’000
2015
$’000
8,068
7,827
99,468
98,879
245,717
238,209
353,253
344,915
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 545454
Note 2: Financial risk management (continued)
Financial Liabilities
Current
Trade and other payables
Non-current
Trade and other payables
2016
$’000
2015
$’000
69,940
69,931
150,015
142,895
219,955
212,826
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 2016 the weighted average
interest rate on its cash balances was 1.75% (2015 2.00%). If interest rates were to increase by 100 basis points, the
Group’s after tax result would increase by $84,000 (2015 $90,000). A decrease of 100 basis points would reduce the
Group’s after tax result by $84,000 (2015 $90,000).
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 franchisees trailing commissions that have not been received.
The risk profile of the Group is set out in the table below.
2016
ADIs
Standard &
Poor’s Credit
Rating
Cash and cash
equivalents
$’000
Trade and
franchisee
receivables
$’000
NPV Future
trailing
commissions
receivable
$’000
AA-
A+
A
A-
BBB+
BBB
BBB-
Not rated
8,068
–
–
–
–
–
–
–
10,184
1,069
203
1,553
1,339
34
–
207
234,964
20,346
4,945
28,275
24,950
759
–
5,377
8,068
14,589
319,616
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 555555
–
–
3,254
–
–
1,347
5,346
9,947
329,563
NPV Future
trailing
commissions
receivable
$’000
231,723
20,360
5,896
27,697
20,800
763
–
5,810
Non ADIs
AA-
A+
A
A-
BBB+
BBB-
Not rated
–
–
–
–
–
–
–
–
Total Receivable
8,068
138
135
298
19
1
51
4,045
4,687
19,276
2015
ADIs
Non ADIs
Total Receivable
(c) Liquidity risk and fair value estimation
Standard &
Poor’s Credit
Rating
Cash and cash
equivalents
$’000
Trade and
franchisee
receivables
$’000
AA-
A+
A
A-
BBB+
BBB
BBB-
Not rated
AA-
A+
A
A-
BBB+
BBB-
Not rated
7,827
–
–
–
–
–
–
–
7,738
506
87
1,335
962
36
–
175
7,827
10,839
313,049
–
–
–
–
–
–
–
–
7,827
102
69
–
42
22
22
4,111
4,368
15,207
–
–
1,265
–
–
658
5,882
7,805
320,854
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.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016
565656
Note 2: Financial risk management (continued)
The tables below analyse the Group’s financial assets into relevant maturity groupings based on the expected future
cashflows. No financial assets are past due or impaired.
At 30 June 2016
Non-derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non-interest bearing
Cash and cash equivalents
Trade receivables
Franchisee and other receivables
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
8,066
376
2
11,496
638
–
560
–
–
87
–
–
–
8,066
8,066
947
2,199
263
4,345
3,331
–
–
55
–
–
10
–
–
5
2
2
11,496
11,496
795
795
Future trailing commissions receivable
46,727
42,324
72,213
137,857
100,978
400,099
329,563
67,305
42,971
73,215
140,066
101,246
424,803
353,253
The fair value of the future trailing commissions receivable is $349,166,000. The fair value of all other assets is the
same as their carrying amount. The fair value of the future trailing commissions receivable was determined by using a
discounted cash flow valuation technique, which requires the use of management assumptions as disclosed in Note 3
with the exception of the discount rate for which management has applied a discount rate of 4.0%. There has been no
change to the valuation technique during the year.
At 30 June 2015
Non-derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non-interest bearing
Cash and cash equivalents
Trade receivables
Franchisee and other receivables
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
7,824
416
3
12,132
1,216
–
444
–
–
108
–
–
970
1,229
–
–
72
–
–
49
–
–
–
–
–
7,824
7,824
3,059
2,657
3
3
12,132
12,132
1,445
1,445
Future trailing commissions receivable
45,683
41,982
71,835
136,809
99,913
396,222
320,854
67,274
42,534
72,877
138,087
99,913
420,685
344,915
The fair value of the future trailing commissions receivable is $339,690,000. The fair value of all other assets is the
same as their carrying amount.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 575757
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 2016
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
Non-derivatives
Non-interest bearing
Trade payables
Licence fees and other payables
12,190
4,751
–
69
–
3
–
–
–
–
12,190
12,190
4,823
4,823
Future trailing commissions payable
28,600
25,924
44,342
83,080
62,346
244,292
202,942
45,541
25,993
44,345
83,080
62,346
261,305
219,955
The fair value of the future trailing commissions payable is $213,372,000. The fair value of all other liabilities is the same
as their carrying amount.
Contractual maturities of financial
liabilities At 30 June 2015
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
Non-derivatives
Non-interest bearing
Trade payables
Licence fees and other payables
12,476
6,394
–
155
–
10
–
–
–
–
12,476
12,476
6,559
6,559
Future trailing commissions payable
27,409
25,204
43,203
82,881
60,682
239,379
193,791
46,279
25,359
43,213
82,881
60,682
258,414
212,826
The fair value of the future trailing commissions payable is $204,776,000. The fair value of all other liabilities is the
same as their carrying amount.
(d) Prepayment risk
Prepayment risk has been assessed through the sensitivity analysis of run-off rates, refer to Note 3.
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.
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 trailing commissions receivable and the corresponding payable to franchisees are determined by using the
discounted cash flow valuation technique, which requires the use of assumptions. The key assumptions to determine
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 585858
Note 3: Critical accounting estimates and judgements (continued)
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
2016
$’000
2015
$’000
3.8 years
3.8 years
6.2%
62%
6.8%
61%
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 $7.4 million (made up of decreases in current assets of $1.2 million, non-current
assets of $26.4 million, current liabilities of $0.7 million, non-current liabilities of $16.3 million and deferred tax
liabilities of $3.2 million) if run-off rates increase by 10%; or
an increase in net assets of $8.5 million (made up of increases in current assets of $1.2 million, non-current
assets of $30.7 million, current liabilities of $0.7 million, non-current liabilities of $19.0 million and deferred tax
liabilities of $3.7 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 value of trailing commissions receivable and payable as they
are calculated using amortised cost rather than fair value. Management does not consider material changes to the
percentage paid to franchisees to be reasonably possible.
In the current period, the annual review found that the payout rate experienced in 2016 was higher than that assumed
in the valuation model and an adjustment to the profit and loss for the year was recognised to reflect the actual
experience in the portfolio. In addition the 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 changes to
the trailing commission model resulted in a $1.1 million negative adjustment after tax to the Group’s profit and loss for
FY2016 (2015 - $1.6 million negative adjustment), refer Note 4 (c) (ii).
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 management has identified three reportable product segments, Mortgage Choice franchised
mortgage broking (MOC), Help Me Choose health fund and mortgage comparison website (HMC) and Mortgage Choice
Financial Planning (MCFP). MCFP includes revenue from wealth products, including investment advice as well as all risk
insurance products written across the Group. Operating expenses presented in HMC and MCFP represent the expenses
solely attributable to those business segments. The Group operates only in Australia.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 595959
(b)
Information provided to the Chief Executive Officer
Information provided to the Chief Executive Officer for the year ended 30 June 2016 is as follows:
Product Segments
2016
Revenue
Gross Profit (IFRS)
Gross profit (cash)
OPEX (excl SBR*)
Depreciation and amortisation
Income tax expense
NPAT (IFRS)
NPAT (cash)
* Share based remuneration
2015
Revenue
Gross Profit (IFRS)
Gross profit (cash)
OPEX (excl SBR*)
Depreciation and amortisation
Income tax expense
NPAT (IFRS)
NPAT (cash)
* Share based remuneration
Total
$’000
MOC
$’000
HMC
$’000
MCFP
$’000
197,440
188,254
65,477
65,800
36,352
1,541
8,808
19,538
20,545
63,295
62,700
32,219
1,426
9,397
20,913
21,264
736
437
1,355
1,944
48
(445)
(1,039)
(419)
8,450
1,745
1,745
2,189
67
(144)
(336)
(300)
Total
$’000
MOC
$’000
HMC
$’000
MCFP
$’000
184,795
172,844
65,383
63,717
38,000
1,304
7,652
18,856
18,566
60,315
59,237
31,506
1,090
8,100
19,901
19,955
5,845
3,800
3,212
4,316
148
(165)
(384)
(763)
6,106
1,268
1,268
2,178
66
(283)
(661)
(626)
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 606060
Note 4: Segment information (continued)
Cash versus IFRS
2016
2015
% change
2016
2015
% change
Cash*
IFRS
$’000
$’000
$’000
$’000
Origination commission income
72,306
69,997
Trailing commission income**
Origination commission paid
Trailing commission paid**
Net core commissions
Diversified products net revenue
Financial Planning net revenue
HMC net revenue
Other income
Gross Profit
95,082
89,333
167,388
159,330
52,944
51,492
57,852
54,138
110,796
105,630
56,592
53,700
1,581
1,691
1,354
4,584
1,567
1,158
3,179
4,113
65,802
63,717
3%
6%
5%
3%
7%
5%
5%
1%
46%
72,306
69,997
104,708
92,490
177,014
162,487
52,944
51,492
66,886
56,217
119,830
107,709
57,184
54,778
1,581
1,691
1,567
1,158
3%
13%
9%
3%
19%
11%
4%
1%
46%
(57%)
437
3,767
(88%)
11%
3%
4,584
4,113
65,477
65,383
Operating Expenses
36,352
38,000
(4%)
36,352
38,000
Share based remuneration
–
–
779
875
Net profit before tax
Net profit after tax
29,450
25,717
20,545
18,566
15%
11%
28,346
26,508
19,538
18,856
* 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.
11%
0%
(4%)
(11%)
7%
4%
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 616161
The following provides additional detail to assist in reconciliation of the above table to the consolidated
income statement:
2016
2015
% change
2016
2015
% change
Cash
IFRS
$’000
$’000
$’000
$’000
Diversified products commissions
Diversified products direct costs
Diversified products net income
Financial Planning revenue
Financial Planning direct costs
Financial Planning net revenue
6,711
6,387
5,130
4,820
1,581
1,567
8,396
5,996
6,705
4,838
1,691
1,158
5%
6%
1%
40%
39%
46%
Help Me Choose commissions*
1,652
5,224
(68%)
Help Me Choose direct costs
Help Me Choose net revenue
Franchise income
Interest
Other Income
Other income
298
2,045
1,354
3,179
1,231
1,504
419
2,934
4,584
487
2,122
4,113
(85%)
(57%)
(18%)
(14%)
38%
11%
6,711
6,387
5,130
4,820
1,581
1,567
8,396
5,996
6,705
4,838
1,691
735
298
437
1,231
419
2,934
4,584
1,158
5,812
2,045
3,767
1,504
487
2,122
4,113
5%
6%
1%
40%
39%
46%
(87%)
(85%)
(88%)
(18%)
(14%)
38%
11%
* Help Me Choose cash income is based on accruals accounting and excludes the net present value of future trailing commissions’
receivable on health policies written during the year.
(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.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 626262
Note 4: Segment information (continued)
(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
Less adjustments to loan book assumptions
Plus gain on prepayment of trail liability
Plus reversal of amortisation of trail liability*
NPV future trails on Help Me Choose policies written
Less net cash from trail previously recognised under IFRS
Less share based payments expense
Net IFRS after tax profit for the year
2016
$’000
2015
$’000
20,545
21,723
18,566
20,603
(20,317)
(18,368)
(1,074)
(1,605)
–
82
115
(757)
(779)
–
124
989
(578)
(875)
19,538
18,856
* Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
(iii) Gross profit and net core commissions
The cash gross profit and net core commissions reconcile to their IFRS equivalents as follows:
Gross Profit
Net Core Commissions
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Cash
65,802
63,717
56,592
53,699
NPV future trails on new loans originated, net
of payout
Less net cash from trail previously recognised
under IFRS
31,033
29,435
31,033
29,435
(29,023)
(26,241)
(29,023)
(26,241)
Less adjustments to loan book assumptions
(1,535)
(2,293)
(1,535)
(2,293)
Plus gain on prepayment of trail liability
Plus reversal of amortisation of trail liability*
NPV future trails on Help Me Choose policies written
–
117
165
–
177
1,413
Less net cash from trail previously recognised
under IFRS
(1,082)
(825)
–
117
–
–
–
177
–
–
IFRS
65,477
65,383
57,184
54,778
* Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements Note 5: Revenue
Revenue from continuing operations
Sales revenue
Services
Other revenue
Interest earned on deposits and loans
Interest in relation to discount unwind
Other income
Note 6: Other income
Conference sponsorships (a)
Other
(a) Conference sponsorships
636363
2016
$’000
2015
$’000
173,927
159,911
419
20,160
2,934
487
22,275
2,122
197,440
184,795
2016
$’000
2015
$’000
2,296
638
2,934
2,079
43
2,122
Lenders sponsor Mortgage Choice’s National Conference, High Flyers’ Conference, quarterly state conferences, and
periodic training days and workshops.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 646464
Note 7: Expenses
Profit from ordinary activities before income tax includes the following
specific expenses:
Finance costs
Interest and finance charges (a)
Net loss on disposal of property, plant and equipment
Depreciation
Plant and equipment
Amortisation
Leasehold improvements
Computer software
Impairment loss (b)
Other provisions
Employee entitlements
Rental expense relating to operating leases
Defined contribution superannuation expense
Termination benefits
(a)
Interest and finance charges
2016
$’000
2015
$’000
12,162
13,444
121
231
(5)
1,315
–
(198)
1,323
1,540
473
4
266
23
1,015
1,187
266
1,133
1,612
23
Interest expense comprises the unwinding of the discount in relation to payment of trailing commission to franchisees.
(b)
Impairment loss
An impairment loss of $1.187m was included in technology operating expenses in FY2015.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements Note 8: Income tax
(a)
Income tax expense
Current tax
Deferred tax
Under (over) provided in prior years
Income tax expense is attributable to:
Profit from continuing operations
Deferred income tax (revenue) expense including income tax expense comprises:
(Increase)/decrease in deferred tax assets (note 12)
Increase/(decrease) in deferred tax liabilities (note 17)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Income tax calculated @ 30% (2015 – 30%)
Tax effect of amounts which are not deductible/(assessable) in calculating
taxable income:
Research and Development Tax Incentive
Under/(over) provision from prior years
Income tax expense
656565
2016
$’000
2015
$’000
8,641
6,781
185
(18)
871
–
8,808
7,652
8,808
8,808
7,652
7,652
(2,372)
(1,250)
2,557
185
2,121
871
2016
$’000
2015
$’000
28,346
26,508
8,504
7,952
385
(63)
8,826
(18)
8,808
202
(502)
7,652
–
7,652
No part of the deferred tax asset shown above and in note 12 is attributable to tax losses.
Note 9: Current Assets – Cash and cash equivalents
Cash at bank and on hand
Risk exposure
2016
$’000
2015
$’000
8,068
7,827
The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the reporting
date is the carrying amount of each class of cash and cash equivalents mentioned above.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 666666
Note 10: Trade and other receivables
2016
Non-
current
$’000
Current
$’000
Total
$’000
Current
$’000
2015
Non-
current
$’000
Total
$’000
Trade receivables(1)
11,496
–
11,496
12,132
–
12,132
Net present value of future trailing
commissions receivable
86,372
243,191
329,563
84,774
236,080
320,854
Franchisee receivables
1,130
2,510
3,640
Other receivables
Prepayments
470
2,672
16
–
486
2,672
1,520
975
998
2,100
3,075
29
–
1,027
1,520
102,140
245,717
347,857
100,399
238,209
338,608
(1) Subject to a limited charge in favour of The Loan Book Security Trust (refer to note 14)
(a) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
(b)
Impaired trade receivables
As at 30 June 2016 current trade receivables were not impaired (2015 – nil).
(c) Risk exposure
Information about the Group’s exposure to credit risk and interest rate risk is provided in note 2.
(d) 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.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 676767
Note 11: Non-Current Assets – Property, plant and equipment
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
Total
$’000
At 30 June 2014
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2015
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2016
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2016
Cost
Accumulated depreciation
Net book amount
2,416
(1,721)
695
695
207
(4)
(266)
632
2,581
(1,949)
632
632
86
(147)
(231)
340
2,205
(1,865)
340
1,320
(1,108)
212
212
5
–
(23)
194
1,318
(1,124)
194
194
46
(135)
5
110
1,056
(946)
110
3,736
(2,829)
907
907
212
(4)
(289)
826
3,899
(3,073)
826
826
132
(282)
(226)
450
3,261
(2,811)
450
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 686868
Note 12: Non-current assets – Deferred tax assets
The balance comprises temporary differences attributable to:
Net present value of future trailing commissions payable
60,883
58,137
2016
$’000
2015
$’000
Employee benefits
Depreciation and amortisation
Accrued expenses
Total deferred tax assets
898
203
617
991
331
770
62,601
60,229
Set off of deferred tax assets pursuant to set off provisions (note 17)
(62,601)
(60,229)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
–
17,303
45,298
62,601
–
16,948
43,281
60,229
Movements
NPV of future
trailing
commissions
payable
$’000
Employee
benefits
$’000
Depreciation
and
amortisation
$’000
Accrued
expenses
$’000
Other
$’000
Total
$’000
At 30 June 2014
57,459
Charged/(credited) to the
income statement
At 30 June 2015
Charged/(credited) to
the income statement
At 30 June 2016
678
58,137
2,746
60,883
945
46
991
(93)
898
317
14
331
(128)
203
258
512
770
(153)
617
–
–
–
–
–
58,979
1,250
60,229
2,372
62,601
For the year ended 30 June 2016Notes to the Consolidated Financial Statements Note 13: Non-current assets – intangible assets
At 30 June 2014
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Amortisation charge
Impairment loss
Closing net book amount
At 30 June 2015
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2016
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2016
Cost
Accumulated depreciation
Net book amount
(a)
Impairment loss
696969
Computer
Software
$’000
9,200
(6,851)
2,349
2,349
7,001
(1,015)
(1,187)
7,148
15,014
(7,866)
7,148
7,148
908
(1,315)
(266)
6,475
15,321
(8,846)
6,475
Project One replaces the Group’s core broker platform for the use of the Mortgage Choice franchised mortgage broking
segment. After the delivery of the first phase of Project One, the Group carried out a review of the recoverable amount
of the intangible asset. The review led to the recognition of an impairment loss of $1.2 million in FY2015, which has
been recognised in the technology operating expense line item in the profit or loss (see Note 7).
The Group estimated the fair value less costs of disposal of the Mortgage Choice franchised mortgage broking segment
using the recent share market prices for the Group. This was apportioned to the contribution of the segment less
estimated costs of disposal which amounted to $266 million as at 30 June 2015. The estimated fair value less costs of
disposal is greater than the estimated value in use and carrying amount of the segment.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 707070
Note 14: 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
2016
$’000
2015
$’000
12,190
12,476
52,930
50,906
173
4,647
69,940
257
6,292
69,931
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 2016, 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 $4,380,592 (2015 - $4,410,359).
This is included as part of the balance of trade payables at 30 June 2016 and would be subject to charge until disbursed
to the eligible franchisees. The amount subject to the charge would vary dependant on trailing commission due to be
received by Mortgage Choice Limited from month to month.
The second charge is a floating charge over all of the assets of Mortgage Choice Limited. It is limited in the powers it
allows the security trustee to exercise prior to liquidation. Its primary purpose is to ensure that the loan book security
structure need not be subject to the moratorium arising if an administrator were to be appointed to Mortgage Choice
Limited. Only after liquidation does this charge confer comprehensive mortgagee powers on the security trustee.
Fair values
The carrying amounts of trade and other payables at year end is a reasonable approximation of their fair values
with the exception of the net present value of future trailing commissions payable which are accounted for at
amortised cost.
Note 15: Provisions
Make good provision(a)
Employee entitlements – annual leave
Employee entitlements – long service leave
2016
Non-
current
$’000
358
–
306
664
Current
$’000
40
691
353
1,084
Total
$’000
Current
$’000
398
691
659
40
963
302
1,748
1,305
2015
Non-
current
$’000
488
–
283
771
Total
$’000
528
963
585
2,076
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 717171
(a) Make good provision
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.
Note 16: Non-current liabilities – Trade and other payables
Net present value of future trailing commissions payable
Licence fees repayable
2016
$’000
2015
$’000
150,012
142,885
3
10
150,015
142,895
Note 17: Non-current liabilities – Deferred tax liabilities
The balance comprises temporary differences attributable to:
NPV of future trailing commissions receivable
Intangibles
Prepayments and other receivables
2016
$’000
2015
$’000
98,869
96,257
1,355
38
1,403
45
100,262
97,705
Set off of deferred tax assets pursuant to set off provisions (note 12)
(62,601)
(60,229)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
37,661
26,225
74,037
100,262
37,476
25,747
71,958
97,705
Movements – Consolidated
At 30 June 2014
Charged to the income statement
At 30 June 2015
Charged to the income statement
At 30 June 2016
NPV of future
trailing
commissions
payable
$’000
Intangibles
$’000
Prepayments
and other
receivables
$’000
95,133
1,124
96,257
2,612
98,869
404
999
1,403
(48)
1,355
47
(2)
45
(7)
38
Total
$’000
95,584
2,121
97,705
2,557
100,262
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 727272
Note 18: Contributed equity
2016
shares
$’000
2015
shares
$’000
2016
$’000
2015
$’000
(a) Share capital
Ordinary shares – fully paid
123,572
123,033
6,804
5,780
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 2016:
Details
Total ordinary shares on issue
Treasury shares (a)
Total ordinary shares held as contributed equity
Number of
shares
124,458,863
(887,336)
123,571,527
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 737373
(a) 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 30 for
further information).
Date
Details
30 June 2014
Balance
31 December 2013
Treasury shares issues under the Performance Share Plan to employees
23 August 2014
Shares issued to the Mortgage Choice Employee Incentive Trust
23 August 2014
Treasury shares issues under the Share Rights Plan to employees
3 September 2014
Treasury shares issues under the Performance Share Plan to employees
12 September 2014
Treasury shares issues under the Performance Share Plan to employees
5 November 2014
Shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2015
Balance
3 July 2015
Treasury shares issues under the Performance Share Plan to employees
14 July 2015
Shares issued to the Mortgage Choice Employee Incentive Trust
14 July 2015
Treasury shares issues under the Share Rights Plan to employees
Number of
shares
1,610,491
(16,346)
98,909
(98,909)
(180,452)
(567,254)
336,952
1,183,391
(33,668)
99,100
(99,100)
14 September 2015
Treasury shares issues under the Performance Share Plan to employees
(346,936)
15 September 2015
Shares issued to the Mortgage Choice Employee Incentive Trust
15 September 2015
Treasury shares issues under the Share Rights Plan to employees
19 November 2015
Shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2016
Balance
58,966
(58,966)
84,549
887,336
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 747474
Note 18: Contributed equity (continued)
Movements in ordinary share capital:
Date
Details
30 June 2014
Balance
31 December 2013
Treasury shares issues under the Performance Share Plan
to employees
23 August 2014
Treasury shares issues under the Share Rights Plan
to employees
3 September 2014
Treasury shares issues under the Performance Share Plan
to employees
Number of
shares
$’000
$’000
122,169,896
4,604
16,346
98,909
180,452
22
234
225
12 September 2014
Treasury shares issues under the Performance Share Plan
to employees
567,254
695
5 November 2014
Shares issued to the Mortgage Choice Employee
Incentive Trust
5 November 2014
Held as treasury shares
30 June 2015
Balance
336,952
(336,952)
–
–
123,032,857
5,780
3 July 2015
14 July 2015
Treasury shares issues under the Performance Share Plan
to employees
Treasury shares issues under the Share Rights Plan
to employees
14 September 2015
Treasury shares issues under the Performance Share Plan
to employees
15 September 2015
Treasury shares issues under the Share Rights Plan
to employees
19 November 2015
Shares issued to the Mortgage Choice Employee
Incentive Trust
19 November 2015
Held as treasury shares
33,668
99,100
346,936
58,966
84,549
(84,549)
77
289
511
147
–
–
30 June 2016
Balance
123,571,527
6,804
(a) Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in
note 30.
(b) Options
Information relating to the Mortgage Choice Executive Performance Option Plan, including details of options issued,
exercised and lapsed during the financial year and options outstanding at the end of the financial year is set out in
note 30.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements Note 19: Reserves and retained profits
(a) Reserves
Share-based payments reserve
Movements:
Share-based payments reserve
Balance 1 July
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
Adjustment for provision for clawbacks
Net profit for the year
Dividends
Balance 30 June
Adjustment for provision for clawbacks
757575
2016
$’000
2015
$’000
1,664
1,909
1,909
779
(1,024)
1,664
2,210
875
(1,176)
1,909
2016
$’000
2015
$’000
94,223
95,517
–
(923)
19,538
18,856
(19,902)
(19,227)
93,859
94,223
There is a potential for origination commissions to be clawed back by lenders after loans have settled. This is now
estimated and recognised at the time of settlement and a provision was created for potential commission clawbacks
as at 1 July 2014. The recognition of this provision has resulted in a reduction of opening retained earnings for the
30 June 2015 full year of $923,000 from $95,517,000 to $94,594,000.
In the event a lender claws commission back, a corresponding clawback will be deducted from franchisees. The
adjustment to retained earnings is net of franchisee clawbacks.
Nature and purpose of reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of options and performance shares granted but
not vested.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 767676
Note 20: Dividends
(a) Ordinary shares
Final dividend declared out of profits of the Company for the year ended
30 June 2014 of 8.0 cents per fully paid share paid on 15 September 2014:
Fully franked based on tax paid @ 30%
8.0 cents per share
Interim dividend declared out of profits of the Company for the half-year ended
31 December 2014 of 7.5 cents per fully paid share paid 19 March 2015:
Fully franked based on tax paid @ 30%
7.5 cents per share
Final dividend declared out of profits of the Company for the year ended
30 June 2015 of 8.0 cents per fully paid share paid on 11 September 2015:
Fully franked based on tax paid @ 30%
8.0 cents per share
Interim dividend declared out of profits of the Company for the half-year ended
31 December 2015 of 8.0 cents per fully paid share paid 11 March 2016:
Fully franked based on tax paid @ 30%
8.0 cents per share
2016
$’000
2015
$’000
–
–
9,945
9,957
19,902
9,911
9,316
–
–
19,227
(b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have
recommended the payment of a final dividend of 8.5 cents per fully paid ordinary
share, (2015 – 8.0 cents) fully franked based on tax paid at 30%. The aggregate
amount of the proposed dividend expected to be paid on 16 September 2016 out of
retained profits at 30 June 2016, but not recognised as a liability at year end, is
10,579
9,945
(c) Franked dividend
The franked portions of the final dividends recommended after 30 June 2016 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 2016.
2016
$’000
2015
$’000
Franking credits available for subsequent financial years to the equity holders of
the parent entity based on a tax rate of 30% (2015 – 30%)
2,835
2,748
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 $4,534,000 (2015: $4,262,000).
For the year ended 30 June 2016Notes to the Consolidated Financial Statements Note 21: Key management personnel disclosures
(e) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
Balance 30 June
777777
2016
$’000
2015
$’000
2,773,963
2,486,072
153,125
25,414
–
98,611
(5,162)
–
620,881
541,444
3,573,383
3,120,965
Detailed remuneration disclosures are provided in the Directors’ report on pages 16-37 of the remuneration report.
Note 22: 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:
2016
(a) Audit services
Deloitte Touche Tohmatsu Australian firm:
Audit and review of financial reports
Total remuneration for audit services
(b) Non-audit services
Non audit-related services
Deloitte Touche Tohmatsu Australan firm:
Actuarial services
Taxation services
Total remuneration for non-audit services
$
193,490
193,490
75,000
88,720
163,720
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 787878
Note 22: Remuneration of auditors (continued)
2015
(a) Audit services
Deloitte Touche Tohmatsu Australian firm:
Audit and review of financial reports
Total remuneration for audit services
(b) Non-audit services
Non audit-related services
Deloitte Touche Tohmatsu Australian firm:
Actuarial services
Risk advice
Taxation services
Total remuneration for non-audit services
Note 23: Contingencies
Contingent liabilities
$
184,275
184,275
75,000
131,000
24,930
230,930
The Group had contingent liabilities at 30 June 2016 in respect of:
Guarantees
Guarantees given in respect of premises leases $771,914 (2015: $755,414).
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 2016 and 30 June 2015, 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.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 797979
Note 24: Commitments
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
2016
$’000
2015
$’000
930
1,341
–
2,271
1,123
2,728
–
3,851
Note 25: 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 26.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 21. Additional disclosures are set out in the
Directors’ report in the remuneration report.
(d) Loans to/from related parties
The Group has formed trusts to administer the Group’s employee share scheme. These are funded by the parent entity.
These trusts are consolidated, as the substance of the relationship is that the trust is controlled by the Group.
No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been
recognised in respect of bad or doubtful debts due from related parties.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 808080
Note 26: Subsidiaries
Significant investments in subsidiaries
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
Country of
incorporation
Class of Shares
MC Loan Book Security Pty Limited
Australia
Help Me Choose Pty Limited
Australia
Ordinary
Ordinary
Mortgage Choice Financial Planning
Pty Limited
Australia
Ordinary
Equity holding*
2016
%
100
100
100
2015
%
100
100
100
These subsidiaries, except Mortgage Choice Financial Planning Pty Limited, 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 27: Events occurring after the balance sheet date
Dividend payment
Subsequent to year end, a final ordinary dividend of $10,579,000 (8.5 cents per fully paid share) was declared out of
profits of the Company for the year ended 30 June 2016 on 24 August 2016 to be paid on 16 September 2016.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 818181
Note 28: Reconciliation of profit after income tax to net cash
inflow from operating activities
2016
$’000
2015
$’000
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
Impairment of non-current assets
Reversal of make good provision
Net loss (gain) on sales of non-current assest
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
(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
Note 29: Earnings per share
(a) Basic earnings per share
From continuing operations
(b) Diluted earnings per share
From continuing operations
19,538
1,541
(8,710)
9,151
779
(419)
–
130
374
613
(1,152)
(293)
(1,729)
1,040
185
(328)
20,720
18,856
1,304
(3,744)
2,256
875
(487)
1,187
–
4
(836)
453
1,711
577
(2,299)
1,267
211
21,335
Consolidated
2016
Cents
2015
Cents
15.7
15.2
15.7
15.2
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016
828282
Note 29: Earnings per share (continued)
Consolidated
2016
$’000
2015
$’000
Earnings used in calculating earnings per share
Profit from continuing operations
19,538
18,856
Consolidated
2016
Number
2015
Number
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
124,410,527
124,084,916
Adjustments for calculation of diluted earnings per share:
Options
Share rights
–
–
–
14,091
Weighted average number of ordinary shares and potential ordinary shares used as
the denominator in calculating diluted earnings per share
124,410,527
124,099,007
Information concerning the classification of securities
(a) Options
Options granted to employees under the Mortgage Choice Executive Performance Option Plan that have vested 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.
(c) Share Rights Plan
Share rights granted to the CEO under the Mortgage Choice Share Rights Plan that have vested are considered to be
ordinary shares and have been included in the determination of basic earnings per share. Details relating to the share
rights are set out in the Remuneration report.
Note 30: 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 2016, 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
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 838383
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.
is designed to provide the medium-term to long-term
incentive component of remuneration for executives and
other designated employees.
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. The fair value of market based
conditions 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.
No options existed during the reporting period.
(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
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 attached
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
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 848484
Note 30: Share-based payments (continued)
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.
The fair value of market based conditions 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.
(c) Share Rights Plan
The Share Rights Plan (SRP) permits eligible employees
as identified by the Board from time to time to be
granted share rights (“rights’) from the outset of the
applicable performance period. The rights granted to
those employees are subject to the achievement of
performance and service requirements as specified by
the Board. Eligible employees are granted rights 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 rights lapse if the performance and service criteria
are not met.
Upon vesting, the Company must acquire or issue the
number of shares, or the fraction thereof, into which
the rights are convertible under the terms of the
specific grant. The method of acquisition for each share
allocation will be determined by the Board. The costs of
all share acquisitions under the SRP will be funded by
the Group. Participants will not be required to make any
payment for the acquisition of rights under the SRP. The
Board at its discretion may choose to settle the rights as
a cash payment at its sole discretion.
If a participant ceases to be employed by the Company
unvested rights lapse immediately. Notwithstanding
this rule if a participant ceases to be an employee for a
qualifying reason (including death, disability, retirement,
redundancy, corporate restructure, or any other
circumstances determined by the Board), the Board
may in its discretion determine the treatment of any
unvested rights.
If the Board determines that a participant has acted
fraudulently or dishonestly; is in breach of his or her
obligations to the Group; or is knowingly involved in
a material misstatement of financial statements, the
Board may determine that the conditions attached to
the rights may be reset; the rights that have not vested
may lapse; allocated or vested shares may be forfeited;
or shares that have been sold on vesting must be repaid
in part or in full.
The Board may in its sole discretion determine whether
some or all of the rights vest or lapse or whether
unvested rights remain subject to applicable conditions
of vesting on the event of a change of control.
The assessed fair value at grant date of the rights granted
to individuals is allocated equally over the period from
grant date to vesting date, and the amount is included in
the remuneration tables above.
The fair value of market based conditions 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 rights.
Details of rights issued by the Company provided as
remuneration are set out below. Further information on
the rights and the detailed vesting criteria are set out in
the remuneration report.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 858585
Set out below are summaries of performance shares conditionally issued under the Performance Share Plan:
Offer Date
Vesting date
Value
2016
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
14 September 2012 3 July 2015*
$1.74
15,846
14 September 2012 14 September 2015
$1.74
251,904
14 September 2012 14 September 2015
$1.08
219,060
23 September 2013 3 July 2015*
$2.77
9,713
23 September 2013 14 September 2015
$2.77
22,979
23 September 2013 14 September 2016
$2.77
126,382
23 September 2013 14 September 2016
$1.68
103,410
22 September 2014 3 July 2015*
$2.72
8,109
22 September 2014 14 September 2015
$2.72
19,973
22 September 2014 14 September 2016
$2.72
19,973
22 September 2014 14 September 2017
$2.72
109,840
22 September 2014 14 September 2017
$1.68
89,864
–
–
–
–
–
–
–
–
–
–
–
–
17 September 2015 14 September 2018
$2.01
17 September 2015 14 September 2018
$1.19
–
–
269,736
269,736
(15,846)
(234,735)
(71,092)
(9,713)
(21,986)
–
–
(8,109)
(19,123)
–
–
–
–
–
Total
997,053
539,472 (380,604)
Weighted average price
$1.90
$1.60
$1.77
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17,169)
(147,968)
–
(993)
–
–
–
–
–
(27,986)
98,396
(22,900)
80,510
–
(850)
–
–
(4,594)
15,379
(25,260)
84,580
(20,667)
69,197
–
–
269,736
269,736
(268,387)
887,534
$1.59
$1.87
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 868686
Note 30: Share-based payments (continued)
Offer Date
Vesting date
Value
2015
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
20 September 2010 3 September 2014
$1.19
180,452
16 February 2012
12 September 2014
$1.26
267,234
16 February 2012
12 September 2014
$0.78
218,638
14 September 2012 12 September 2014
$1.74
48,690
14 September 2012 3 July 2015**
$1.74
15,846
14 September 2012 14 September 2015
$1.74
251,904
14 September 2012 14 September 2015
$1.08
219,060
23 September 2013 12 September 2014
$2.77
32,692
23 September 2013 3 July 2015**
$2.77
9,713
23 September 2013 14 September 2015
$2.77
22,979
23 September 2013 14 September 2016
$2.77
179,811
23 September 2013 14 September 2016
$1.68
147,125
–
–
–
–
–
–
–
–
–
–
–
–
22 September 2014 3 July 2015**
22 September 2014 14 September 2015
$2.72
$2.72
22 September 2014 14 September 2016
$2.72
22 September 2014 14 September 2017
22 September 2014 14 September 2017
$2.72
$1.68
–
–
–
–
–
8,109
19,973
28,082
154,436
126,352
(180,452)
(267,234)
(218,638)
(48,690)
–
–
–
(32,692)
–
–
–
–
–
–
–
–
–
Total
1,594,144
336,952
(747,706)
Weighted average price
$1.53
$2.33
$1.20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,846
251,904
219,060
–
9,713
22,979
(53,429)
126,382
(43,715)
103,410
–
–
8,109
19,973
(8,109)
19,973
(44,596)
109,840
(36,488)
89,864
(186,337)
997,053
$2.29
$1.90
* The vesting date of service based performance shares for MI Russell has been brought forward from September 2015 to his
termination date of 3 July 2015.
The weighted average remaining contractual life of performance shares outstanding at the end of the period was
1.60 years (2015 – 0.86 years).
The model inputs for performance shares granted on 17 September 2015 included:
(a) performance shares are granted for no consideration and vest over a period of four years;
(b) grant date: 17 September 2015 (2015 – 22 September 2014);
(c) share price at grant date: $2.01 (2015 – $2.72);
(d) expected price volatility of the Company’s shares: 29.60% (2015 – 28.23%);
(e) expected dividend yield: 0% (2015 – 0%); and
(f) risk-free interest rate: 1.768% (2015 – 2.614%).
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 878787
Set out below are summaries of shares conditionally issued under the Share Rights Plan:
Offer Date
Vesting date
Value
2016
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
30 September 2014 1 July 2015
$3.09
93,750
7 April 2015
15 September 2015
$2.60
56,559
7 April 2015
15 September 2016
$2.60
56,559
7 April 2015
15 September 2017
$2.60
56,560
Total
Weighted average price
263,428
$2.77
–
–
–
–
–
–
(93,750)
(56,559)
–
–
(150,309)
$2.90
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56,559
56,560
113,119
$2.60
Offer Date
Vesting date
Value
2015
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
20 August 2013
30 June 2016
$2.50
281,250
–
30 September 2014 1 July 2015
30 September 2014 1 July 2017
$3.09
$3.09
7 April 2015
15 September 2015
$2.60
7 April 2015
15 September 2016
$2.60
7 April 2015
15 September 2017
$2.60
Total
Weighted average price
–
–
–
–
–
93,750
281,250
56,559
56,559
56,560
281,250
544,678
$2.50
$2.94
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(281,250)
–
–
93,750
(281,250)
–
–
–
–
56,559
56,559
56,560
– (562,500)
263,428
–
$2.80
$2.77
The weighted average remaining contractual life of performance shares outstanding at the end of the period was
0.71 years (2015 – 0.78 years).
FY2016 deferred STI award
Board resolved on the date of this report to grant share rights for the deferred portion of the CEO’s STI for FY2016 as per
his contract. The value of the share rights in total has been determined but the VWAP used to calculate the number
of performance rights to be issued has not yet been struck. The rights are expected to be granted in the first week of
September 2016 with 50% vesting 14 September 2017 and 50% vesting 14 September 2018. The accounting grant date for
these share rights are 1 July 2015.
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 888888
(d) 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:
Shares issued under PSP
2016
$’000
2015
$’000
779
779
875
875
Note 31: 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
2016
$’000
2015
$’000
110,998
109,195
363,274
353,800
71,905
70,471
260,245
251,026
6,804
1,664
5,780
1,909
94,561
95,085
103,029
102,774
20,913
20,913
19,901
19,901
(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 $771,914 (2015 – $755,414). 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 2016 or 30 June 2015.
For the year ended 30 June 2016Notes to the Consolidated Financial Statements 898989
Directors’ Declaration
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 40-89 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of their
performance, for the financial year ended on that date; and
(b) Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board; and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by
Section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Peter Ritchie
Director
Sydney
24 August 2016
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 909090
Independent Auditor’s Report
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report
to the Members of Mortgage Choice Limited
Report on the Financial Report
We have audited the accompanying financial report of Mortgage Choice Limited, which comprises the
consolidated balance sheet as at 30 June 2016, the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of cash flows and the consolidated
statement of changes in equity for the year ended on that date, notes comprising a summary of
significant accounting policies and other explanatory information, and the directors’ declaration of the
consolidated entity, comprising the company and the entities it controlled at the year’s end
or from time to time during the financial year as set out on pages 40 to 89.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements,
the consolidated financial statements comply wit h
that
International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control, relevant to the company’s
preparation of the financial report that gives a true and fair view, in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as
well as evaluating the overall presentation of the financial report.
Limited liability by a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
For the year ended 30 June 2016Independent Auditor’s Report 919191
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of Mortgage Choice Limited, would be in the same terms if
given to the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Mortgage Choice Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016
and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the consolidated financial statements also comply with International Financial Reporting
Standards as disclosed in Note 1
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 16 to 37 of the directors’ report for
the year ended 30 June 2016. The directors of the company are responsible for the preparation
the
and presentation of
Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing Standards.
in accordance with section 300A of
the Remuneration Report
Opinion
In our opinion the Remuneration Report of Mortgage Choice Limited for the year ended 30 June 2016,
complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Philip Hardy
Partner
Chartered Accountants
Sydney, 24 August 2016
Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016Mortgage Choice Annual Report 2016 929292
ASX Shareholder Information
The shareholder information set out below was applicable as at 29 July 2016
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 118 holders of less than a marketable parcel of ordinary shares.
Class of
equity
security
Ordinary
Shares
713
1,435
774
842
49
3,813
For the year ended 30 June 2016Shareholder Information B. Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
J P Morgan Nominees Australia Limited
Finconnect (Australia) Pty Ltd
Citicorp Nominees Pty Limited
Ochoa Pty Ltd
HSBC Custody Nominees (Australia) Limited
Ochoa Pty Ltd
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