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Annual Report
Bette r choices
for a better life
At Mortgage Choice, we believe in helping our customers make
better choices with their money so they can afford to enjoy
the things in life that are important to them. We do this by
offering expert advice across our full suite of services to help
them make:
Better choices for a better life
s
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t
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2017 Performance
Chairman’s Report
CEO Overview
2017 Financial Report
Shareholder Information
Corporate Directory
Mortgage Choice Annual Report 2017
Mortgage Choice Annual Report 2017
2
3
5
9
93
96
654
Credit
representatives
in our Australia
wide network
486
60%
1,600+
$22.6m
Franchises across
Australia
Increase in FUA
in FY 2017
Number of asset finance
loans settled
Cash Net Profit After Tax
Mortgage Choice Annual Report 2017
Mortgage Choice Annual Report 2017
1
1
2017
Performance
Despite increasing market volatility, Mortgage Choice
continues to go from strength to strength. Throughout FY 2017,
the company managed to grow its loan book, Net Profit After
Tax (NPAT), settlements and Financial Planning revenue.
NPAT Cash $m
)
s
n
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i
m
$
(
$15.8m
2013
$18.7m
2014
$18.6m
2015
$20.5m
2016
$22.6m
2017
Others
2.8%
Financial
Planning
5.3%
Diversifi ed
products
3.4%
Gross revenue
by division
MC
Broking
88.5%
Loan Book
$53.4 billion
FY 2017
Greenfi eld franchise recruitment
19
2013
16
2014
23
2015
11
2016
46
2017
Funds Under Advice
and Premiums In Force
Total dividends ¢
Premiums In Force ($millions)
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Jun
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Dec
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Jun
2016
Dec
2016
Jun
2017
13.0
2013
15.5
2014
15.5
2015
16.5
2016
17.5
2017
2
Mortgage Choice Annual Report 2017
Chairman’s Report
V I C K I A L L E N
C H A I R M A N
Throughout FY 2017, Mortgage Choice grew its cash NPAT by 10.2% to
$22.6 million, highlighting the ongoing strength of the business. Directors
have declared a final dividend of 9 cents per share, taking the full year
dividend to 17.5 cents per share fully franked.
Mortgage Choice’s full year dividend of 17.5 cents
per share pleasingly represents an increase of
1 cent per share on the prior year and has been
driven by the organisation’s strong cash NPAT
result. This is the second consecutive year that
Mortgage Choice has delivered cash NPAT growth
of more than 10%.
Mortgage Choice has increased its profit by driving
growth across all of its key business channels and
by prudent management of operating expenses.
The Company’s diversified service offerings, such
as asset finance and financial planning, have
continued to grow their contribution to NPAT.
In addition, the Company’s core broking business
remains strong and, I believe, is well positioned for
further growth over the coming years.
Given that this is my first report to you as
Chairman of Mortgage Choice, I take this
opportunity to introduce myself.
On 1 July 2017, I was appointed Chairman. Over the
last couple of months, I have prioritised engaging
with many of our key stakeholders, in particular
franchisees, shareholders and employees. It is
clear from those conversations that Mortgage
Choice is a company with a well understood and
supported purpose and vision.
The Company’s vision, to be Australia’s leading
provider of financial choices and advice, is
supported by a sound strategy that will deliver
exceptional value to customers and profitability to
franchisees and shareholders. And the Company’s
firm commitment to fulfilling its purpose of
helping all Australians create a life of abundance,
is one of the things that first attracted me to
the role.
Having spent many years working within the
financial services and property investment
industries, I understand all too well how
important it is for a company to deliver a customer
experience that is second to none.
Mortgage Choice’s unique way of doing business
ensures our customers’ best interests are always
put first and enables the brand to differentiate
itself in a highly competitive market.
This year, Mortgage Choice celebrates its 25th
birthday. The Company was a pioneer in the
mortgage broking industry in Australia and
remains one of the pre-eminent brands within
the marketplace. And it is clear to see why. The
pride in the Mortgage Choice brand is shared by
franchisees and staff alike.
Heading into FY 2018, we will continue to deliver
on our four strategic business priorities. This will
occur in a volatile market. Global and domestic
events will continue to place pressure on the
mortgage market. But, if our achievements over
the last financial year are anything to go by,
Mortgage Choice is well positioned to achieve its
ongoing business objectives.
I look forward to working alongside both the Board
and the executive team to continue to deliver
positive results for the Company.
The Board and I look forward to holding the 2017
Annual General Meeting in Sydney in October.
The agenda will be outlined in the formal Notice
of Meeting.
I take the opportunity to thank my predecessor,
Peter Ritchie, for his invaluable contribution to
Mortgage Choice.
3
Mortgage Choice Annual Report 2017 Chairman’s Report continued
Peter has been a true advocate for the business.
Throughout his 13 year tenure with Mortgage
Choice, Peter helped the Company transform from
a mortgage broker, to an ASX300 financial services
organisation that has cemented itself as one of
Australia’s most admired financial services brands.
Peter’s integrity, professionalism and dedication
has proven invaluable to Mortgage Choice. I know
I speak on behalf of the Board, the executive
team, and the network when I say that Peter will
be missed.
On behalf of the Board I would like to thank
everyone at Mortgage Choice for their skills
and commitment to the important role we
play in supporting the financial wellbeing of
our customers.
If our achievements over the last financial year are
anything to go by, Mortgage Choice is well positioned to
achieve its ongoing business objectives.
Mortgage Choice
delivers record full
year fully franked
dividend of
17.5cents
4
Mortgage Choice Annual Report 2017
CEO Overview
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
Against a backdrop of increased volatility and complexity in both global and
domestic financial markets, Mortgage Choice delivered NPAT Cash growth
of more than 10%, compounding on an equally strong result for the previous
financial year.
FY 2017 was a year largely dominated by all
things political.
At home, the focus was on the first double
dissolution election since 1987 and the first
under a new voting system for the Senate. Large
sectors of the Australian economy held their
economic breath in the lead up to 2 July 2017. No
more than a partial collective sigh was given on
11 July when it was finally confirmed a majority
government could be formed but only by the
narrowest margin.
Globally, we saw a surprise election result in
the US in November 2016, a run-off election in
France yielding unexpected outcomes in May,
and a snap election in the UK in June leading to
the incumbents holding onto a win but losing
the majority.
Amidst all of this political turmoil, then the only
consistent view that could be formed in relation
to economic growth was that things would be
volatile. And so it was.
Over the year, the US Federal Reserve took the
opportunity to increase the benchmark short-term
interest rate, whilst making it clear that additional
rate increases were firmly on the agenda. Global
volatility added to the cost of wholesale funds.
Domestically, the Reserve Bank of Australia cut
the official cash rate in August 2016 to the new
historical low of 1.5%. With anemic economic
growth, below target inflation, softening
employment conditions and an Australian dollar
stubbornly determined to stay above USD $0.75,
it wasn’t surprising to see the cash rate remain at
this record low for the rest of the financial year.
For Australian policy makers, there has been a shift
to macro prudential policy being the instrument
for change in the home lending market. In
March 2017, the Australian Prudential Regulation
Authority wrote to Australia’s banks and asked
them to limit their level of interest only lending to
30% of all new residential mortgages. This change,
in addition to the existing caps on investor lending
growth, has driven responses from lending
institutions on both pricing and lending policy for
this part of the market. Typical pricing responses
have been increases in interest rates to investors
and interest only borrowers of between 40 and 80
basis points, and lending policy responses have
been in the form of reductions in loan to value
ratios and servicing ratios.
Rolling interest rate adjustments and lending
policy adjustments, outside any changes to the
cash rate, have become the norm.
Despite this, the home loan market has
remained robust.
Data from the Australian Bureau of Statistics
found the total value of home lending approvals
each month continued to sit at approximately
$33 billion. In addition to this, data from CoreLogic
found property values continued to grow across
the combined capital cities.
Throughout FY 2017, property prices across
the combined capital cities rose 9.6%, led by
Melbourne and Sydney. In Melbourne, property
values jumped 13.7% in the 12 months to June
30, and Sydney values grew by 12.2% over the
same time period. Darwin and Perth were the
only capital cities that failed to record growth in
property values, with prices reducing by 7% and
1.7% respectively.
In March 2017, the Australian Securities and
Investments Commission (ASIC) unveiled the
outcomes of its review into mortgage broker
remuneration. In these outcomes, ASIC made
it clear that brokers play a very important role
5
Mortgage Choice Annual Report 2017 CEO Overview continued
1,600+
Asset finance loans
settled in FY 2017
Our network is comfortable speaking to their customers
about more of their financial needs and our customers
value these solutions.
in the home loan market and in generating
good consumer outcomes. In addition to this,
ASIC’s report stated the logic behind the current
commission model, which involves an upfront
and trailing commission payment, is sound.
Beyond this, the review has pointed out that
there are some areas of the model that could be
strengthened in relation to governance, enterprise
ownership transparency and other payments
relating to volume or incentives. Mortgage
Choice has supported ASIC’s Mortgage Broker
Remuneration Review from the outset, and has
worked closely with the regulator, Treasury and
the industry throughout the process. We will
continue to do so to promote better outcomes for
consumers and better outcomes for the industry
and industry participants.
Business outcomes
At the beginning of FY 2017, I shared the Company’s
four priorities for the year. They were:
Net Profit After Tax Growth (Positive Jaws);
Increase and diversify franchisee revenue;
Market Share Growth; and
Brand awareness and engagement.
12 months on and I am pleased to
announce the business has performed
well against our key targets.
Net Profit After Tax on a cash basis is up 10.2%
to $22.6 million compounding on 10.7% growth
in FY 2016.
This growth was underwritten by ‘best ever’
results in our core home loan business. Our loan
settlements result was $12.3 billion for the year
and the loan book grew to $53.4 billion.
6
Mortgage Choice Annual Report 2017 Franchisees and the broader business continued to
accelerate revenue growth through diversification,
particularly in the area of financial advice. For
the year, Mortgage Choice Financial Planning
performed very well. Funds Under Advice grew by
more than 60% and Premiums In Force increased
by 26%. This resulted in gross revenue exceeding
$10 million and gross profit growing by 26%. As
planned, the business unit delivered its first full
year profit.
In FY 2017, the Company launched Mortgage Choice
Asset Finance, our own branded asset finance
solution. Since its launch, we have financed more
than 1,600 loans across the country. These results
prove how comfortable our network is speaking
to their customers about more of their financial
needs and how highly our customers value
these solutions.
Building out our network and expanding
our footprint enables Mortgage Choice
to grow its market share. In FY 2017, we
added 46 new Greenfield Franchises to the
network and expanded our number of Credit
Representatives significantly.
Beyond increasing the size of the network, we
have also greatly enhanced our local brand
presence. Throughout FY 2017, we implemented
a series of grass-roots marketing initiatives that
have proven to be very successful. You may well
have noticed a new Mortgage Choice retail store
in your local shopping strip, seen more Mortgage
Choice branded vehicles on the road, heard more
Mortgage Choice advertising on the radio and
read more about Mortgage Choice in the press and
online. We will continue accelerating our local area
marketing activities to deepen the relationships
we have with our customers and build the brand
in the communities we are a part of.
Looking beyond FY 2017, I am confident that we are
on the right path to deliver to our 2020 objectives,
which include:
Omni-channel customer experience;
Broader range of services;
Distribution growth;
Customer-centric culture; and
Increased brand consideration.
Franchisees and the broader business continued to
accelerate revenue growth through diversification.
Financial planning
gross revenue
exceeds
$10m
7
Mortgage Choice Annual Report 2017 CEO Overview continued
Number of
Greenfields added to
the network
46
Building out our network and expanding our footprint
allows Mortgage Choice to grow brand awareness.
In fact, I am pleased to announce that we have
already made significant inroads into all of the
aforementioned 2020 ambitions.
At Mortgage Choice, our vision is to be
Australia’s leading provider of financial
choices and advice, delivering exceptional
customer value and profitability for our
franchisees and shareholders.
Strategic Focus for FY 2018
Heading into FY 2018, we have outlined the
four key business priorities for the Company.
They include:
Increase and diversify franchisee revenue and
asset growth;
Drive distribution growth;
Create deeper customer relationships; and
Grow Net Profit After Tax (positive jaws).
To achieve our first priority, we will focus on
helping more customers with more of their
financial needs. To this end, we will continue to
embed Mortgage Choice Financial Planning and
our new Mortgage Choice Asset Finance offering.
In delivering to our second priority, we will
increase our footprint across the country and
enhance the productivity of our network. We will
improve our productivity by leveraging business
efficiencies introduced throughout FY 2017,
whilst continuing to grow our franchise and
broker numbers.
Meeting objectives for priority three involves the
development of deeper customer relationships
and putting more solutions in our customer’s
hands. We will achieve this by leveraging our
current media strategy, and putting an increased
focus on local area marketing initiatives and
customer contact programs.
We will continue to maintain a revenue growth
focus to deliver to our fourth priority whilst
investing in the business for future growth. We
will enhance our systems to improve the broker
and customer experience. As we continue to
invest in the business, we will ensure our revenue
growth continues to outpace any growth in
expenses, creating positive jaws and a favorable
Net Profit After Tax result.
I am pleased with what the Company has achieved
in FY 2017 and am looking forward to another
strong year with a focus on the prosperity of our
Franchisees and helping our customers make
better choices for a better life.
8
Mortgage Choice Annual Report 2017 2017
Financial Report
Directors’ Report
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 Consolidated
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
11
41
42
43
44
45
46
47
88
89
Mortgage Choice Annual Report 2017 9
2017 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
Australian currency.
Mortgage Choice Limited is a company limited by
shares, incorporated and domiciled in Australia. Its
registered office and principal place of business is:
Mortgage Choice Limited
Level 10, 100 Pacific Highway
North Sydney NSW 2060
A description of the nature of the consolidated
entity’s operations and its principal activities is
included in the Directors’ report which is not part
of these financial statements.
The financial statements were authorised for issue
by the Directors on 23 August 2017.
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 the Company’s website:
www.mortgagechoice.com.au.
We will deepen the relationships we have with our
customers and build the brand in the communities we
are part of.
Mortgage Choice
loan book hits
$53.4bn
10
Mortgage Choice Annual Report 2017 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 2017, hereafter referred to as
“Mortgage Choice”, “the Mortgage Choice Group” or
“the Group”.
Directors
The following persons were the Directors of
Mortgage Choice Limited during the financial year
and up to the date of this report.
P D Ritchie (resigned 1 July 2017)
V L Allen (appointed 19 June 2017)
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Principal activities
Mortgage Choice is a full financial services
organisation offering financial choices and
advice across Australia. The Group’s principal
activities include:
Mortgage Broking
The provision of assistance in determining the
borrowing capacities of intending residential
mortgage borrowers;
The assessment, at the request of those
borrowers, of a wide range of home
loan products;
The submission of loan applications on behalf
of intending borrowers; and
The provision of assistance with other credit
services, for example; car loans, equipment
finance and general insurance.
Financial Planning
The provision of assistance in
determining superannuation and wealth
management strategies;
Coaching and active management of the above
mentioned strategies;
The assessment of the customer’s protection
insurance needs;
The submission of insurance policy
applications on the customer’s behalf; and
Budgeting and cash flow management advice.
Dividends
Dividends paid or payable to members during the
financial year are as follows:
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 and
paid on 16 September 2016.
An interim ordinary dividend of $10.621 million
(8.5 cents per fully paid share) was declared for the
half-year ended 31 December 2016 on 22 February
2017 and paid on 23 March 2017.
A final ordinary dividend of $11.246 million
(9.0 cents per fully paid share) was declared for the
year ended 30 June 2017 on 23 August 2017 to be
paid on 21 September 2017.
Corporate Governance Statement
The Company’s Corporate Governance
Statement can be found at
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 Highlights
Mortgage Choice delivered a strong profit result
for FY 2017 with an increase in the statutory profit
of 13.5% to $22.2 million and an increase in cash
profits of 10.2% to $22.6 million. This result was
achieved with a good mix of revenue growth,
increased diversification, and expense control.
Settlements rose 1.2% to $12.3 billion and the
Company’s loan book grew 3.2% to $53.4 billion.
Mortgage Choice Financial Planning hit
$10 million in gross revenue and Funds Under
Advice and Premiums In Force were up 60% and
26% respectively.
The Company’s newly launched Mortgage
Choice Asset Finance offering built up significant
momentum within the network, outperforming
initial expectations.
Local brand presence strengthened across the
country with the Company’s retail presence
growing to 139 shopfronts, and adding more than
80 Mortgage Choice branded vehicles.
Recruitment was strong, with 46 Greenfield
franchises added to the network, marking the
largest number of Greenfields recruited within
one year.
11
Directors’ ReportMortgage Choice Annual Report 2017 Importantly, the Company achieved this solid
business performance during a time of significant
regulatory change within the industry.
Operating Review
Regulatory Change
The 2017 Financial Year was punctuated by plenty
of regulatory change and broker scrutiny.
Australia’s lenders made significant changes to
their investment policy and pricing in response
to increased regulatory change. Meanwhile, in
March, the Australian Securities & Investments
Commission unveiled its review into Broker
Remuneration structures. While the report
made it clear that brokers do an excellent job
of delivering positive consumer outcomes, it
pointed out that there are some ares of the current
remuneration model that could be strengthened.
Despite the heightened level of regulatory change,
the Company continues to go from strength
to strength.
customer base, promoting the different facets of
the offering.
Mortgage Choice Asset Finance has performed
beyond expectations as brokers embrace the
offering. We look forward to an even more
successful result next year as the offering expands
to its full potential.
Financial Planning
The Company’s Financial Planning arm
outperformed expectations achieving $10 million
in gross revenue and delivering a profit of $177,000
for the year. Revenue growth was up 22%, while
Funds Under Advice and Premiums In Force grew
60% and 26% respectively.
As the financial advice business matures and
advisers spend more time working with the
network of brokers, the level of referrals coming
from our core broking business naturally grows.
Throughout FY 2017, the number of referrals coming
from the core broking business rose 13%.
Delivering on FY 2017 Focus Areas
Brand
At the end of FY 2016, Mortgage Choice’s chief
executive officer, John Flavell, established the
Company’s four strategic priorities to achieve
success in the 2017 Financial Year.
These priorities included:
Increase and diversify franchisee revenue;
Brand awareness and engagement;
Market share growth; and
Net profit after tax growth.
Diversification
Throughout FY 2017, the business continued to
diversify its financial services product suite.
Asset Finance
Launched at the beginning of FY 2017, Mortgage
Choice’s Asset Finance offering has helped
hundreds of customers, financing more than
1,600 vehicle, plant and equipment deals across
the country.
In addition, the Company has built out its array
of asset finance marketing tools to help brokers
promote the new service offering to customers
such as MoneyChat explanation videos and a
full set of marketing collateral. This includes
the creation of a quarterly email campaign run
centrally on behalf of the brokers, to the existing
Throughout FY 2017, the Company introduced a
number of strategic programs to increase brand
awareness at a local level.
Retail Shopfronts and Branded Vehicles
Mortgage Choice invested in various programs
to help franchisees move into retail stores,
including finance for fit outs and rental assistance.
Consequently, the Company expanded its retail
footprint significantly and today, we have
139 retail sites across the country. We added over
80 branded vehicles to the streets.
Collaborative Marketing
The Company invested heavily in Collaborative
Marketing throughout FY 2017. The program gives
franchisees the opportunity to increase local
brand awareness along with other franchisees in
their marketing area. Group Office matches the
franchisees’ marketing investment dollar for dollar
to help them fund local area marketing activities
in the field that may have otherwise been out
of their reach individually. 37% of the network
participated in the Collaborative Marketing
program in FY 2017 and we will seek to increase the
level of participation in FY 2018.
The Company also invested in franchisee
self‑service and automation tools, including
local area marketing materials and email
12
Directors’ ReportMortgage Choice Annual Report 2017 marketing campaigns that allowed the network
to personalise and segment relevant messages to
their customer database.
National and Local Leads
Lead flow was strong in FY 2017. The Company
adopted a new media strategy in FY 2016 which
saw national leads increase by 23% compared
to the prior year. As part of the strategy, the
Company invested heavily in strategic online
activities to drive lead flow. This strategy was
maintained throughout FY 2017, resulting in a
further 2% increase in national leads.
Public Relations
A core strategy remains to leverage John Flavell
through the media. In the last 12 months, Share
of Voice and Media Mentions have increased
by 10% and 5% respectively. The Company also
launched its first Whitepaper that investigated
The Evolving Great Australian Dream. New
projects are currently underway to create further
high-profile opportunities.
Distribution Growth
Recruitment
In late FY 2016, the Company created a specialised
growth team to help drive greater quality
recruitment opportunities for the business.
Throughout FY 2017, this team focused on
recruiting people with the experience and business
acumen to operate successful franchises. As at
30 June 2017, the Company’s total number of loan
writers, including limited credit representatives,
reached 654 – up from 618 at the end of FY 2016.
The Company also grew its number of franchises
by 7%. At the end of FY 2017, the Company had
449 broking franchises and 37 financial planning
franchises. This growth in franchise numbers
was largely driven by an increase in Greenfield
appointments, with 46 added to the network. This
is the highest number of Greenfields recruited
within a single year.
Training
Training resources have been increased to
help Greenfields and new franchisees become
productive sooner.
To further enhance
their productivity and
effectiveness, we have
implemented a longer and
broader program focused
not only on lending skills
but those skills necessary to
run a successful business.
The productivity of each new franchisee is
reviewed by their coach on an ongoing basis to
ensure they have the best chance of success.
In addition, the Company introduced a new
growth incentive that enabled administration
staff to upskill and become limited credit
representatives. This incentive program proved
very successful and provided franchises with the
ability to help key staff members take the next
step in their careers.
Financial Review
Our statutory profit increased 13.5% to $22.2 million
with a corresponding increase in cash profits of
10.2% to $22.6 million. Settlements for the year
were $12.3 billion, up 1.2% on FY 2016.
Settlements trend
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750
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Mortgage Choice’s loan book grew in line with
settlements, with the total book increasing 3.2%.
As at 30 June, Mortgage Choice’s total loan book
(including residential and commercial loans) stood
at $53.4 billion – up from $51.7 billion in FY 2016.
13
Directors’ ReportMortgage Choice Annual Report 2017
Loan Book ($’000)
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2010
2011
2012
2013
2014
2015
2016
2017
Financial Year
As in prior years, an actuarial review was
conducted on the residential loan book underlying
the trailing commission book. The review found
the run-off rate of the loan book was negligibly
faster than last year but slower than the
assumptions used in the valuation at 30 June 2016.
This finding required a positive balance sheet
adjustment at year end of $1.6 million to bring
the valuation in line with the actual loan
book position. The underlying revenue before
adjustment, is down 0.9% year on year. Higher
FY 2017 settlements should lead to a higher
revenue number, but the fall in discount unwind
year on year, the higher discount rate in FY 2017,
and the closure of the Help Me Choose business
in FY 2016, have resulted in a lower underlying
revenue figure as compared to FY 2016. The table
below shows the movement in the underlying
statutory results year on year.
Underlying Statutory Results
Operating Revenue
Underlying operating
revenue
Adjustment to
valuation of loan book
receivable
Total operating
revenue
2017
$’000
2016
$’000
195,870
197,677
3,927
(237)
199,797
197,440
Profit before tax
Underlying result
before tax
Adjustment to
valuation to net loan
book receivable
Total profit before tax
2017
$’000
2016
$’000
30,222
29,881
1,644
31,866
(1,535)
28,346
Cash results increased 10.2% to $22.6 million for the
year. This growth in cash results of more than 10%
following the 10.7% increase in cash profits from
FY 2015 to FY 2016 was achieved through a good
mix of growth in revenue and expense control.
Cash revenue rose 3%, cash gross profit rose 3%
and, due to the closure of Help Me Choose in the
comparative year, operating expenses fell 2%.
MC delivers record dividend
The growth in cash profits allowed Mortgage
Choice to increase its dividend to 17.5 cents for the
year, up from 16.5 cents in FY 2016. This is a new
record for the business and highlights the ongoing
strength of the organisation.
Focus for FY 2018
Mortgage Choice has highlighted its four key
business priorities for FY 2018:
Increase and diversify franchisee revenue and
asset growth;
Distribution growth;
Deeper customer relationships;
Growth in Net Profit After Tax.
As highlighted in the Chief Executive Officer’s
overview, we will achieve the aforementioned
priorities through a strategic mix of new and
existing business initiatives.
We will continue to enhance our diversified
offering and provide our network with the
opportunity to have more discussions with their
customers about their full financial needs. In
addition, our current focus on recruitment will
continue. The training programs already in place
will help to ensure all new recruits are more
productive sooner. Finally, we will expand our
current customer communication platform and
deliver two new IT projects.
14
Directors’ ReportMortgage Choice Annual Report 2017 Investment in the above priorities will drive
revenue growth and expenses will be managed to
continue to create positive jaws.
Significant changes in the state of affairs
Except for the matters disclosed in the Review of
Operations section of this annual report, there
have been no significant changes in the state of
affairs of the Group.
Matters subsequent to the end of the
financial year
No matters or circumstances have arisen since
30 June 2017 that have significantly affected, or
may significantly affect:
(a) the Group’s operations in future financial years,
(b) the results of those operations in future
financial years, or
(c) the Group’s state of affairs in future
financial years.
Likely developments and expected results
of operations
Information on likely developments in the
operations of the Group and the expected results
of operations have not been included in this report
because the Directors believe it would be likely to
result in unreasonable prejudice to the Group.
Environmental regulation
The Group is not subject to any significant
environmental regulation under a law of the
Commonwealth or of a State or Territory in respect
of its activities.
Information on Directors
Vicki Allen
BBus, MBA, FAICD
Independent
Non‑Executive Chairman
Chairman of nomination
and remuneration
committees
Director since
19 June 2017
Vicki was appointed
the independent
Non-Executive
Chairman in July 2017. Vicki has over 25 years of
senior executive experience across the financial
services and property sectors. She previously
served as Chief Operating Officer of The Trust
Company Limited and prior to this held various
senior roles at both National Australia Bank and
Lend Lease Corporation. She has held a number of
non-executive director roles in recent years and is
currently a Non-Executive director of Bennelong
Funds Management Limited and the BT Funds
Board. She is a Fellow of the Australian Institute
of Company Directors and a Trustee Fellow of The
Association of Superannuation Funds of Australia.
Age 55.
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 57.
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 57.
15
Directors’ ReportMortgage Choice Annual Report 2017 Investment Commission Digital Finance Advisory
Committee, and a Non-Executive Director of SMSF
Association. She is also a Professorial Fellow of
Monash Business School, Monash University. 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 64.
Peter Ritchie
AO, Hon.DBus, BCom
(resigned 1 July 2017)
Independent
Non‑Executive Chairman
Chairman of nomination
and remuneration
committees
Director 5 April 2004 –
1 July 2017
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 75.
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 62.
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 68.
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 a
member of the
Reserve Bank of Australia’s Payments System
Board, Chair of the Australian Securities and
16
Directors’ ReportMortgage Choice Annual Report 2017 The table below sets out the Directors’ interests at 30 June 2017:
Director
P D Ritchie
V L Allen
S J Clancy
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
Particulars of Directors’ interests in shares
530,125 ordinary shares
0 ordinary shares
75,000 ordinary shares
259,253 ordinary shares
15,380,212 ordinary shares
2,000,000 ordinary shares
145,000 ordinary shares
Company Secretary
The Company Secretary is Mr David M Hoskins BCom, CPA, CSA. Mr Hoskins was appointed to the
position of Company Secretary in 2000. Before joining Mortgage Choice he had experience in a variety of
accounting and company secretarial functions, primarily in the finance and insurance industries.
Meetings of Directors
The numbers of meetings of the Company’s Board of Directors and of each board committee held during
the year ended 30 June 2017, and the numbers of meetings attended by each Director were:
Full meetings of
Directors
Audit
Nomination
Remuneration
Meetings of committees
A
8
0
8
8
8
7
8
B
8
0
8
8
8
8
8
A
*
*
2
2
*
2
2
B
*
*
2
2
*
2
2
A
3
0
3
*
3
*
*
B
3
0
3
*
3
*
*
A
1
0
1
*
1
*
*
B
1
0
1
*
1
*
*
P D Ritchie
V L Allen
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
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 the
Glossary at the end of this report.
The report contains the following sections:
(a) Chairman’s introduction
(b) Directors and executive KMP disclosed in this report
(c) Remuneration governance
(d) Executive remuneration policy and framework
17
Directors’ ReportMortgage Choice Annual Report 2017 (e) Changes to executive remuneration in FY 2018
(f) Executive remuneration for FY 2017
(g) Relationship between remuneration and
Mortgage Choice Limited’s performance
(h) Non-executive Director remuneration
(i) Statutory disclosures
(j) Glossary
a. Chairman’s introduction
Dear shareholders
On behalf of the Board, I am pleased to present the
FY 2017 Remuneration Report to you.
The Remuneration Report explains the link
between the Company’s performance and our
remuneration strategy. We have retained the
overall structure of the report developed in
2016, to continue to present a full picture of the
Company’s remuneration arrangements in a clear
and transparent manner.
At the FY 2016 AGM, Mortgage Choice received a no
vote in excess of 25% on its Remuneration Report –
a first strike. In response to the shareholder vote,
the Remuneration Committee reflected on the
feedback it had received and, in conjunction with
the Board, made a change to the structure of the
long-term incentive (LTI) framework. From FY 2018,
the LTI award will be delivered in the form of
performance rights and participants will no longer
receive dividends or any dividend equivalent
payments in respect of LTI awards prior to vesting.
To offset the impact of removing dividends on
unvested LTI awards, the Board will increase
the fixed remuneration of LTI participants by an
amount equal to the estimated dividends they
would have received had they held performance
shares in respect of FY 2018. Stepped increases
in fixed remuneration will occur in FY 2018
and the two following years to reflect the
progressive transition from performance shares to
performance rights as legacy awards reach the end
of their vesting periods.
We have set out further details explaining this
change on page 21.
The Board will continue to review the Company’s
remuneration structure during FY 2018 and
remains committed to a remuneration approach
linked to company strategy and performance
which balances the long term interests of
shareholders and the need to attract and retain top
performing executives.
Vicki Allen
Chair of the Remuneration Committee
(b) Directors and executive KMP disclosed
in this report
Table A: KMP during FY2017
Name
Position
Non-Executive Directors
Peter D Ritchie1
Non-Executive Chairman
Vicki L Allen2
Non-Executive Director
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
General Manager –
Distribution
Melissa J McCarney General Manager –
Emma A
Dupont-Brown
Tania J Milnes
Marie J Pitton
Vincent C ten
Krooden
Group Marketing
General Manager – Product
General Manager – Financial
Planning
General Manager – Human
Resources
Head of IT
1 Mr Ritchie retired from the Board on 1 July 2017.
2 Ms Allen was appointed as a Director on 19 June 2017
and commenced as Chairman on 1 July 2017.
18
Directors’ ReportMortgage Choice Annual Report 2017 (c)
Remuneration Governance
The diagram below provides an overview of the Company’s remuneration governance framework.
Remuneration Governance Framework
Board
Responsible for overseeing the Company’s remuneration structure, and ensuring it is
appropriate for the Company’s circumstances, performance, and aligned with the long-term
interests of the Company and its shareholders.
OVERSEE AND DELEGATE
RECOMMEND AND INFORM
Remuneration Committee
Holds primary 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
(www.mortgagechoice.com.au/about-us/
shareholder-centre/corporate-governance.
aspx) provides information on the role
and composition of the Remuneration
Committee.
ENGAGE
ADVISE
Remuneration Consultants
Remuneration 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 2017, 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.
19
Directors’ ReportMortgage Choice Annual Report 2017 (d) Executive remuneration policy and framework
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
Remuneration policy
Aims 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.
Fixed
Performance based
Fixed Remuneration
Short term incentive (“STI”)
Long term incentive (“LTI”)
Fixed remuneration
consists of base
cash salary and
superannuation.
Base salary is
reviewed annually
against external
benchmarks to
ensure it remains
within market
parameters.
Superannuation
is paid up to the
maximum super
contribution rate.
Designed to reward short
Designed to reward longer
term performance.
term performance.
STI awards are awarded
based on performance
against a balanced scorecard.
Scorecards are structured as
a combination of fi nancial,
strategic and operational KPIs.
CEO’s STI delivered 50% in
cash and 50% in deferred
performance rights. The
performance rights vest in
2 tranches (50% after 1 year
and 50% after 2 years), subject
to continued employment.
Other executive KMP receive
cash STI.
LTI awards are delivered
as performance shares
with vesting subject to
performance hurdles.
50% of the award is
subject to a relative Total
Shareholder Return (“TSR”)
performance hurdle and
the remaining 50% subject
to cash EPS growth
hurdles.
**In FY 2018, LTI will be delivered
as performance rights.
Total Remuneration = Fixed Remuneration + STI + LTI
20
Directors’ ReportMortgage Choice Annual Report 2017 (e) Changes to executive remuneration in FY 2018
To address issues raised in relation to the 2016 Remuneration Report, a change will be made to the LTI
remuneration structure with effect from FY 2018 related to the payment of dividends on unvested shares:
For LTI grants made in FY 2018 and future years, participants will be granted rights to receive ordinary
shares in the Company (i.e. performance rights).
If the applicable performance conditions are met, the performance rights will vest and the
participants will be allocated shares at the end of the performance period (or at the discretion of the
Board, an equivalent cash payment).
Performance rights issued as LTI awards will not carry dividend rights. This means participants will
not be entitled to receive dividends on unvested performance rights. Under the LTI plan, participants
will also not receive any dividend equivalent payments on vesting of performance rights.
If participants are allocated shares on vesting of their performance rights, they will be entitled to
dividends that accrue in respect of those shares after allocation in line with other shareholders.
All LTI participants will receive an additional amount added to their fixed remuneration for FY 2018 which
is equivalent to the estimated dividends that they would have received had they held performance
shares in respect of their FY 2018 LTI award. The CEO’s fixed remuneration for FY 2018 will increase by
$53,634 to reflect this change. Similar adjustments will also be made in respect of all participants’ salaries
in FY 2019 and FY 2020 to reflect the progressive transition from performance shares to performance
rights as legacy awards reach the end of their vesting periods. The Board believes this adjustment
is necessary to ensure the remuneration framework remains competitive and is appropriate for the
Company’s circumstances, given that the level of executive remuneration previously took the receipt
of dividends on LTI awards into consideration. The Board will continue to review the Company’s
remuneration levels as part of its ongoing monitoring of the remuneration framework.
The resulting FY 2018 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
(f) Executive remuneration for FY 2017
Fixed remuneration
Fixed
Performance Based
Base
remuneration
Maximum
STI
opportunity
Maximum
LTI
opportunity
37%
67%
34%
18%
29%
15%
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.
Short-term incentives
A summary of the Company’s STI arrangements are set out in the table below:
21
Directors’ ReportMortgage Choice Annual Report 2017 Table C: Summary of FY 2017 STI arrangements
What is the
STI plan?
Who can
participate?
What is the
maximum
opportunity
for executives?
What is the
performance
period?
What are the
requirements
for an STI
award to be
made?
How does the
group modifier
work if the
Company does
not achieve its
profit target?
The STI plan is an incentive plan under which participants are eligible to receive an
annual award if they satisfy pre-determined performance criteria. The criteria are
designed as a balanced scorecard to deliver against the Company’s strategic and
financial goals as well as motivate and reward high performance. 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 FY 2017, 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 20%
and 32% of base salary. Target STI may be exceeded if an individual exceeds his or her
own KPIs. There is no predetermined maximum opportunity.
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 annual 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 2017 was set at 1.
The performance period is 1 year and aligns with the financial year. For FY 2017, the
performance period was 1 July 2016 – 30 June 2017.
STI awards will be paid to participants where:
The executive has been continuously employed until the end of the relevant
financial year;
The executive has satisfied his or her individual KPIs to a minimum standard; and
The Company has achieved a minimum profit threshold.
The group modifier will reduce the STI pool if the Company does not achieve its profit
target. 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.
22
Directors’ ReportMortgage Choice Annual Report 2017 What are the
performance
conditions for
the CEO?
The CEO was assessed against three key measures supporting the Group’s strategy
and business objectives: cash results, distribution growth and the successful
implementation of a series of strategic objectives:
KPI
Result
Cash NPAT
Results above Expectation
Cash earnings of $22.6 million were 10.2% ahead of FY 2016.
The result was driven by a solid performance in the broking
division in a challenging mortgage environment, the first
year of profit for Financial Planning, and a reduction in cash
operating expenses of 1.7%.
Distribution growth
Results at Expectation
Greenfield recruitment increased significantly from 11 in
FY 2016 to 46 in FY 2017. Registered credit representatives
numbers rose by 6%. Market share remained steady at 3.7%.
Strategic objectives
Results at Expectation
Several strategic initiatives were successfully implemented,
including the introduction of an alternative payment
model that provides franchisees with a more stable
earnings stream, allowing for further investment in their
business; and a number of initiatives designed to increase
participation in branding across the network.
The CEO established four areas of strategic focus in support of the goals and business
objectives for FY 2017:
Increase and diversify franchisee revenue;
Distribution growth;
Brand awareness and engagement;
NPAT growth through positive jaws.
KPIs included the same profit target as the CEO as well as specific operational targets
closely aligned with the four areas of strategic focus in the form of a balanced
scorecard. Examples of individual KPIs were:
Specific growth targets in the number of franchises and loan writers;
Specific growth targets for settlements and group office generated leads;
Specific targets for an increase in brand presence through an increase in
shopfronts, branded cars and local area marketing activity in conjunction with the
franchisees; and
Franchisee behavioural targets including an increase in the use of customer contact
tools, diversification of revenue and improved compliance and advice results.
What are the
performance
conditions
for other
executive
KMP?
How is
performance
assessed?
The Remuneration Committee 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.
23
Directors’ ReportMortgage Choice Annual Report 2017 How is the
STI pool
calculated?
How is reward
delivered
under the
STI Plan?
Is there
discretion
to adjust
STI awards?
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, standalone calculation.
At the Board’s 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. 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 a
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 FY 2017 is set at one. Although the profit target was exceeded,
the excess was not considered sufficient to invoke the group modifier.
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
FY 2017, this will be on or around 24 August 2017.
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.
24
Directors’ ReportMortgage Choice Annual Report 2017 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?
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 FY 2017, this means that 50% of the performance rights granted to the CEO will
vest in September 2018, and the remaining 50% will vest in September 2019 following
the approval the financial statements for the related period and 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.
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 FY 2017 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 FY 2017, 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.
25
Directors’ ReportMortgage Choice Annual Report 2017 How is reward
delivered
under the
LTI Plan?
What is the
performance
period?
What are
the vesting
requirements
for an LTI
award?
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.
It should be noted that FY 2017 is the last year performance shares will be used for LTI
awards. From FY 2018 onwards, LTI awards will be in the form of performance rights.
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).
26
Directors’ ReportMortgage Choice Annual Report 2017 What are the
performance
conditions?
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 2016, excluding Real
Estate Investment Trusts. The performance period is 1 September 2016 – 31 August 2019.
Vesting (if any) will occur in September 2019.
The specific Comparator Group for the PSP offers made in FY 2017 is detailed 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%
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 2016 –
30 June 2019. Vesting (if any) will occur in September 2019.
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%
27
Directors’ ReportMortgage Choice Annual Report 2017 What rights
are attached
to the
performance
shares?
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.
It should be noted that the LTI grants made in September 2016 for FY 2017 are the last
grants to be in the form of performance shares and therefore the last grants on which
KMP will receive dividends on unvested shares.
What happens
if an executive
ceases
employment?
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.
What
restrictions
apply?
Is there
discretion
to adjust
awards?
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.
(g) 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 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 FY 2012 have been subject to cash EPS growth hurdle. The following
table shows the Company’s cash EPS results in FY 2017 and the previous four financial years:
28
Directors’ ReportMortgage Choice Annual Report 2017 Table E: Cash EPS for FY 2013 – FY 2017
Financial Year
2013
2014
2015
2016
2017
Cash EPS (cents
per share)
12.9
16.2
15.0
16.5
18.1
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.
Tranche 2: TSR Component
LTI grants made under the PSP since FY 2012 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 FY 2017 and the previous four financial years:
Table F: Share price movements, dividends and TSR for FY 2013 – FY 2017
Financial Year
2013
2014
2015
2016
2017
Opening share
price
$
Closing share
price
$
Dividends paid
during year
(cents)
1.29
2.13
2.85
2.30
1.95
2.13
2.84
2.30
1.95
2.15
13.0
14.5
15.5
16.0
17.0
TSR
79%
41%
-14%
-8%
18%
29
Directors’ ReportMortgage Choice Annual Report 2017 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 2017. The diagram shows the superior performance of
Mortgage Choice compared to the ASX 200 index over this period.
Mortgage Choice TSR compared to S&P/ASX 200 Index TSR
Mortgage Choice
S&P/ASX 200
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%
06/2012
06/2013
06/2014
06/2015
06/2016
06/2017
Source: Guerdon Associates
(h) Non-Executive Director remuneration
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:
The level of fees paid to Non-executive Directors of other major Australian companies;
The size and complexity of the Company; and
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
$1,000,000 per annum at the 2016 Annual General Meeting.
30
Directors’ ReportMortgage Choice Annual Report 2017
The following table shows the annual fees payable to the Chairman and Non-executive Directors as at
30 June 2017:
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. There were no changes to level of Directors fees in FY 2017.
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.
(i) Statutory disclosures
The following table sets out the statutory disclosures required under the Corporations Act 2001 (Cth) for
the 2016 and 2017 financial years for Directors and executive KMP and has been prepared in accordance
with the Australian Accounting Standards.
Table H: Statutory remuneration table
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based payments
Cash
salary,
fees and
annual
leave
$
Name
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
Non-Executive Directors
P D Ritchie, Chairman
FY 2017
FY 2016
145,000
135,000
V L Allen (from 19/6/17 to 30/6/17)
FY 2017
S J Clancy
FY 2017
FY 2016
P G Higgins
FY 2017
FY 2016
R G Higgins
FY 2017
FY 2016
3,123
95,000
85,000
95,000
85,000
95,000
85,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,775
12,825
297
9,025
8,075
9,025
8,075
9,025
8,075
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
158,775
147,825
3,420
104,025
93,075
104,025
93,075
104,025
93,075
31
Directors’ ReportMortgage Choice Annual Report 2017 Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based payments
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
Cash
salary,
fees and
annual
leave
$
95,000
85,000
125,000
115,000
–
–
–
–
–
–
–
–
580,322
266,220
4,412
571,465
261,000
5,666
300,609
99,411
303,397
92,588
4,547
5,474
Name
S C Jermyn
FY 2017
FY 2016
D E Ralston1
FY 2017
FY 2016
Executive KMP
J L Flavell, CEO2
FY 2017
FY 2016
S R Mitchell
FY 2017
FY 2016
N C Rose-Innes
FY 2017
FY 2016
298,321
94,080
4,665
292,659
86,400
2,395
M J McCarney
FY 2017
FY 2016
226,419
65,553
4,631
223,197
50,738
5,666
E A Dupont-Brown
9,025
8,075
11,875
10,925
19,616
19,308
19,616
19,308
19,616
19,308
19,616
19,308
19,616
17,682
7,240
7,069
16,313
11,673
2,272
2,048
1,311
–
–
–
–
–
–
–
–
–
–
–
–
–
104,025
93,075
136,875
125,925
2,647
283,913
216,903 1,374,033
1,231
327,793
98,832 1,285,295
–
–
–
–
–
–
–
–
–
–
–
–
68,364
499,787
74,343
502,179
63,149
496,144
67,373
479,808
44,410
362,901
42,602
343,559
19,657
294,588
7,882
270,022
30,752
296,343
31,216
278,797
19,782
240,494
19,726
234,658
197,004
57,000
191,196
53,262
192,633
49,139
186,568
34,686
–
–
–
–
19,616
19,308
4,203
7,019
165,861
31,406
167,928
22,120
2,516
867
17,725
17,527
3,204
6,490
FY 2017
FY 2016
T J Milnes
FY 2017
FY 2016
M J Pitton
FY 2017
FY 2016
32
Directors’ ReportMortgage Choice Annual Report 2017 Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based payments
Cash
salary,
fees and
annual
leave
$
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Deferred
STI and
Other
$
LTI
$
Total
$
170,464
30,600
156,194
24,000
–
–
18,598
16,549
1,989
569
–
–
–
–
221,651
197,312
2,784,756
693,409
20,771
216,066
39,179
283,913
463,017
4,501,111
2,682,604
624,794
20,068
204,348
36,099
327,793
341,974 4,237,680
Name
V C ten Krooden
FY 2017
FY 2016
Total
FY 2017
FY 2016
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 (h) for further details.
2 Share based payments relating to Mr J L Flavell include 2 components:
(a) performance rights granted at commencement 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 (f) (except that the
only vesting condition is continued employment).
(b) Deferred STI of $261,000 in relation to FY 2016 and $266,220 in relation to FY 2017 being 50% of the total STI granted
or 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 (f).
The following table shows the relative proportion of remuneration that each executive received during
FY 2017 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
M J
McCarney
E A Dupont-
Brown
T J Milnes
M J Pitton
V C ten
Krooden
Fixed
remuneration
%
Share-
based
%
49%
66%
68%
69%
74%
72%
79%
86%
–
1%
1%
1%
–
1%
–
–
Commence-
ment shares
rights1
%
16%
–
–
–
–
–
–
–
Total
%
65%
67%
69%
70%
74%
73%
79%
86%
1 Footnote 2(a) in Table H describes the terms of this grant.
Cash STI
%
Share Based
%
19%
20%
19%
18%
19%
17%
13%
14%
16%
13%
12%
12%
7%
10%
8%
–
Total
%
35%
33%
31%
30%
26%
27%
21%
14%
33
Directors’ ReportMortgage Choice Annual Report 2017 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, FY 2017 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 FY2017
Grant date
Vesting date
Value per performance share
at grant date1
%
Vested
100
100
0
100
FY 2014 LTI grants
23 September 2013
14 September 2016
23 September 2013
14 September 2016
23 September 2013
14 September 2016
FY 2015 LTI grants
22 September 2014
14 September 2016
22 September 2014
14 September 2017
22 September 2014
14 September 2017
22 September 2014
14 September 2017
FY 2016 LTI grants
17 September 2015
14 September 2018
17 September 2015
14 September 2018
FY 2017 LTI grants
25 October 2016
14 September 2019
25 October 2016
14 September 2019
$2.77
$2.77
$1.68
$2.72
$2.72
$2.72
$1.68
$2.01
$1.19
$2.28
$1.30
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, FY 2017 are set out in the following table. The table also explains the vesting
outcome of awards that were tested during the year.
Table K: Performance rights on foot or tested during FY 2017
Grant date
Vesting date
Commencement grant
7 April 2015
7 April 2015
15 September 2016
15 September 2017
FY 2016 deferred STI award2
25 August 2016
14 September 2017
25 August 2016
14 September 2018
Value per performance right
at grant date1
$2.60
$2.60
$2.21
$2.21
%
Vested
100
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 Board resolved on the date of this report to grant share rights for the deferred portion of the CEO’s STI for FY 2017 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 2017 with set vesting dates noted above. The accounting grant date for these share rights is 1 July 2016.
34
Directors’ ReportMortgage Choice Annual Report 2017 Details of remuneration paid, vested, lapsed or forfeited during FY 2017
The percentage of the available grant that was paid, vested or forfeited in FY 2017 is set out below.
Table L: Remuneration forfeited and vested during FY2017 and outstanding at 30 June 2017
STI
LTI (Performance shares)
Potential
FY 2017
bonus paid
%
Potential
FY 2017
Bonus
Forfeited
%
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 vest
$
Name
J L Flavell
S R Mitchell
N C Rose–
Innes
100
100
98
M J McCarney
95
E A Dupont-
Brown
T J Milnes
95
100
–
–
2
5
5
–
M J Pitton
95
5
2017
2016
2017
2016
2015
2015
2014
2017
2016
2015
2015
2014
2017
2016
2015
2015
2014
2017
2016
2017
2016
2015
2015
2014
2017
2016
2015
2015
2014
–
–
–
–
–
100
55
–
–
–
100
55
–
–
–
100
55
–
–
–
–
–
100
55
–
–
–
100
55
– 30/6/2020
– 30/6/2019
– 30/6/2020
– 30/6/2019
– 30/6/2018
–
45
–
–
– 30/6/2020
– 30/6/2019
– 30/6/2018
–
45
–
–
– 30/6/2020
– 30/6/2019
– 30/6/2018
–
45
–
–
– 30/6/2020
– 30/6/2019
– 30/6/2020
– 30/6/2019
– 30/6/2018
–
45
–
–
– 30/6/2020
– 30/6/2019
– 30/6/2018
–
45
–
–
Nil
Nil
Nil
Nil
Nil
–
–
Nil
Nil
Nil
–
–
Nil
Nil
Nil
–
–
Nil
Nil
Nil
Nil
Nil
–
–
Nil
Nil
Nil
–
–
388,025
376,739
76,408
74,189
59,291
–
–
73,787
67,412
53,879
–
–
56,575
45,773
36,584
–
–
40,994
30,038
40,289
31,293
25,006
–
–
27,104
19,738
15,776
–
–
35
Directors’ ReportMortgage Choice Annual Report 2017 STI
LTI (Performance shares)
Potential
FY 2017
bonus paid
%
Potential
FY 2017
Bonus
Forfeited
%
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 vest
$
90
10
–
–
–
–
–
Name
V C ten
Krooden
1 The maximum value is based on the fair value at grant date using a Monte Carlo simulation model utilising a lattice-
based trinomial valuation method.
Table L: Remuneration forfeited and vested during FY 2017 and outstanding at 30 June 2017 (continued)
Name
J L Flavell (Commencement)
J L Flavell (2016 Deferred STI)
Performance Rights
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
2017
2017
–
100
–
–
– 30/6/2018
Nil
146,834
–
–
– 30/6/2018
– 30/6/2019
–
Nil
Nil
–
130,500
130,500
1 The maximum value is based on the share price at grant.
Legacy performance awards
Full details of prior year equity awards are set out in the Remuneration Report for the year in which the
award was granted.
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 and employment contracts. 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.
36
Directors’ ReportMortgage Choice Annual Report 2017 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 FY 2017
Name
Executive KMP
J L Flavell
S R Mitchell
N C Rose–Innes
M J McCarney
Balance at
the start of
the year
Granted as
compen-
sation
Value
granted
Value at
vesting date
$
Vested
$
Forfeited
Balance at
the end of
the year
235,462
216,774
388,025
–
–
–
452,236
106,104
42,686
76,408
(19,559)
41,074
(13,850)
115,381
96,416
65,457
41,222
73,787
(17,773)
37,323
(12,585)
107,280
31,606
56,575
(12,064)
25,334
(8,540)
76,459
E A Dupont–Brown
18,774
22,902
40,994
–
–
–
T J Milnes
M J Pitton
44,759
22,508
40,289
(8,252)
17,329
(5,845)
28,221
15,142
27,104
(5,200)
10,920
(3,680)
34,483
41,676
53,170
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 FY 2017
Name
Executive KMP
J L Flavell
(Commencement)
J L Flavell
(Deferred STI)
Balance at
the start of
the year
Granted as
compen-
sation
Value
granted
Value at
vesting date
$
Vested
$
Forfeited
Balance at
the end of
the year
113,119
–
–
(56,559)
135,112
–
119,544
264,192
–
–
–
–
56,560
119,544
37
Directors’ ReportMortgage Choice Annual Report 2017 (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 FY 2017
Name
Non-executive Directors
P D Ritchie
V L Allen
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
M J McCarney
E A Dupont–Brown
T J Milnes
M J Pitton
V C ten Krooden
Received
during the
year on the
vesting of
performance
rights1
Received
during the
year on the
vesting of
performance
shares
Balance at the
start of the
year
Purchases/
sales during
the year
Balance at
the end of the
year
530,125
–
75,000
359,253
15,380,212
2,000,000
145,000
29,970
90,016
104,458
5,424
–
109,713
27,010
–
–
–
–
–
–
–
–
64,339
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,559
17,773
12,064
–
8,252
5,200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9,400)
–
530,125
–
75,000
359,253
15,380,212
2,000,000
145,000
94,309
109,575
122,231
17,488
–
117,965
22,810
–
1 Shares issued on vesting of 56,559 performance rights. Additional shares represent the value of dividends over the
vesting period.
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 2016
Issue price of shares
Number of shares
issued
$2.10
64,339
38
Directors’ ReportMortgage Choice Annual Report 2017 (j) Glossary
The following table defines terms used throughout this Remuneration Report:
Table Q: Glossary of terms used
Term
Definition
Comparator group
KMP
KPI
LTI
Performance right
Performance share
PSP
STI
VWAP
nib holdings Australia Ltd, Steadfast Group Ltd, Genworth Mortgage
Insurance Australia Ltd, Eclipx Group Ltd, FlexiGroup Australia Ltd,
FlexiGroup Australia Ltd, Credit Corp Group Ltd, ClearView Wealth Australia
Ltd, AUB Group Ltd, OFX Group Ltd, Blue Sky Alternative Investments Ltd,
Scottish Pacific Group Ltd, Pepper Group Ltd Cover-More Group Ltd, PSC
Insurance Group Ltd, Emerchants Ltd, HFA Holdings Ltd, MyState Ltd, EQT
Holdings Ltd, Ding Sheng Xin Finance Co Ltd, IMF Bentham Ltd, Pinnacle
Investment Management Group Ltd, 8I Holdings Ltd, Australian Finance
Group Ltd, HUB24 Ltd, Money3 Corp Ltd, Auswide Bank Ltd, Bell Financial
Group Ltd, zipMoney Ltd, Beston Global Food Co Ltd, Kina Securities Ltd,
APN Property Group Ltd, Euroz Ltd, FSA Group Ltd, Onevue Holdings Ltd,
Pacific Current Group Ltd, Hunter Hall International Ltd, Pioneer Credit
Ltd, K2 Asset Management Holdings Ltd, Centuria Capital Ltd, Centrepoint
Alliance Ltd, Yellow Brick Road Holdings Ltd, Diversa Ltd
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 18.
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.
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.
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 2017 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.
39
Directors’ ReportMortgage Choice Annual Report 2017 The Company has entered into deeds of access, insurance and indemnity with the Directors, the Chief
Executive Officer, the Chief Financial Officer and Company Secretary. The indemnity is subject to the
restrictions prescribed in the Corporations Act. 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 20.
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 20, 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 41.
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.
Vicki Allen
Chairman
Sydney
23 August 2017
40
Directors’ ReportMortgage Choice Annual Report 2017 Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
The Board of Directors
Mortgage Choice Limited
Level 10,100 Pacific Highway
North Sydney NSW 2060
23 August 2017
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 2017, 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
Heather Baister
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
4141
Auditor’s Independence DeclarationMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
Consolidated Income Statement
for the year ended 30 June 2017
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
2017
$’000
2016
$’000
Notes
5
75,082
83,601
18,890
6,573
(53)
53
10,225
1,126
474
3,826
72,306
84,652
20,056
6,711
631
104
8,396
1,231
419
2,934
199,797
197,440
(54,611)
(52,171)
(11,612)
(4,881)
–
(8,153)
68,369
(13,301)
(4,994)
(9,347)
(8,861)
31,866
(9,689)
22,177
22,177
Cents
(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
17.8
17.7
15.7
15.7
6
7
27
27
4242
Financial StatementsThe above consolidated income statement should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2017
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners of
Mortgage Choice Limited
2017
$’000
2016
$’000
22,177
19,538
–
–
22,177
19,538
43
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2017 Consolidated Balance Sheet
as at 30 June 2017
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Receivables
Property, plant and equipment
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
2017
$’000
2016
$’000
8
8
9
11
12
13
14
15
13
16
17(a)
17(b)
8,646
101,089
109,735
8,068
102,140
110,208
251,234
245,717
658
6,081
450
6,475
257,973
252,642
367,708
362,850
68,605
69,940
1,448
965
71,018
153,812
37,899
791
1,159
1,084
72,183
150,015
37,661
664
192,502
188,340
263,520
260,523
104,188
102,327
7,277
2,075
94,836
104,188
6,804
1,664
93,859
102,327
44
The above consolidated balance sheet should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2017
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
Balance at 30 June 2015
5,780
1,909
94,223
101,912
Contributed
equity
$’000
Reserves
$’000
Retained
earnings
$’000
Notes
Total
$’000
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
Total comprehensive income
for the year as reported in the
2017 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 2017
16
18
28
16
18
28
–
–
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
–
–
22,177
22,177
473
–
–
473
7,277
(473)
–
884
411
–
–
(21,200)
(21,200)
–
884
(21,200)
(20,316)
2,075
94,836
104,188
45
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2017 Consolidated Statement of Cash Flows
for the year ended 30 June 2017
Cash flows from operating activities
Notes
2017
$’000
2016
$’000
Receipts from customers (inclusive of goods and services tax)
214,259
206,602
Payments to suppliers and employees (inclusive of goods and
services tax)
Income taxes paid
(182,399)
(178,298)
31,860
28,304
(9,162)
(7,584)
Net cash inflow from operating activities
26
22,698
20,720
Cash flows from investing activities
Payments for property, plant, equipment and intangibles
(1,395)
(1,040)
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
1
474
(920)
44
419
(577)
(21,200)
(19,902)
(21,200)
(19,902)
578
8,068
8,646
241
7,827
8,068
46
The above consolidated statement cash flows should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2017
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
The Group has adopted all of the new and revised
Standards and Interpretations issued by the
Australian Accounting Standards Board (the AASB)
that are relevant to their operations and effective
for an accounting period that begins on or after
1 July 2016.
New and revised Standards and amendments
thereof and Interpretations effective for the current
year that are relevant to the Group include:
AASB 1057 Application of Australian Accounting
Standards and AASB 2015-9 Amendments to
Australian Accounting Standards – Scope and
Application Paragraphs
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 AASB 101
The application of these Standards and
amendments 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.
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
4747
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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) 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.
4848
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 (vi)
Interest income
Interest income is recognised using the effective
interest method. When a receivable is impaired,
the Group reduces the carrying amount to its
recoverable amount, being the estimated future
cash flow discounted at the original effective
interest rate of the instrument, and continues
unwinding the discount as interest income.
(vii) Other income
Other income includes contributions from lenders
towards conferences and workshops which are
recognised as income in the period the conference
or workshop is held. Also included in this category
are other non-operating revenues recognised in
the period to which the income relates.
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 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 (e.g 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.
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.
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
4949
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 1: Summary of significant
accounting policies (continued)
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.
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.
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
H. 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.
I. Trade receivables
Trade receivables are recognised initially at fair
value and subsequently measured at amortised
cost using the effective interest method, less
provision for impairment. Trade receivables are
generally due in 30 days.
Collectability of receivables is reviewed on an
ongoing basis. Debts which are known to be
uncollectible are written off. A provision for
impairment of trade receivables is established
when there is objective evidence that the Group
will not be able to collect all amounts due
according to the original terms of receivables. The
amount of the provision is the difference between
the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the
original effective interest rate. Cash flows relating
to short term receivables are not discounted if the
effect of discounting is immaterial. The amount
of the provision is recognised in the income
statement in other expenses.
5050
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 J. Trailing commissions receivable
Computer equipment
3-4 years
Receivables related to trailing commissions
are recognised in accordance with the revenue
recognition policy outlined in Note 1(D).
K.
Investments and other financial assets
The Group classifies its investments in the
following categories: financial assets at fair value
through profit or loss, loans and receivables, held
to maturity investments, and available for sale
financial assets. The classification depends on the
purpose for which the investments were acquired.
Management determines the classification
of its investments at initial recognition and,
in the case of assets classified as held to
maturity, re-evaluates this designation at each
reporting date.
Loans and receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments
that are not quoted in an active market. They are
included in current assets, except for those with
maturities greater than 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 8).
L. Property, plant and equipment
All property, plant and equipment is stated at
historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to
the acquisition of the items.
Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that
future economic benefits associated with the item
will flow to the Group and the cost of the item
can be measured reliably. The carrying amount of
the replaced part is derecognised. All other repairs
and maintenance are charged to the income
statement during the financial period in which
they are incurred.
Depreciation on other assets is calculated using
the straight line method to allocate their cost or
revalued amounts, net of their residual values,
over their estimated useful lives or, in the case of
leasehold improvements, the shorter lease term
as follows:
Office equipment
5-10 years
Furniture and fittings
5-15 years
The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at each
balance sheet date.
An asset’s carrying amount is written down
immediately to its recoverable amount if the
asset’s carrying amount is greater than its
estimated recoverable amount (Note 1(G)).
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in the income statement.
M.
Intangible assets
Software
Acquired computer software licences are
capitalised on the basis of the costs incurred to
acquire and bring to use the specific software.
These costs are amortised over their estimated
useful lives (three to 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.
N. Trade and other payables
These amounts represent liabilities for goods
and services provided to the consolidated entity
prior to the end of the financial year and which
are unpaid. The amounts are unsecured and are
usually paid within 30 days of recognition.
O. Trailing commissions payable
Payables related to trailing commissions are
recognised in accordance with the revenue
recognition policy outlined in Note 1(D).
P. Borrowing costs
Borrowing costs are recognised as expenses using
the effective interest method.
Q. Provisions
Provisions for legal claims and make good
obligations are recognised when the Group
5151
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 1: Summary of significant
accounting policies (continued)
has a present legal or constructive obligation
as a result of past events, it is probable that an
outflow of resources will be required to settle
the obligation and the amount has been reliably
estimated. Provisions are not recognised for future
operating losses.
Provisions are measured at the present value of
management’s best estimate of the expenditure
required to settle the present obligation at the
balance sheet date. The discount rate used to
determine the present value reflects current
market assessments of the time value of money
and the risks specific to the liability. The increase
in the provision due to the passage of time is
recognised as interest expense.
R. 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 28.
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).
5252
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 U. Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined by
dividing net profit after income tax attributable
to members of the Company, excluding any costs
of servicing equity other than ordinary shares, by
the weighted average number of ordinary shares
outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during
the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used
in the determination of basic earnings per share
to take into account the after income tax effect
of interest and other financing costs associated
with dilutive potential ordinary shares and the
weighted average number of shares assumed to
have been issued for no consideration in relation
to dilutive potential ordinary shares.
V. 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.
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.
S. Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue
of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
Incremental costs directly attributable to the
issue of new shares or option for the acquisition
of a business are not included in the cost of the
acquisition as part of the purchase consideration.
Where any group company purchases the
Company’s equity instruments, for example as
the result of a share buy-back or a share-based
payment plan, the consideration paid, including
any directly attributable incremental costs (net of
income taxes) is deducted from equity attributable
to the owners of Mortgage Choice Limited as
treasury shares until the shares are cancelled
or reissued. Where such ordinary shares are
subsequently reissued, any consideration received,
net of any directly attributable incremental
transaction costs and the related income tax
effects, is included in equity attributable to the
owners of Mortgage Choice Limited.
T. 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.
5353
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 1: Summary of significant accounting policies (continued)
W. 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
AASB 9 ‘Financial Instruments’, and the relevant
amending standards
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’, and AASB 2016-3
‘Amendments to Australian Accounting Standards –
Clarifications to AASB 15’
AASB 16 ‘Leases’
AASB 2016-2 ‘Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments
to AASB 107’
AASB 2016-5 ‘Amendments to Australian Accounting
Standards – Classification and Measurement of
Share-based Payment Transactions’
AASB 2017-2 ‘Amendments to AustralianAccounting
Standards – Further Annual Improvements
2014-2016 Cycle’
Effective for annual
reporting periods beginning
on or after
Expected to be initially
applied in the financial year
ending
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2019
30 June 2020
1 January 2017
30 June 2018
1 January 2018
30 June 2019
1 January 2017
30 June 2018
From the above table, the potential effect of the revised Standards/Interpretations on the Group’s
financial statements is discussed for the most impactful Standards below:
AASB 9 Financial Instruments
AASB 9 and the relevant amending standards introduced new requirements for the classification and
measurement of financial assets and impairment of financial assets.
Key requirements considered most relevant to Group are:
All recognised financial assets that are within the scope of AASB 9 are required to be subsequently
measured at amortised cost or fair value. Generally, debt investments that are held under a business
model to collect the contractual cash flows, which consist solely of payments of principal and interest
are measured at amortised cost at the end of subsequent accounting periods. Most, other debt and
equity investments are measured at their fair value at the end of subsequent accounting periods; and
A new model in relation to the credit impairment of financial assets, being an expected credit
loss model, as opposed to an incurred credit loss model under AASB 139. Due to the nature of the
mortgage broking industry, the Group is not exposed to the credit risk of the underlying loan books
on which it derives its commissions.
Based off the Group’s preliminary assessment, it is not expected to have a material impact on the
financial statements on implementation.
5454
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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.
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a single comprehensive model
for entities to use in accounting for revenue arising
from contracts with customers and will supersede
the current revenue recognition guidance including
AASB 118 Revenue and the related Interpretations
when it becomes effective.
Under AASB 15, an entity recognises revenue when
that service (performance obligation) is satisfied.
The Group recognises revenue from the following
major sources:
Origination commissions arising from
mortgage broking activities;
Trailing commissions arising from mortgage
broking activities; and
Financial Planning income
The impact of AASB 15 on the financial statements
for the recognition of revenue from these major
sources of revenue is not expected to be material.
However, based off the Group’s preliminary
assessment, it is expected that the associated
future trail receivable would be accounted for as a
contract asset. It is anticipated that this would not
have a material impact on the financial statements
on implementation.
X. Parent entity financial information
The financial information for the parent entity,
Mortgage Choice Limited, disclosed in Note 29
has been prepared on the same basis as the
consolidated financial statements, except as set
out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for
at cost in the financial statements of Mortgage
Choice Limited. Dividends received from
subsidiaries are recognised in the parent entity’s
profit or loss when its right to receive the dividend
is established.
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
5555
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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
Financial Liabilities
Current
Trade and other payables
Non-current
Trade and other payables
2017
$’000
2016
$’000
8,646
8,068
100,620
99,468
251,234
360,500
245,717
353,253
2017
$’000
2016
$’000
68,605
69,940
153,812
222,417
150,015
219,955
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 2017 the weighted
average interest rate on its cash balances was 1.5% (2016 1.75%). If interest rates were to increase by
100 basis points, the Group’s after tax result would increase by $83,000 (2016 $84,000). A decrease of
100 basis points would reduce the Group’s after tax result by $83,000 (2016 $84,000).
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)
5656
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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.
2017
ADIs
Non 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
AA-
A+
A
A-
BBB+
BBB-
Not rated
8,646
9,708
234,128
–
–
–
–
–
–
–
1,154
1,375
943
110
1,204
–
240
16,767
15,677
25,943
2,599
27,613
–
5,502
8,646
14,734
328,229
–
–
–
–
–
–
–
–
51
358
–
–
–
137
5,674
6,220
–
–
–
–
–
2,324
4,301
6,625
Total Receivable
8,646
20,954
334,854
5757
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
Note 2: Financial risk management (continued)
2016
ADIs
Non 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
AA-
A+
A
A-
BBB+
BBB-
Not rated
8,068
10,184
234,964
–
–
–
–
–
–
–
1,069
203
1,553
1,339
34
–
207
20,346
4,945
28,275
24,950
759
–
5,377
8,068
14,589
319,616
–
–
–
–
–
–
–
–
138
135
298
19
1
51
4,045
4,687
19,276
–
–
3,254
–
–
1,347
5,346
9,947
329,563
Total Receivable
8,068
(c) Liquidity risk and fair value estimation
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and
matching maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in
instruments that are tradable in highly liquid markets.
5858
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
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.
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
At 30 June 2017
Non-derivatives
Interest bearing
Cash and cash equivalents
8,644
Franchisee receivables
680
Non‑interest bearing
Cash and cash equivalents
2
Trade receivables
Franchisee and other
receivables
Future trailing
commissions receivable
11,907
406
–
813
–
–
34
–
–
1,568
2,042
–
–
58
–
–
7
–
134
–
–
8,644
5,237
8,644
4,588
2
2
11,907
11,907
505
505
47,294
42,820
73,331
139,026
100,429
402,900
334,854
68,933
43,677
74,957
141,075
100,563
429,195
360,500
The fair value of the future trailing commissions receivable is $349,564,000. 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 4.21%. There has been no change to the valuation technique
during the year.
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
At 30 June 2016
Non-derivatives
Interest bearing
Cash and cash equivalents
8,066
Franchisee receivables
376
Non‑interest bearing
Cash and cash equivalents
2
Trade receivables
11,496
Franchisee and other
receivables
Future trailing
commissions receivable
638
–
560
–
–
87
–
947
–
–
55
–
2,199
–
263
8,066
8,066
4,345
3,331
–
–
10
–
–
5
2
2
11,496
11,496
795
795
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.
5959
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 2: Financial risk management (continued)
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 2017
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
Future trailing
commissions payable
11,286
3,545
–
–
–
–
–
–
–
–
11,286
11,286
3,545
3,545
29,258
26,537
45,540
86,286
62,313
249,934
207,587
44,089
26,537
45,540
86,286
62,313
264,765
222,418
The fair value of the future trailing commissions payable is $216,831,000. The fair value of all other
liabilities is the same as their carrying amount.
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
Future trailing
commissions payable
12,190
4,751
–
69
–
3
–
–
–
–
12,190
12,190
4,823
4,823
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.
(d) Prepayment risk
Prepayment risk has been assessed through the sensitivity analysis of run-off rates, refer to Note 3.
6060
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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 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
2017
2016
3.7 years
3.8 years
5.7%
62%
6.2%
62%
If the series of run-off rates used in the valuation of trailing commissions receivable and payable were to
differ by +/- 10% from Management’s estimates, the impact on the balance sheet would be:
a decrease in net assets of $7.9 million (made up of decreases in current assets of $1.5 million,
non-current assets of $28.2 million, current liabilities of $0.9 million, non-current liabilities of
$17.5 million and deferred tax liabilities of $3.4 million) if run-off rates increase by 10%; or
an increase in net assets of $8.8 million (made up of increases in current assets of $1.2 million,
non-current assets of $32.1 million, current liabilities of $0.8 million, non-current liabilities of
$19.9 million and deferred tax liabilities of $3.8 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.
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 $1.2 million positive adjustment after tax to the Group’s profit
and loss for FY 2017 (2016 – $1.1 million negative adjustment), refer Note 4 (c) (ii).
6161
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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), Mortgage Choice Financial Planning (MCFP) and Help Me Choose
health fund and mortgage comparison website (HMC). MCFP includes revenue from wealth products,
including investment advice as well as all risk insurance products written across the Group. Operating
expenses presented in MCFP and HMC represent the expenses solely attributable to those business
segments. The Group operates only in Australia.
(b)
Information provided to the Chief Executive Officer
Information provided to the Chief Executive Officer for the year ended 30 June 2017 is as follows:
Product Segments
2017
Revenue
Gross Profit (IFRS)
Gross profit (cash)
OPEX (excl SBR*)
Depreciation and amortisation
Income tax expense (IFRS)
NPAT (IFRS)
NPAT (cash)
* Share based remuneration
2016
Revenue
Gross Profit (IFRS)
Gross profit (cash)
OPEX (excl SBR*)
Depreciation and amortisation
Income tax expense (IFRS)
NPAT (IFRS)
NPAT (cash)
* Share based remuneration
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
199,797
68,369
67,756
189,452
10,345
66,177
64,753
2,192
2,192
(35.619)
(33,665)
(1,954)
(1,581)
(9,689)
22,177
22,634
(1,513)
(9,629)
22,036
21,889
(68)
(60)
141
177
–
–
811
–
–
–
–
568
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
197,440
65,477
65,800
188,254
63,295
62,700
8,450
1,745
1,745
(36,352)
(32,219)
(2,189)
(1,541)
(8,808)
19,538
20,545
(1,426)
(9,397)
20,913
21,264
(67)
144
(336)
(300)
736
437
1,355
(1,944)
(48)
445
(1,039)
(419)
6262
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Cash versus IFRS
2017
2016
% change
2017
2016
% change
Cash*
IFRS
$’000
$’000
$’000
$’000
Origination commission income
75,082
72,306
Trailing commission income**
96,389
95,082
171,471
167,388
Origination commission paid
54,611
52,944
Trailing commission paid**
59,103
57,852
Net core commissions
Diversified products net revenue
Financial Planning net revenue
HMC net revenue
Other income
Gross Profit
113,714
110,796
57,757
56,592
1,692
2,072
811
1,581
1,691
1,354
5,426
4,584
67,758
65,802
4%
1%
2%
3%
2%
3%
2%
7%
23%
(40%)
18%
3%
75,082
72,306
102,491
104,708
177,573
177,014
54,611
52,944
63,783
66,886
118,394
119,830
59,179
57,184
1,692
2,072
–
1,581
1,691
437
5,426
4,584
68,369
65,477
Operating Expenses
35,619
36,352
(2%)
35,619
36,352
Share-based remuneration
–
–
884
779
Net Profit Before Tax
Net Profit After Tax
32,139
29,450
22,634
20,545
9%
10%
31,866
28,346
22,177
19,538
4%
(2%)
0%
3%
(5%)
(1%)
3%
7%
23%
(100%)
18%
4%
(2%)
13%
12%
14%
* 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.
6363
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 4: Segment information (continued)
The following provides additional detail to assist in reconciliation of the above table to the consolidated
income statement:
Diversified products commissions
Diversified products direct costs
Diversified products net income
Financial Planning revenue
Financial Planning direct costs
Financial Planning net revenue
Help Me Choose commissions*
Help Me Choose direct costs
Help Me Choose net revenue
Franchise income
Interest
Other Income
Other income
2017
2016
% change
2017
2016
% change
Cash
IFRS
$’000
$’000
$’000
$’000
6,573
4,881
1,692
10,225
8,153
2,072
811
–
811
1,126
474
3,826
5,426
6,711
5,130
1,581
8,396
6,705
1,691
1,652
298
1,354
1,231
419
2,934
4,584
(2%)
(5%)
7%
22%
22%
23%
(51%)
(100%)
(40%)
(9%)
13%
30%
18%
6,573
4,881
1,692
10,225
8,153
2,072
–
–
–
1,126
474
3,826
5,426
6,711
5,130
1,581
8,396
6,705
1,691
735
298
437
1,231
419
2,934
4,584
(2%)
(5%)
7%
22%
22%
23%
(100%)
(100%)
(100%)
(9%)
13%
30%
18%
* 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.
6464
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 (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
Gain/(loss) on prepayment/(establishment) 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
2017
$’000
2016
$’000
22,634
20,336
20,545
21,723
(20,536)
(20,317)
1,151
(1,074)
(75)
119
–
(568)
(884)
–
82
115
(757)
(779)
22,177
19,538
* 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
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Cash
67,758
65,802
57,757
56,592
NPV future trails on new loans originated,
net of payout
Less net cash from trail previously recognised
under IFRS
29,051
31,033
29,051
31,033
(29,335)
(29,023)
(29,335)
(29,023)
Less adjustments to loan book assumptions
1,644
(1,535)
1,644
(1,535)
Gain/(loss) on prepayment/(establishment) of
trail liability
Plus reversal of amortisation of trail liability*
NPV future trails on Help Me Choose
policies written
(108)
170
–
–
117
165
Less net cash from trail previously recognised
under IFRS
(811)
(1,082)
(108)
170
–
–
–
117
–
–
IFRS
68,369
65,477
59,179
57,184
* Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
6565
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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
Sponsorship and educational support
Other
Note 7: 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 10)
Increase/(decrease) in deferred tax liabilities (note 15)
6666
2017
$’000
2016
$’000
176,554
173,927
474
18,943
3,826
419
20,160
2,934
199,797
197,440
2017
$’000
2016
$’000
2,748
1,078
3,826
2,296
638
2,934
2017
$’000
2016
$’000
9,472
8,641
238
(21)
185
(18)
9,689
8,808
9,689
9,689
8,808
8,808
(1,344)
(2,372)
1,582
238
2,557
185
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 (b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Income tax calculated @ 30% (2016 – 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
2017
$’000
2016
$’000
31,866
9,560
28,346
8,504
231
(81)
9,710
(21)
385
(63)
8,826
(18)
9,689
8,808
No part of the deferred tax asset shown above and in note 10 is attributable to tax losses.
Note 8: Trade and other receivables
2017
Non-
current
$’000
Current
$’000
Total
$’000
Current
$’000
2016
Non-
current
$’000
Total
$’000
Trade receivables(1)
11,907
–
11,907
11,496
–
11,496
Net present value of future trailing
commissions receivable
86,955
247,898
334,853
86,372
243,191
329,563
Franchisee receivables
1,505
3,332
4,837
Other receivables
Prepayments
252
470
4
–
256
470
1,130
470
2,672
2,510
3,640
16
–
486
2,672
101,089
251,234
352,323
102,140
245,717
347,857
(1) Subject to a limited charge in favour of The Loan Book Security Trust (refer to note 12)
(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 2017 current trade receivables were not impaired (2016 – 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.
6767
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 9: Non-current assets – Property, plant
and equipment
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
Year ended 30 June 2017
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation
Net book amount
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
Total
$’000
632
86
(147)
(231)
340
2,205
(1,865)
340
340
272
–
(193)
419
1,901
(1,482)
419
194
46
(135)
5
110
1,056
(946)
110
110
185
–
(56)
239
1,241
(1,002)
239
826
132
(282)
(226)
450
3,261
(2,811)
450
450
457
–
(249)
658
3,142
(2,484)
658
6868
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 10: Non-current assets – Deferred tax assets
The balance comprises temporary differences attributable to:
Net present value of future trailing commissions payable
62,276
60,883
2017
$’000
2016
$’000
Employee benefits
Depreciation and amortisation
Accrued expenses
Total deferred tax assets
843
142
684
898
203
617
63,945
62,601
Set off of deferred tax assets pursuant to set off provisions (note 15)
(63,945)
(62,601)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
–
17,578
46,367
63,945
–
17,303
45,298
62,601
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 2015
58,137
991
331
770
Charged/(credited)
to the income
statement
At 30 June 2016
Charged/(credited)
to the income
statement
At 30 June 2017
2,746
60,883
1,393
62,276
(93)
898
(55)
843
(128)
203
(61)
142
(153)
617
67
684
–
–
–
–
–
60,229
2,372
62,601
1,344
63,945
6969
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 11: Non-current assets – Intangible assets
Year ended 30 June 2016
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2017
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation
Net book amount
Computer
Software
$’000
7,148
908
(1,315)
(266)
6,475
15,321
(8,846)
6,475
6,475
937
(1,331)
–
6,081
16,090
(10,009)
6,081
Note 12: 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
2017
$’000
2016
$’000
11,286
53,775
91
3,453
12,190
52,930
173
4,647
68,605
69,940
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
7070
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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 2017, 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
$4,962,579 (2016 – $4,380,592). This is included as part of the balance of trade payables at 30 June 2017 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 13: Provisions
Make good provision(a)
Employee entitlements – annual leave
Employee entitlements –
long service leave
2017
Non-
current
$’000
448
–
343
791
Current
$’000
40
647
278
965
Total
$’000
Current
$’000
488
647
621
1,756
40
691
353
1,084
2016
Non-
current
$’000
358
–
306
664
Total
$’000
398
691
659
1,748
(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.
7171
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 14: Non-current liabilities – Trade and
other payables
Net present value of future trailing commissions payable
Licence fees repayable
2017
$’000
2016
$’000
153,812
150,012
–
3
153,812
150,015
Note 15: Non-current liabilities – Deferred tax liabilities
The balance comprises temporary differences attributable to:
NPV of future trailing commissions receivable
Intangibles
Prepayments and other receivables
2017
$’000
2016
$’000
100,456
98,869
1,346
42
1,355
38
101,844
100,262
Set-off of deferred tax assets pursuant to set off provisions (note 10)
(63,945)
(62,601)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
37,899
26,396
75,448
37,661
26,225
74,037
101,844
100,262
Movements – Consolidated
At 30 June 2015
Charged to the income statement
At 30 June 2016
Charged to the income statement
At 30 June 2017
NPV of future
trailing
commissions
payable
$’000
Intangibles
$’000
Prepayments
and other
receivables
$’000
96,257
2,612
98,869
1,587
100,456
1,403
(48)
1,355
(9)
1,346
45
(7)
38
4
42
Total
$’000
97,705
2,557
100,262
1,582
101,844
7272
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 16: Contributed equity
2017
shares
$’000
2016
shares
$’000
2017
$’000
2016
$’000
(a) Share capital
Ordinary shares – fully paid
123,756
123,572
7,277
6,804
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 2017:
Details
Total ordinary shares on issue
Treasury shares (a)
Total ordinary shares held as contributed equity
(a) Treasury shares
Number of
shares
124,958,734
(1,202,873)
123,755,861
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 28 for further information).
Date
Details
30 June 2015
Balance
3 July 2015
14 July 2015
14 July 2015
Treasury shares issued under the Performance Share Plan
to employees
Shares issued to the Mortgage Choice Employee Incentive Trust
Treasury shares issued under the Share Rights Plan to employees
14 September 2015
Treasury shares issued under the Performance Share Plan
to employees
15 September 2015
Shares issued to the Mortgage Choice Employee Incentive Trust
15 September 2015
Treasury shares issued under the Share Rights Plan to employees
19 November 2015
Shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2016
Balance
14 September 2016
Treasury shares issued under the Performance Share Plan
to employees
15 September 2016
Treasury shares issued under the Share Rights Plan to employees
1 December 2016
Shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2017
Balance
Number of
shares
1,183,391
(33,668)
99,100
(99,100)
(346,936)
58,966
(58,966)
84,549
887,336
(119,995)
(64,339)
499,871
1,202,873
7373
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 16: Contributed equity (continued)
Movements in ordinary share capital:
Date
30 June 2015
3 July 2015
14 July 2015
Details
Balance
Treasury shares issued under the Performance
Share Plan to employees
Treasury shares issued under the Share Rights Plan
to employees
14 September 2015
Treasury shares issued under the Performance
Share Plan to employees
15 September 2015
Treasury shares issued 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
Number of
shares
$’000
$’000
123,032,857
5,780
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
14 September 2016
Treasury shared issued under the Performance
Share Plan to employees
15 September 2016
Treasury shares issued under the Share Rights Plan
to employees
1 December 2016
Shares issued to the Mortgage Choice Employee
Incentive Trust
1 December 2016
Held as treasury shares
119,995
64,339
499,871
(499,871)
326
147
–
–
30 June 2017
Balance
123,755,861
7,277
Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme,
is set out in Note 28.
7474
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 17: 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
Nature and purpose of reserves
Share-based payments reserve
2017
$’000
2016
$’000
2,075
1,664
1,664
884
(473)
2,075
1,909
779
(1,024)
1,664
The share-based payments reserve is used to recognise the fair value of options and performance shares
granted but not vested.
(b) Retained profits
Balance 1 July
Net profit for the year
Dividends
Balance 30 June
2017
$’000
2016
$’000
93,859
22,177
94,223
19,538
(21,200)
(19,902)
94,836
93,859
7575
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 18: Dividends
(a) Ordinary shares
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 2015:
Fully franked based on tax paid @ 30%
8.0 cents per share
Final dividend declared out of profits of the Company for the year ended
30 June 2016 of 8.5 cents per fully paid share paid on 16 September 2016:
Fully franked based on tax paid @ 30%
8.5 cents per share
Interim dividend declared out of profits of the Company for the half-year
ended 31 December 2016 of 8.5 cents per fully paid share paid 23 March 2017:
Fully franked based on tax paid @ 30%
8.5 cents per share
(b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have
recommended the payment of a final dividend of 9.0 cents per fully paid
ordinary share, (2016 – 8.5 cents) fully franked based on tax paid at 30%.
The aggregate amount of the proposed dividend expected to be paid on 21
September 2017 out of retained profits at 30 June 2017, but not recognised as
a liability at year end, is
2017
$’000
2016
$’000
–
–
10,579
10,621
21,200
9,945
9,957
–
–
19,902
11,246
10,579
(c) Franked dividend
The franked portions of the final dividends recommended after 30 June 2017 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 2017.
2017
$’000
2016
$’000
Franking credits available for subsequent financial years to the equity
holders of the parent entity based on a tax rate of 30% (2016 – 30%)
3,206
2,835
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;
7676
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 (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 $4,820,000
(2016: $4,534,000).
Note 19: 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
2017
$’000
2016
$’000
2,845,813
2,773,963
154,019
39,179
–
153,125
25,414
–
746,930
620,881
3,785,941
3,573,383
Detailed remuneration disclosures are provided in the remuneration report on pages 17-39 of the
Directors’ report.
Note 20: 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:
2017
(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
Financial modelling services1
Total remuneration for non-audit services
1 Financial modelling services relate to a one-off project to review franchise remuneration structures.
$
201,490
201,490
75,000
17,723
276,350
369,073
7777
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 20: Remuneration of auditors (continued)
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 Australian firm:
Actuarial services
Taxation services
Total remuneration for non-audit services
$
193,490
193,490
75,000
88,720
163,720
Note 21: Contingencies
Contingent liabilities
The Group had contingent liabilities at 30 June 2017 in respect of:
Guarantees
Guarantees given in respect of premises leases $723,150 (2016: $771,914).
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 2017 and 30 June 2016,
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.
7878
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 22: 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.
2017
$’000
2016
$’000
1,197
1,289
–
2,486
930
1,341
–
2,271
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
Note 23: 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 24.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 19. 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.
7979
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 24: 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*
2017
%
100
100
100
2016
%
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 25: Events occurring after the balance sheet date
Dividend payment
Subsequent to year end, a final ordinary dividend of $11,246,000 (9.0 cents per fully paid share) was
declared out of profits of the Company for the year ended 30 June 2017 on 23 August 2017 to be paid on
21 September 2017.
8080
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 26: Reconciliation of profit after income tax to net
cash inflow from operating activities
Profit for the year
Depreciation and amortisation
Change in net present value of future trailing inflows
Change in net present value of future trailing outflows
Employee expense benefits – share-based payments
Interest received
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 27: Earnings per share
(a) Basic earnings per share
From continuing operations
(b) Diluted earnings per share
From continuing operations
2017
$’000
2016
$’000
22,177
1,581
(5,291)
4,741
884
(474)
–
(1)
(1,377)
2,202
(1,003)
(1,276)
289
238
8
19,538
1,541
(8,710)
9,151
779
(419)
130
374
613
(1,152)
(293)
(1,729)
1,040
185
(328)
22,698
20,720
Consolidated
2017
Cents
2016
Cents
17.8
17.7
15.7
15.7
8181
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
Note 27: Earnings per share (continued)
Earnings used in calculating earnings per share
Profit from continuing operations
Consolidated
2017
$’000
2016
$’000
22,177
19,538
2017
Number
2016
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
124,749,199
124,410,527
Adjustments for calculation of diluted earnings per share:
Share rights
367,192
249,999
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
125,116,391
124,660,526
Information concerning the classification of securities
(a) 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.
(b) 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 28: Share-based payments
(a) Performance Share Plan (PSP)
The PSP permits eligible employees as identified by the Board to be granted allocated unvested
shares from the outset of the applicable performance period, with the shares to be held on trust for
the participants by a share plan trustee. The shares granted to those employees are subject to the
achievement of performance and service requirements as specified by the Board. The PSP is designed to
provide the medium-term to long-term incentive component of remuneration for executives and other
designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees are granted shares to a value
determined by reference to the Company’s reward policy and market practice with regard to share based
incentive arrangements provided by peer organisations. The right to receive vested shares will lapse if the
performance and service criteria are not met.
Shares will be acquired for participants following their acceptance of an offer made under the Plan. The
shares will be acquired by the plan trustee and held on trust for participants until they are withdrawn
from the Plan (after they have vested or are deemed to be vested) or are forfeited, in circumstances
outlined below. Shares will be acquired only at times permitted under the Company’s share trading
policy. Shares may be acquired by on-market or off-market purchases, by subscribing for new shares
8282
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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
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 unlawful 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. In the event that no
further grants are made under this plan, the PSP
will not be terminated before the end of the last
vesting period of shares granted under this plan.
(b) 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
8383
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 28: Share-based payments
(continued)
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.
Set out below are summaries of performance shares conditionally issued under the Performance
Share Plan:
Offer Date
Vesting date
Value
2017
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
23 September 2013
14 September 2016
$2.77 98,396
– (98,396)
–
–
23 September 2013
14 September 2016
$1.68
80,510
22 September 2014
14 September 2016
$2.72
15,379
22 September 2014
14 September 2017
$2.72 84,580
22 September 2014
14 September 2017
$1.68
69,197
17 September 2015
14 September 2018
$2.01 269,736
17 September 2015
14 September 2018
$1.19 269,736
–
–
–
–
–
–
25 October 2016
14 September 2019
25 October 2016
14 September 2019
$2.28
$1.30
– 261,760
– 261,760
–
– (80,510)
(15,379)
(1,819)
(1,489)
(1,456)
(1,456)
–
–
–
–
–
–
–
–
–
–
(6,234)
76,527
(5,098) 62,610
(13,026) 255,254
(13,026) 255,254
(7,329) 254,431
(7,329) 254,431
–
–
–
Total
887,534 523,520 (119,995)
– (132,552) 1,158,507
Weighted average price
$1.87
$1.79
$2.72
–
$1.73
$1.76
8484
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 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
–
(15,846)
14 September 2012
14 September 2015
$1.74 251,904
– (234,735)
–
–
–
(17,169)
(71,092)
– (147,968)
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
– 269,736
17 September 2015
14 September 2018
$1.19
– 269,736
(9,713)
(21,986)
–
–
(8,109)
(19,123)
–
–
–
–
–
–
–
–
–
–
–
(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
Total
997,053 539,472 (380,604)
– (268,387) 887,534
Weighted average price
$1.90
$1.60
$1.77
–
$1.59
$1.87
* 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 1.53 years (2016 – 1.60 years).
The model inputs for performance shares granted on 25 October 2016 included:
(a) performance shares are granted for no consideration and vest over a period of four years;
(b) grant date: 25 October 2016 (2016 – 17 September 2015);
(c) share price at grant date: $2.28 (2016 – $2.01);
(d) expected price volatility of the Company’s shares: 29.04% (2016 – 29.60%);
(e) expected dividend yield: 0% (2016 – 0%); and
(f) risk-free interest rate: 1.686% (2016 – 1.768%).
8585
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 28: Share-based payments (continued)
Set out below are summaries of shares conditionally issued under the Share Rights Plan:
Offer Date
Vesting date
Value
Balance
at start
of the
year
Number
Granted
during
the year
Number
Vested
during
the year
Number
Expired
during
the year
Number
Forfeited
during
the year
Number
Balance
at end of
the year
Number
2017
7 April 2015
7 April 2015
15 September 2016
$2.60
56,559
– (56,559)
15 September 2017
$2.60 56,560
–
25 August 2016
14 September 2017
25 August 2016
14 September 2018
$2.18
$2.18
–
–
59,772
59,772
Total
Weighted average price
113,119 119,544 (56,559)
$2.60
$2.18
$2.60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56,560
59,772
59,772
– 176,104
–
$2.32
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
– (93,750)
7 April 2015
7 April 2015
15 September 2015
$2.60
56,559
– (56,559)
15 September 2016
$2.60
56,559
7 April 2015
15 September 2017
$2.60 56,560
–
–
–
–
Total
Weighted average price
263,428
– (150,309)
$2.77
–
$2.90
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56,559
56,560
113,119
$2.60
The weighted average remaining contractual life of performance shares outstanding at the end of the
period was 0.52 years (2016 – 0.71 years).
FY 2017 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 FY 2017 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 2017 with 50% vesting 14 September 2018 and 50%
vesting 14 September 2019. The accounting grant date for these share rights are 1 July 2016.
(c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of
employee benefit expense were as follows:
Shares issued under PSP
2017
$’000
2016
$’000
884
884
779
779
8686
Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Note 29: 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
2017
$’000
2016
$’000
107,795
365,768
70,016
110,998
363,274
71,905
262,518
260,245
7,189
2,163
93,898
6,804
1,664
94,561
103,250
103,029
22,036
22,036
20,913
20,913
(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 $723,150 (2016 – $771,914). 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 2017 or 30 June 2016.
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Notes to the Consolidated Financial StatementsMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 In the Directors’ opinion:
(a) the financial statements and notes set out on pages 42-87 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 2017 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.
Vicki Allen
Chairman
Sydney
23 August 2017
88
Directors’ DeclarationMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to the
Members of Mortgage Choice Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Mortgage Choice Limited (the “Company”) and its
subsidiaries (the “Group”) which comprises the consolidated balance sheet as at 30 June
2017, the consolidated income statement, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated statement
of cash flows for the year then ended, and notes to the financial statements, including a
summary of significant accounting policies and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company and Group’s financial position as at 30
June 2017 and of their financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
those standards are
We conducted our audit in accordance with Australian Auditing Standards. Our
the Auditor’s
responsibilities under
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our
other ethical responsibilities in accordance with the Code.
further described
in
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if given
to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. These matters were
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
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Independent Auditor’s ReportMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
Future Trailing commissions
June 2017,
As at 30
trailing
commissions receivable of $335 million
(2016: 330 million) as disclosed in Note
10 and trailing commissions payable of
$208 million (2016: 203 million) as
disclosed in Note 14 and 16 represent
the net present value of future trailing
commissions receivable and payable by
the Group.
to
at
fair
value
Measuring
initial
recognition and applying amortised cost
initial
subsequent
accounting
recognition of the trail commissions
requires
receivable and payables
significant management
judgement
with regard to weighted average loan
life, discount rate, loan book run off
rates and proportion of commissions
paid to franchisees.
How the scope of our audit responded to
the Key Audit Matter
Our audit procedures included but were not
limited to:
Evaluating and testing the key controls
relevant to the determination of the
net present value of future trail
commissions,
Challenging the assumptions applied
in the calculation of weighted average
loan life, discount rate, loan book run
off and percentage of commissions
paid to franchisees in determining the
value of future trail commissions by;
o Comparing assumptions
historical
performance,
o Benchmarking
loan
assumptions
against market peers and
external market data, and
to
book
o Assessing
management’s
assumptions against industry
and economic indicators.
Testing the mathematical accuracy of
the model.
We also considered the appropriateness of the
Group’s disclosures in note 3 the financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises
the information included in the Group’s annual report for the year ended 30 June 2017,
but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Responsibilities of the Directors 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
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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 preparing the financial report, the directors are responsible for assessing the ability of
the Group to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or has no realistic alternative but to
do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a
whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the financial report,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report,
including the disclosures, and whether the financial report represents the
underlying transactions and events in a manner that achieves fair presentation.
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Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group to express an opinion on the
financial report. We are responsible for the direction, supervision and performance
of the Group’s audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were
of most significance in the audit of the financial report of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 17 to 32 of the Directors’
Report for the year ended 30 June 2017.
39
In our opinion, the Remuneration Report of Mortgage Choice Limited, for the year ended
30 June 2017, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the 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.
DELOITTE TOUCHE TOHMATSU
Heather Baister
Partner
Chartered Accountants
Sydney, 23 August 2017
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Independent Auditor’s ReportMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017
Shareholder Information
The shareholder information set out below was applicable as at 31 July 2017.
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 130 holders of less than a marketable parcel of ordinary shares.
Class of
equity
security
Ordinary
Shares
864
1,742
900
1,077
56
4,639
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Shareholder InformationMortgage Choice Annual Report 2017Mortgage Choice Annual Report 2017 Shareholder 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:
Finconnect (Australia) Pty Ltd
J P Morgan Nominees Australia Limited
Ochoa Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Ochoa Pty Ltd
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