More annual reports from Mortgage Choice Limited:
2019 ReportPeers and competitors of Mortgage Choice Limited:
Berkshire Hills Bancorp2018
Annual report
Contents
2018 Performance
Chairman’s Report
CEO Overview
2018 Financial Report
Shareholder Information
Corporate Directory
1
2
4
10
95
98
Mortgage
Choice are with
us every step
of the way
About Mortgage Choice
Our national network of mortgage
brokers has access to a panel of
over 20 leading lenders offering
hundreds of loans. We have
written over 600,000 home loans
and continue to write a home
loan every 15 minutes in Australia.
But our brokers also help
customers to source credit cards,
car loans, commercial loans,
asset finance, deposit bonds,
and risk and general insurances.
They also refer customers to our
growing network of Mortgage
Choice financial advisers, who are
committed to helping everyday
Australians make better choices
with their money.
Our network of franchises right
across Australia all operate with
a commitment to helping our
customers make better choices for
a better life via expert advice and
great service.
NPAT Cash $m
Loan book
$18.7m
2014
$18.6m
2015
$20.5m
2016
$22.6m
2017
$23.4m
2018
Total settlements $bn
$54.6 billion
FY2018
Funds under advice and
premiums in force $m
Premiums In Force ($millions)
)
s
n
o
i
l
l
i
m
$
(
e
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d
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e
d
n
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s
d
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u
F
800
700
600
500
400
300
200
100
0
30
25
20
15
10
5
0
$10.4b
2014
$11.5b
2015
$12.2b
2016
$12.3b
2017
$11.5b
2018
$312m
Dec
2015
$332m
June
2016
$423m
Dec
2016
$532m
June
2017
$634m
Dec
2017
$734m
June
2018
Total dividends ¢
MC Broking 88.0%
Others 2.3%
Financial Planning 5.9%
Diversified products 3.8%
Gross revenue
by division
)
s
n
o
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i
m
$
(
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f
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i
s
m
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e
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P
i
15.5¢
2014
15.5¢
2015
16.5¢
2016
17.5¢
2017
18.0¢
2018
1
Mortgage Choice Annual Report 2018
❝ It has been a year of
review and necessary
change to recalibrate the
business for a long term
sustainable future. ❞
Vicki Allen Chairman
Chairman’s Report
Mortgage Choice continues to provide customers with
a diversified financial services offering that consistently
delivers shareholder returns.
The past year has been important in
the evolution of Mortgage Choice and
our ongoing vision to be Australia’s
leading provider of financial choices and
advice, delivering exceptional value for
our customers and profitability for our
franchisees and shareholders.
It has been a year of review and necessary
change to recalibrate the business for a long
term sustainable future. We reconfirmed the
valued role of quality brokers and financial
planners in assisting customers achieve
their financial goals. Shareholders have been
patient and supportive of our business and
the Board is focused on building long term
shareholder value.
We undertake this activity against
a backdrop of significant regulatory
examination of the broking and broader
financial services industry, including the
Royal Commission into misconduct in the
financial services industry, which continues
to review industry practices and the current
regulatory framework.
2
❝ Mortgage Choice performed
solidly to deliver a final
dividend of 9c per share, taking
the full year dividend to 18c per
share fully franked.❞
Strategic change
A significant focus for this past financial
year has been a comprehensive review of
the franchisee remuneration model. The
resulting innovative structure announced
in July 2018, represents a significant
investment in the franchise network
and rewards franchisees as they grow. In
addition, the Company invested in our
IT systems to improve broker efficiency.
Towards the end of the financial year we
commenced a program of operational
efficiencies, which will continue into FY2019.
I was pleased to welcome Susan Mitchell
as new Chief Executive Officer of Mortgage
Choice, in April, following her successful
nine-year tenure as our Chief Financial
Officer. Susan’s appointment and smooth
transition into the role of CEO followed
the departure of John Flavell, who during
his three years with Mortgage Choice was
effective in strengthening and growing
the Company.
Mortgage Choice Annual Report 2018 We’re so excited
to move into our
first home!
Jake Burn and Rachel Taylor,
Gold Coast
Heading into FY2019, I look forward to
working with both the Board and the
Executive team to continue to deliver on our
strategic business priorities to drive positive
results for the Group.
As we move in to our next phase as a
business, on behalf of the Board, I would
like to thank all members of the Mortgage
Choice team, including franchisees, staff
and the leadership team for their ongoing
commitment to helping all Australians
create a life of abundance.
18¢
full year
fully franked
dividend
FY2018
Vicki Allen Chairman
Susan has a deep understanding of the
financial services sector as well as a strong
and holistic view of our operations. She is
well respected by our network of franchisees
and is highly committed to evolve and build
the business.
Board renewal
Mortgage Choice Board renewal is
an ongoing priority and all directors
continue to actively contribute to our
Board deliberations. I would like to thank
Deborah Ralston for her 13-years as Director
during which she made a significant
contribution to Mortgage Choice.
Over the last twelve months the Board
has been strengthened by the addition of
Sarah Brennan and Andrew Gale. Both bring
deep financial services expertise through
their complementary skills and experience.
The Board and I look forward to holding the
2018 Annual General Meeting in Sydney in
October. The agenda will be outlined in the
formal Notice of Meeting.
3
Mortgage Choice Annual Report 2018 ❝ My number one priority
as CEO is ensuring that the
business has a platform
for growth and long term
sustainability. ❞
Susan Mitchell Chief Executive Officer
CEO Overview
In this landmark year for the broking industry I am
delighted to be addressing shareholders for the first
time as Chief Executive Officer for Mortgage Choice.
When I undertook the role I recognised the
need to make some fundamental changes
to the business. Following an extensive
consultation program we introduced our new
broker remuneration framework to provide
Mortgage Choice with a platform for growth.
While challenging, it has also been
rewarding to be able to implement these
plans as CEO, as part of our comprehensive
change program initiated in early 2018.
Further, the Board and leadership team are
focused on delivering our business strategy
to achieve long term sustainability for the
Company to increase settlement volumes
and regain market share in the medium and
long term.
At Mortgage Choice our purpose is to help
Australians make better decisions with
their finances because we believe that
better choices lead to a better life. As the
broking industry continues to evolve, our
well-known and trusted national brand
continues to offer borrowers one of the best
consumer propositions on the market.
Brokers are skilled professionals that
understand complex loan processes. They
currently write over 55.3% of mortgages in
Australia because borrowers are actively
seeking more choice, better customer
service and expert advice in an increasingly
tougher lending environment.
The 2018 financial year saw a slight
correction in the housing market. However,
this has been good news for first home
buyers, whom after a period of affordability
challenges, are now increasing their
presence in the national housing market.
Market conditions for property investors
may also encourage a comeback with
the Australian Prudential Regulation
Authority (APRA) announcing in April that
it was scrapping its 10% cap on investment
loans growth.
The Reserve Bank of Australia kept the
official cash rate at the historic low of 1.50%
throughout FY2018. However rising interest
rates are predicted for 2019 and in the latter
half of FY2018 we saw lenders make small
out of cycle rate increases.
Interest rates are a primary force in the
housing market’s performance, although
the tightening of credit availability,
recent changes in lending policy,
increases in wholesale funding costs and
macroprudential regulatory changes, create
a complex environment for borrowers and
property sellers alike.
❝ All these factors combined
resulted in solid home loan
demand by long term standards,
and this was reflected in ABS
data across FY2018.
Looking ahead, I expect to see a combination
of factors, such as historically low interest
rates, easing property prices and access
4
Mortgage Choice Annual Report 2018 to First Home Owners Grants, to maintain
home loan demand.
Against this backdrop, the Australian economy
has performed well in FY2018 with overall
business conditions remaining buoyant, and
the confidence in most industries remaining
at or above average levels.
More flexibility has also been introduced
to the management of self managed super
funds (SMSFs). The maximum number of
members allowed in SMSFs and small APRA
funds will be increased from four to six from
1 July 2019. This will appease SMSFs who
wish to increase the total number of funds
available for investment.
$53.4b
Loan book
Employment growth is likely to drive
improving wages, and our current
population growth should support house
prices in the medium term.
In May, the Federal Budget delivered
a welcome boost to households by
introducing income tax cuts, making
Australian families better off by over $500
a year. The Treasurer also announced a plan
for broader tax cuts starting in 2022, which
from 2024 includes removing the 37% tax
bracket and having the 32.5% tax bracket
include those earning $200,000.
In a move to help working Australians
build wealth, the Treasurer announced in
May’s Federal Budget that he will look to
return an estimated $6 billion worth of
lost superannuation to three million super
fund members by 2020. APRA gained new
regulatory powers that ensure Australians
can switch Super funds without incurring
exit fees. Job-changers with multiple ‘lost
super’ accounts will stop paying fees and
insurance premiums that eat away at the
balance on each account. Australians under
25 will no longer be forced to take up life
insurance cover within their super.
Our offering remains robust in the
face of regulatory headwinds
There are a number of regulatory headwinds
driving change across the financial services
industry at present.
The Royal Commission into Banking,
Superannuation and Financial Services
Industry formally began on 12 February 2018
with the commencement of public hearings.
This followed the Australian Securities and
Investments Commission's (ASIC) detailed
Review of Mortgage Broker Remuneration
in 2017, which found that mortgage brokers
play a very important role in the home
loan market.
In response to ASIC’s review, the mortgage
broking industry established the Combined
Industry Forum (CIF) to drive better customer
outcomes through improved governance
and remuneration practices in mortgage
broking. Mortgage Choice continues to play
a vital role in providing input and feedback
to CIF regarding the implementation
of recommendations.
5
Mortgage Choice Annual Report 2018 6
CEO Overview continued
The Treasury and the Productivity
Commission provided their reports to the
Royal Commission in August 2018.
Mortgage Choice Financial Planning
revenue grew by 10.4% in FY2018 to achieve
$11.3 million in gross revenue.
We look forward to Commissioner Hayne’s
interim and final reports, which will be
published FY2019. I am confident that
Mortgage Choice is ready to adapt as
necessary in the face of any legislative changes
and continue to provide a valued service to
deliver positive outcomes for consumers.
Great Australian Dream
Broker market share continues to grow with
55.3% of home loans originated via a mortgage
broker. This is not surprising given the
increasing complexity of securing a home loan.
Our most recent whitepaper, “The Evolving
Great Australian Dream” revealed that
younger Australians increased foot traffic
to brokers by 30% this year with 44% of
25-45 year olds consulting a mortgage broker
first when buying a property.
Clearly borrowers continue to seek out
professional help when making one of the
biggest financial decisions of their lives.
With increased scrutiny on lending
practices, mortgage brokers are best placed
to provide advice to borrowers looking to
secure housing finance and assist them
in taking practical steps to improve their
serviceability. This gives us great confidence
as we look to the future.
Mortgage Choice continues to benefit
from its diversification strategy
I am conscious of the developing needs
of customers to access holistic financial
advice delivered in a digital way. Consumers
today lead financially complex lives in an
unpredictable economic environment,
and because life can change in an instant,
Mortgage Choice provides access to a
breadth of financial products and services.
Our investment in technology enables
us to deliver a high quality online
experience, while supporting our network
of brokers and advisers to deliver customer
service excellence.
By meeting the broader financial needs of
our customers, our brokers and advisers
can build stronger businesses to accelerate
revenue growth through diversification.
Dedicated to growth, the Company is
well placed to expand and recruit quality
advisers to grow the network and continue
leveraging referrals from the national
Mortgage Choice broker network.
Strategic business focuses provide a
platform for growth
I was appointed CEO of Mortgage Choice in
April 2018 following nine successful years as
the Company’s Chief Financial Officer, and
over 25 years’ financial services experience.
My number one priority as CEO is ensuring
that the business has a platform for growth
and long term sustainability. Core to this
was the introduction of a new broker
remuneration framework for our franchisees
because despite the strength of our brand
and our customer offering, market share has
been declining. We believe this is because
our broker remuneration model was not as
competitive as it used to be.
Our new broker remuneration framework
will provide franchisees with higher
remuneration and reduced income volatility.
The Company is confident the new model
will enable franchisees to invest in their
business while attracting new, high quality
franchisees and loan writers to the network.
This will provide a platform for growth and
underpin the long term sustainability of
Mortgage Choice.
We will continue to provide high levels
of support for our franchisees including
compliance, training, marketing, IT
and business planning, for which we
are renowned for in the industry. This
year I advised the market that we are
recalibrating our delivery by centralising
services, to drive efficiencies.
In FY2018 the Company made a significant
investment in innovative technologies. Over
the last year we have invested $3.4m in our
new Broker Platform to drive efficiencies for
our brokers and help them deliver a better
customer experience. We are also investing in
an online help centre for franchisees, which
will provide immediate help and assistance.
The January 2018 launch of our new website
has made it easier for customers, to find
6
Mortgage Choice Annual Report 2018 Our broker
helped us
into our dream
home!
Lenka Mrkvickova &
Mira Mrkvicka with
son Hugo
$23.4m
Cash NPAT
7
Operational efficiencies
Undertake a departmental review of
processes to increase efficiency whilst
improving the support experience for
brokers and advisers.
Roll out of a new Broker Platform.
Establish new core systems for Mortgage
Choice Financial Planning.
Brand and customer experience
Shift focus for marketing spend from
pure lead generation to brand awareness
and engagement to ensure long term
brand health.
Improve the online customer experience
to create advocacy.
Recruitment
Position Mortgage Choice as an
aggregator of choice for potential
franchisees and loan writers.
Raise awareness of our new broker
remuneration model and best-of-breed
IT platforms.
Recruit stand alone financial planning
franchise owners.
Susan Mitchell Chief Executive Officer
the information they are seeking, while
providing franchisees with industry leading
functionality for their individual minisites.
These technological advancements are
supplemented by our award-winning
marketing platform that helps generate
ongoing business opportunities for our
franchisees within our broader network of
mortgage brokers and financial advisers.
Furthermore, these technology investments
better enable customers to stay connected
with the Mortgage Choice brand in an
increasingly complex and competitive market.
Business outcomes
The cash NPAT for FY2018 is $23.4m up
3.3% on FY2017. The IFRS result NPAT
of $4.2m includes a one-off negative
adjustment of $28.5m after tax representing
an adjustment to the NPV of trailing
commissions payable as at 30 June 2018.
Focus areas for FY2019
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.
Our strategic intent for FY2019 is to build
a platform for growth and long term
sustainability and to deliver upon our key
focus areas:
Remuneration
Embed the new broker remuneration
models with franchisees and finalise
the review of adviser remuneration
currently underway.
Mortgage Choice Annual Report 2018 Mortgage Choice at a glance
8
Mortgage Choice Annual Report 2018 Heritage
26 years of service
Helped over 600,000 people
with their home loans
43%+ of franchisees have been
with Mortgage Choice for
more than 10 years
Mortgage Choice Financial
Planning established 2012
Local
Mortgage Choice and our franchisees
support a lot of local charities in
Australian communities.
Here are a few examples:
Ronald McDonald House Charities
(since 2011)
Jeans for Genes Day
Cancer Council’s ‘Australia’s
Biggest Morning Tea’
Friends with Dignity
White Ribbon Day
Daffodil Day
Performance
$23.4m cash net profit
after tax
Loan book grew to $54.6b
Fully franked full year
dividend of 18 cents
Distribution
449 Mortgage franchises
146 franchisees in shopfronts
39 Financial advisers
36 Financial
planning franchises
9
Mortgage Choice Annual Report 2018 2018 Financial Report
Contents
Directors’ Report
Auditor’s Independence Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
12
44
45
46
47
48
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
49
50
89
90
95
98
10
Mortgage Choice Annual Report 2018
2018 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 20 August 2018.
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.
Mortgage Choice Annual Report 2018
11
Directors’ Report
for the year ended 30 June 2018
12
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 2018, hereafter referred to as “Mortgage Choice”, “the Mortgage Choice Group”, “the Company” or “the Group”.DirectorsThe following persons were the Directors of Mortgage Choice Limited during the financial year and up to the date of this report.V L AllenS J Brennan (appointed 21 March 2018)S J ClancyA C Gale (appointed 21 March 2018)P G HigginsR G HigginsS C JermynD E Ralston (resigned 21 March 2018)Principal activitiesMortgage Choice is a full financial services organisation helping Australians with their financial needs by delivering a range of financial choices teamed with trusted expert advice. 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.Other Credit Services The provision of assistance with personal loans, car loans, equipment finance, small business and commercial finance. 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.DividendsDividends paid or payable to members during the financial year are as follows: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 and paid on 21 September 2017.An interim ordinary dividend of $11.249 million (9.0 cents per fully paid share) was declared for the half‑year ended 31 December 2017 on 21 February 2018 and paid on 22 March 2018.A final ordinary dividend of $11.250 million (9 cents per fully paid share) was declared for the year ended 30 June 2018 on 20 August 2018 to be paid on 10 October 2018.Corporate Governance StatementThe Company’s Corporate Governance Statement can be found at https://www.mortgagechoice.com.au/about‑us/shareholder‑centre/corporate‑governance. Review of OperationsA review of the Group’s operations is set out in the Operating and Financial Review below.Operating and Financial HighlightsMortgage Choice delivered a cash NPAT of $23.4m up 3.3% on FY2017. The IFRS NPAT result of $4.2m includes a one‑off negative adjustment of $28.5m after tax representing an adjustment to the net present value (NPV) of trailing commissions payable as at 30 June 2018.The FY2018 financial results follow the introduction of the Group’s new broker remuneration framework, which will provide franchisees with higher remuneration and reduced income volatility, enabling them to invest in their businesses. The Group also made adjustments to the operating structure of the business and initiated an ongoing program to drive operating efficiencies across the business. Mortgage Choice’s loan book (including residential and commercial loans) increased by 2.3% to $54.6 billion.The Group continues to benefit from its diversification strategy and Mortgage Choice Financial Planning revenue grew by 10.4% in FY2018 to achieve $11.3 million in gross revenue, while Funds Under Advice and Premiums in Force grew 37.8% and 15.1% respectively.Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
Mortgage Choice made a $3.4m investment in its new
Broker Platform in FY2018 to drive efficiencies for brokers
and help them deliver a better customer experience.
needs of these customers are broad and varying and
there is high value in delivering personalised strategies
that cater for both their business and personal finances.
The Group achieved this result as a number of regulatory
headwinds continue to drive change across the financial
services industry.
Operating Review
Regulation
Regulatory headwinds continued in the FY2018, creating
increasing broker scrutiny and identifying the need
for industry improvements within the financial advice
sector. Mortgage Choice has been actively involved in
the Combined Industry Forum (CIF), a cross industry
body coordinating responses to numerous inquiries
and regulations impacting the industry. In the face of
regulatory change, the Board is confident that the valued
service our mortgage brokers and financial advisers have
provided will prevail in the face of change, to continue to
deliver positive outcomes for consumers.
New Broker Remuneration Model
As part of a company wide change program, Mortgage
Choice underwent a period of consultation with its
network of franchisees in FY2018, aimed at shaping
a new remuneration model to increase their share of
revenue and enable them to invest in their businesses.
The in-depth consultation process between the executive
leadership team and franchisees played a crucial role
in shaping the new model, which will underpin long
term sustainable growth for Mortgage Choice. Its
balance between broker remuneration and support
services offered, is expected to attract new, high quality
businesses to the Mortgage Choice franchise network to
drive future growth.
Diversification
Throughout FY2018 Mortgage Choice continued to deliver
on its objective to diversify its financial product suite, as
we continue to build on our differentiated full financial
services proposition.
Asset Finance / Product
Mortgage Choice expanded its range of financial
solutions to provide consumers with increased
choice across personal loans, deposit bonds, general
insurances and home loans. The broadening of our panel
successfully enabled us to effectively navigate changes
in lenders’ preferences and increased complexities in
lending policies.
One of our core focuses for FY2018 was to expand our
support for small-to-medium enterprise customers. The
Having a comprehensive suite of solutions in this area
is key to fulfilling on the strategy, including commercial
finance, competitive car and equipment finance products
as well as integrating non-credit products that are still
highly relevant, for example general insurances. We are
well placed to serve the needs of these customers now
and into the future.
Financial Planning
Mortgage Choice Financial Planning continued to
build on its strong base achieving $11.3 million in gross
revenue in FY2018 to deliver a profit of $362,000. The
Company’s financial planning arm revenue grew by
10.4%, while Funds Under Advice and Premiums in Force
grew 37.8% and 15.1% respectively.
Dedicated to growth, the Company is on track to expand
and recruit quality advisers to grow the network and
continue leveraging referrals from the national Mortgage
Choice broker network. We are proactively working with
our adviser network to ensure they are prepared to meet
the new educational standards, as determined by the
Financial Adviser Standards and Ethics Authority (FASEA).
This will further uphold our customer value proposition
as a full financial services company.
Established in 2012, Mortgage Choice Financial Planning
is well-placed to absorb the introduction of new
regulation as the financial services industry continues
to transition. Notably, our adviser businesses have
been paid under a “hybrid” commission structure
since the license was established, enabling a seamless
transition for these businesses to the new Life Insurance
Remuneration Act framework, when the transitional
arrangements came into effect in January 2018.
Brand Presence
With our 26 year heritage and 449 franchises across
Australia, the Mortgage Choice brand is one of the most
recognised and reputable in the Australian financial
services sector. Throughout FY2018 we continued to
invest in our strategic marketing and communications
programs to enable us to deepen relationships with
customers, while positioning Mortgage Choice as the
financial services brand of choice with Australians.
New Website
Re-establishing our core platform for customer
engagement with the Mortgage Choice brand, we
launched the new Mortgage Choice website in January
2018. Improving the website experience through
implementation of conversion rate optimisation (CRO)
13
Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
and other key tools has made it easier for customers to
find the information they are seeking, while providing
franchisees with industry leading functionality for their
individual minisites.
WebChat
We introduced the WebChat function to the new
Mortgage Choice website to meet customer needs for
instant online help. Streamlining customer response
rates, the WebChat function has been well adopted by
customers connecting with us via smartphone, tablet
and desktop.
Extended customer communications program
Australians spend a significant amount of time
online researching brands, products and services
prior to contact or purchase. Building on the solid
foundations laid in 2017 when the centralised customer
communications program was delivered, in FY2018 we
expanded the program. Essentially a lead generation
initiative, the Mortgage Choice marketing team creates
compelling content to provide existing customers with
ongoing information and support. This is delivered via
email through our CRM platform, to support our network
of brokers across the country, keeping the Mortgage
Choice brand top of mind with their local customers.
Brand awareness and engagement
Our 146-strong retail footprint flows out of Mortgage
Choice’s investment in key programs, such as financing
fit-outs and rental assistance. These strategic focuses
have enabled more franchisees to gain a greater
presence on the high street.
Lead flow was solid in FY2018 as the Company initiated a
strategic mix of sales and marketing activity. One of our
core campaigns ‘We’re Locals Too’, drove excellent results
via targeted advertising and social media campaigns
that further cemented our value proposition with
Australians.
We also tested new media channels to drive greater
brand awareness, these included Foxtel TV and YouTube,
and we continued our radio advertising.
The Company also allocated substantial budget to broker
lead generation through our collaborative program.
Delivering to consumers’ appetite for compelling
content, we also initiated a content strategy to engage
customers who are in the research phase and not ready
to speak to a broker or adviser. We provide valuable
content in exchange for the customer’s name and email
address and continue to provide highly targeted, useful
information to them via email.
Underpinning these activities, our investment in search
advertising kept us front of mind with online customers
seeking financial solutions.
Investment in technology
Investment in technology is a critical enabler
to delivering a better customer, broker and
adviser experience.
We built our new Broker Platform in FY2018, which was
managed in-house by our team of technology experts,
to increase broker productivity by significantly reducing
data entry and the need for a broker to access multiple
systems to write a home loan. A key professional
support service to our brokers, this investment will
significantly reduce the time previously taken to prepare
a customer’s home loan application and improve the
customer experience.
We also commenced a review of our Financial Planning
systems with the objective of ensuring that we have the
right platform in place to increase efficiencies for our
advisers and build scale.
As a part of our operational review and move to
centralised support services, a new online help centre,
supported by a call centre, will be launched to assist
franchisees with general enquiries across administration,
marketing and operations. This further investment in
our IT will streamline processes across the business and
thereby enable the head office team to focus on core
business activities that drive revenue for the Company.
These technology investments create the underlying
platform to drive efficiencies today and futureproof
our business as the lending and financial advice
environment becomes more complex and customers
demand a more personalised, digital experience.
PR
The Corporate Affairs team continues to manage our
strategic communications outreach to drive share of
voice in media, and position the Mortgage Choice brand
and our CEO, Susan Mitchell as industry leaders. The
creation of national media opportunities via customer
case studies, commissioned research and whitepapers
support our advertising campaigns with quality media
coverage that provides a broader narrative on the
Mortgage Choice value proposition.
Distribution growth
Running a small business is rewarding but challenging
and brokers and advisers are attracted to strong
brands like Mortgage Choice because of the depth of
support services provided to them to set up and grow
their business.
14
Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
This is even more critical in the current environment
with increasing compliance requirements and tightening
lending policies.
As one of Australia’s leading franchisors for over
26 years, our brand is highly recognisable both on
the high street and in the digital marketplace, where
consumers are attracted to brands they know and trust.
We deliver the right solutions to the ever evolving
financial needs of customers. Our financial advice
business provides access to clear and transparent
advice that is both affordable and relevant. Our brokers
are dedicated to finding the right loan to suit an
individual’s need.
Partnering with Mortgage Choice provides new
franchisees with an immediate business advantage.
The quality of our training, compliance support and
IT systems, provide brokers and advisers with the
framework to build and run successful businesses that is
second to none.
Mortgage Choice has made sizable investments in
technology-based solutions, such as our new broker
platform, to automate and streamline the home loan
process thereby improving efficiencies and reducing the
cost to serve.
Our coaching across loan submissions, business
planning and management, and sales & marketing is
highly valuable to franchisees.
The new broker remuneration model creates another
compelling reason for brokers to select Mortgage Choice.
Designed to underpin the long term sustainability of
Mortgage Choice and provide a platform for growth,
the new model will provide franchisees with higher
remuneration and reduced income volatility so they can
invest in their businesses.
New CEO appointed
Susan Mitchell was appointed CEO of Mortgage Choice in
April following her nine year tenure as CFO. This followed
the resignation of John Flavell who was with the
business 2015-2018 during which time he was effective in
strengthening and growing the Group.
Ms Mitchell’s key focuses in FY2018 were the successful
introduction of the new broker remuneration model,
new Broker Platform and the development of a
core business strategy to drive growth and increase
operational efficiencies across the broker and financial
planning businesses.
Financial Review
Our statutory profit decreased to $4.2 million with an
adjustment to the NPV of future trailing commissions
payable of $40.7m ($28.5m after tax), resulting from the
new broker remuneration model. Our cash profit, which
does not take future trailing commission to account,
increased by 3.3% to $23.4m. Settlements for the year
were $11.5 billion, down 7% on FY2017.
Settlements trend
)
s
n
o
i
l
l
i
m
$
(
1,250
1,150
1,050
950
850
750
650
Monthly settlements ($m)
6 month average settlements ($m)
D ec-14
Ju n-15
D ec-15
Ju n-16
D ec-16
Ju n-17
D ec-17
Ju n-18
As at 30 June, Mortgage Choice’s total loan book
(including residential and commercial loans) increased
by 2.3% to $54.6 billion – up from $53.4 billion in FY2017.
Loan Book ($’000)
50
40
30
20
10
0
6
9
6
,
1
0
3
,
9
3
9
3
4
,
5
2
2
,
6
3
,
0
7
8
8
6
2
,
3
3
1
4
4
,
4
4
6
9
2
,
,
0
3
0
6
9
6
,
5
2
9
3
7
,
1
4
7
,
1
5
9
9
8
,
4
7
3
,
3
5
,
1
0
9
8
1
6
,
4
5
0
2
3
,
2
4
5
,
9
4
3
4
2
,
6
5
3
,
7
4
3
6
6
,
1
7
5
,
3
4
7
1
1
,
5
2
4
,
1
4
9
3
5
,
7
8
2
,
5
4
20 0 6
20 07
20 0 8
20 0 9
2010
2011
2012
2013
2014
2015
2016
2017
2018
Financial Year
As in prior years, an actuarial review was conducted on
the residential loan book. The review found the run-off
rate of the loan book was significantly slower than
the assumptions used in the valuation at 30 June 2017.
Management determined that this required a positive
balance sheet adjustment of $10.1m at year end to bring
the valuation in line with the actual loan book position
and assumed future run-off profile. The underlying
total revenue before adjustment, is down 0.7% year
on year. This is due to the 7% fall in settlements offset
by an increase in revenue from diversified products
and Mortgage Choice Financial Planning as well as the
reduction in run-off experienced during the year. The
table below shows the movement in the underlying
statutory results year on year.
15
Mortgage Choice Annual Report 2018
194,439
195,870
Establish new core systems for financial planning
7,055
1,151
Raise awareness of our new broker remuneration
model and best-in-breed IT platforms
Directors’ Report
for the year ended 30 June 2018
Underlying Statutory Results
2018
$’000
2017
$’000
23,369
3,927
Total operating revenue
217,808
199,797
Profit after tax
Underlying result after tax
25,641
21,026
Operating Revenue
Underlying operating
revenue
Adjustment to NPV
receivable for changes
in run-off and other
assumptions
Adjustment to net NPV
receivable for changes
in run-off and other
assumptions
Adjustment to valuation of
loan book payable due to
model changes
(28,468)
–
Total profit after tax
4,238
22,177
Cash results increased 3.3% to $23.4 million for the year.
This growth in cash results was achieved through a mix
of growth in gross profit and expense control with gross
profit rising 1% and operating expenses falling 1%.
MC delivers record dividend
The growth in cash profits allows Mortgage Choice to
increase its dividend to 18 cents for the year, up from
17.5 cents in FY2017.
Focus areas for FY2019
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.
Our strategic intent for FY2019 is to build a platform for
growth and long term sustainability and to deliver upon
our key focus areas:
Remuneration
Embed the new broker remuneration models with
franchisees and finalise the review of adviser
remuneration currently underway
16
Operational efficiencies
Undertake a departmental review of processes to
increase efficiency whilst improving the support
experience for brokers and advisers
Roll out of a new Broker Platform
Brand and customer experience
Shift focus for marketing spend from pure lead
generation to brand awareness and engagement to
ensure long term brand health
Improve the online customer experience t0
create advocacy
Recruitment
Position Mortgage Choice as an aggregator of choice
for potential franchisees and loan writers
Recruit stand alone financial planning
franchise owners
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 2018 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.
Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
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
Committee and Member of
Remuneration Committee
Director since 19 June 2017
Vicki Allen was appointed
the Independent
Non-Executive Chairman in
July 2017. Vicki has over thirty years of senior executive
and Board experience across the financial services and
property sectors. During her executive career she held
various senior roles at The Trust Company, National
Australia Bank, MLC 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, Bennelong
Funds Management Group Pty Ltd and a number of
entities in the BT Financial Group. She is a member of
the Audit and Risk Committee of the NSW Ombudsman.
Vicki is a Fellow of the Australian Institute of Company
Directors and a Trustee Fellow of The Association of
Superannuation Funds of Australia. Age 56.
Sarah Brennan
FFPA, GAICD
Independent Non‑Executive
Director
Member of Remuneration
Committee and Chairman of
the Mortgage Choice Financial
Planning Investment Committee
Director since 21 March 2018
Sarah Brennan is an
entrepreneur with over
25 years’ experience in the financial services industry
at an Executive, Consultant and Board level. She has
an extensive background in the areas of strategy,
innovation, professionalism and regulatory and
corporate governance. Sarah founded Comparator, the
leading provider of benchmarking to the Australian
financial services market, which she then sold to
CoreLogic. She has held senior roles at Citibank, MLC,
Deutsche Bank and has provided consulting services
across financial services and wealth management to
both domestic and international clients. Age 51.
Sean Clancy
Dip Mkt FAICD
Independent Non‑Executive
Director
Chairman of Remuneration
Committee and Member of
Audit Committee
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 Clancy 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., Touch to
Buy and Campaign Express, Non-Executive Director of
Gowing Brothers and of Whitecoat and Ambassador to
Business Events Sydney. Age 58.
Andrew Gale
BA (actuarial major), MBA,
FAICD, FIAA
Independent Non‑Executive
Director
Member of Audit and
Nomination Committees.
Chairman of Audit Committee
from 20 August 2018.
Director since 21 March 2018
Andrew Gale is a qualified
actuary with extensive
knowledge of the financial services sector and has had a
deep involvement in financial services regulatory issues
in a range of capacities. He has over 35 years’ experience
in the industry, including roles as Executive Director with
Chase Corporate Advisory, CEO and Managing Director
for Count Financial Ltd, Managing Partner for Deloitte
Actuaries and Consultants, and various senior executive
roles at MLC and AMP.
Andrew has over 25 years’ experience as a board director.
He is a non-executive director for the NAB Advice &
Licences Board (and of its constituent licensee entities),
NULIS Nominees (Aust) Limited and Harper Bernays
Limited. Age 61.
17
Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
Peter Higgins
Non‑Executive Director
Member of Audit Committee
Director since
30 November 1989
Peter Higgins is a
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. Peter is also an Ambassador
of the International Federation of Polo. 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 58.
Rodney Higgins
Non‑Executive Director
Member of Nomination and
Remuneration Committees
Director since
30 January 1986
Rodney Higgins is a
co-founder of Mortgage
Choice. With a background
in residential and
commercial property,
Steve Jermyn
FCPA
Independent Non‑Executive
Director
Chairman of Audit Committee
Director since 24 May 2004
Steve Jermyn joined
McDonald’s Australia
in 1984 and joined the
Board of Directors in
1986. In June 1999, he
was appointed Deputy Managing Director. Steve has
been involved in all aspects of the development of the
McDonald’s restaurant business in Australia and brings
with him significant experience in the development
of new business and franchising. He retired from
McDonald’s Australia in 2005. Steve is Chairman of
Guzman Y Gomez (Holdings) Pty Ltd, Chairman of Half
the Sky Foundation Australia Ltd and Director of Ronald
McDonald House Charities. Age 69.
sales and leasing, he has been a Director of companies
involved in manufacturing, wholesaling, importing,
retailing and finance. Age 63.
Directors’ interests
The table below sets out the Directors’ interests at 30 June 2018:
Particulars of Directors’ interests in shares
60,000 ordinary shares
0 ordinary shares
120,000 ordinary shares
0 ordinary shares
259,253 ordinary shares
15,380,212 ordinary shares
2,500,000 ordinary shares
Director
V L Allen
S J Brennan
S J Clancy
A C Gale
P G Higgins
R G Higgins
S C Jermyn
18
Mortgage Choice Annual Report 2018 Company Secretary
The Company secretary is Mr David Hoskins BCom, FGIA, FCIS, GAICD, CPA. 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 2018, and the numbers of meetings attended by each Director were:
Full meetings of
Directors
Audit
Nomination
Remuneration
Meetings of committees
A
9
2
9
2
6
9
9
6
B
9
2
9
2
9
9
9
7
A
*
*
3
*
2
*
3
3
B
*
*
3
*
3
*
3
3
A
4
*
4
*
*
2
*
*
B
4
*
4
*
*
4
*
*
A
4
*
4
*
*
3
*
*
B
4
*
4
*
*
4
*
*
V L Allen
S J Brennan1
S J Clancy
A C Gale1
P G Higgins
R G Higgins
S C Jermyn
D E Ralston
1 On 16 May 2018 Ms Brennan was appointed a member of the Remuneration Committee and Mr Gale appointed a member of the
Audit Committee, however, no meetings of these committees were held between this date and 30 June 2018.
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
(e) Executive remuneration for FY2018
(f) Relationship between remuneration and
Mortgage Choice Limited’s performance
(g) Non-executive Director remuneration
(h) Statutory disclosures
(i) Glossary
(a) Chairman’s introduction
Dear Shareholders,
On behalf of the Board, I am pleased to present the
FY2018 Remuneration Report to you.
As announced at our AGM in October 2017, the Board
pledged to review the CEO and executive remuneration
framework to not only ensure appropriate award for
performance but that it is comparable to the market
and in alignment with business strategy and creation of
value for shareholders.
This review took into consideration a number of factors
including the feedback received from investors who
voted against the FY2017 remuneration, resulting in the
Company receiving a “strike” for the FY2017 remuneration
report. Whilst the reasons varied, a number of
investors expressed dissatisfaction with the high
levels of STI payment as a proportion of the maximum,
and the absence of disclosure regarding the levels of
achievement against targets. In response, this year we
19
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Name
Position
Executive KMP
Susan R Mitchell (from
3 April 2018)4
John L Flavell (to
3 April 2018)4
Susan R Mitchell (to
3 April 2018)4
Neill C Rose-Innes
Melissa J McCarney
Chief Executive Officer
Chief Executive Officer
Chief Financial Officer
General Manager –
Distribution
General Manager – Group
Marketing
Emma A Dupont-Brown General Manager – Product
Tania J Milnes
Marie J Pitton
General Manager – Financial
Planning
General Manager – Human
Resources
Vincent C ten Krooden
Head of IT
1 Ms Brennan was appointed as a Director on 21 March 2018.
2 Mr Gale was appointed as a Director on 21 March 2018.
3 Ms Ralston retired from the Board on 21 March 2018.
4 Ms Mitchell was appointed Chief Executive Officer of the
company on the resignation of Mr Flavell on 3 April 2018.
The Company’s Financial Controller, John Stevenson, was
appointed Acting Chief Financial Officer, however, Ms Mitchell
has retained the key decision making duties and as such, Mr
Stevenson is not considered a KMP.
have described key STI KPIs, and indicated the level of
achievement for each.
Remuneration for executive KMP has declined overall
by 9%, reflecting pay changes from new appointments,
changed responsibilities and annual market
adjustments, (this is calculated on the maximum STI
potential). For FY2018, the executive KMP STI payments,
as a percentage of maximum STI were 18% less.
John Flavell resigned as CEO on 3 April 2018. Unvested STI
and LTI lapsed on resignation.
Susan Mitchell was appointed the new CEO on
3 April 2018. As the CFO moving into the CEO position she
will receive a lower remuneration than her predecessor,
John Flavell. The achievement of STI has also been reset
to a standard achievement at Target being 50% of base
salary with the maximum potential of 80% for exceptional
performance. Her contracted remuneration also includes
a special one-off grant of share rights subject to 1 year
and 2 year performance, as well as the regular long term
incentive arrangement applicable to other executives.
This special grant reflects the particular challenges faced
by the industry, and Mortgage Choice, as it responds to
changes required of broker remuneration, and the cyclical
change the business is confronting.
The Board is committed to a transparent remuneration
approach linked to company strategy and performance
which balances the long term interests of shareholders
and the need to attract and retain talented
professionals who can deliver on the company goals and
business objectives.
Sean Clancy
Chair of the Remuneration Committee
(b) Directors and executive KMP
disclosed in this report
Table A: KMP during FY2018
Name
Position
Non-Executive Directors
Vicki L Allen
Non-Executive Chairman
Sarah J Brennan1
Non-Executive Director
Sean J Clancy
Non-Executive Director
Andrew C Gale2
Non-Executive Director
Peter G Higgins
Non-Executive Director
Rodney G Higgins
Non-Executive Director
Stephen C Jermyn
Non-Executive Director
Deborah E Ralston3
Non-Executive Director
20
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Remuneration Governance
(c)
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 (at https://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 FY2018, the Remuneration Committee
engaged the services of AON Hewitt to review
and provide guidance on the Executive Team’s
remuneration framework.
Under the terms of the agreement, AON Hewitt
provided remuneration recommendations and
was paid $21,000 plus GST for their services.
The following arrangements were made to ensure
that the remuneration recommendations are free
from undue influence:
AON Hewitt was engaged by and reported
directly to the Chair of the Board and
Remuneration Committee;
The agreement for the provision of
remuneration consulting services was
executed by the Chair of the Board and
the Remuneration Committee under the
delegated authority of all Board members;
The report containing remuneration
recommendations was provided by AON
Hewitt directly to the Chair of the Board and
the Remuneration Comittee; and
AON Hewitt were permitted to speak to
management throughout the engagement
to understand company processes, practices
and other business issues and obtain
management perspectives.
This allows the Board to be satisfied that the
recommendations are made free from undue
influence from any members of the KMP.
21
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Directors’ Report
for the year ended 30 June 2018
33
d. Executive remuneration policy and framework
(d) Executive remuneration policy and framework
The following diagram shows the remuneration policy and framework that the Board, as advised by the
The following diagram shows the remuneration policy and framework that the Board, as advised by the
Remuneration Committee, applies in setting executive remuneration.
Remuneration Committee, applies in setting executive remuneration.
Executive Remuneration Policy & Framework
Remuneration policy
Aim 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;
�
� acceptable to shareholders.
transparent; and
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
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.
� Designed to
reward longer
term performance.
�
LTI awards are delivered
as performance share
rights with vesting
subject to performance
hurdles.
� 40% of the award is
subject to a relative
Total Shareholder Return
(“TSR”) performance
hurdle and the remaining
60% subject to cash EPS
growth hurdles.
Total remuneration = Fixed Remuneration + STI + LTI
22
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 CEO Remuneration
The Company appointed a new CEO, Susan Mitchell, in April 2018. Her remuneration is lower than that of her
predecessor, John Flavell. Her remuneration is as follows:
Base Salary: $550,000
Maximum STI: $440,000 (50% at target to a maximum of 80% at stretch performance)
Maximum LTI: $275,000
Maximum Total Remuneration: $1,265,000 based on target being achieved (plus Superannuation in accordance with
the superannuation guarantee legislation)
In accordance with Susan's employment agreement, she will receive a special one-off grant of 90,000 performance
rights which will vest in two equal tranches in April 2019 and April 2020 subject to achievement of performance
criteria to be set by the Board. This special grant reflects the particular challenges faced by the industry, and
Mortgage Choice, as it responds to changes required of broker remuneration, and the cyclical change the business
is confronting.
The new CEO’s remuneration mix (excluding the one-off share rights grant) is below.
Table B: Remuneration mix
Position
CEO
Fixed
Performance Based
Base
remuneration
Maximum
STI
opportunity
Maximum
LTI
opportunity
45%
34%
21%
John Flavell, the outgoing CEO, received a payment of $568,528, six months’ pay in lieu of notice and $250,000
settlement of all incentive entitlements. Unvested STI and LTI lapsed on resignation.
(e) Executive remuneration for FY2018
Fixed remuneration
An executive’s fixed remuneration comprises a base cash salary plus superannuation limited to the maximum
super contribution base. Executives have an opportunity to salary sacrifice amounts from their base salary towards
additional superannuation as well as a series of prescribed benefits including any associated fringe benefits tax.
Fixed remuneration is reviewed annually by the Remuneration Committee against external benchmarks, 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:
Table C: Summary of FY2018 STI arrangements
What is the
STI plan?
Who can
participate?
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.
23
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 What is the
maximum
opportunity
for
executives?
Susan Mitchell: For FY2018, the CEO’s maximum STI opportunity is 80% of fixed remuneration.
John Flavell: For FY2018, the CEO’s maximum STI opportunity was 90% of fixed remuneration.
(This was forfeited as Mr Flavell resigned prior to completing the required 12 months service and
performance period.)
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.
At the Board’s sole discretion, the STI pool may be subject to a group modifier based on the
Company’s cash NPAT 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 her maximum STI opportunity.
The group modifier for FY2018 was set at 1.
Yes, the Board will not authorise the payment of STI to KMP unless a minimum cash NPAT threshold
has been achieved.
The gateway requirement was met.
The performance period is 1 year and aligns with the financial year. For FY2018, the performance
period was 1 July 2017 – 30 June 2018.
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. This
means that STI payments are at risk, and vary with the Company’s capacity to pay.
Is there a
gateway
performance
requirement
before any
incentive is
paid?
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?
24
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 What are the
performance
conditions for
the CEO?
Susan Mitchell: Over the three month term to the 30 June 2018, the incoming CEO was assessed
against the following key measure in support of the Group’s business objective to drive
profitability for the benefit of our franchise network and shareholders:
Scorecard Category
Weighting
Measurement
Achievement Comments
Increase & Diversify
Franchise Revenue
& Asset Growth
100%
Review, design and
implement a new and
competitive Broker
Remuneration Model
Delivery of initiatives,
by financial year end,
that will improve the
overall morale and
network engagement
The Board recognises
the effort and
commitment in
ensuring the delivery of
a new and competitive
Broker Remuneration
model that will
help enable brokers
to increase their
profitability, as well
as to help Mortgage
Choice to attract new,
high quality brokers to
the network.
Former CEO, John Flavell: The key measures that were set for John Flavell were in support of
the Group’s strategy and business objectives that related to cash results and the successful
implementation of a series of strategic objectives including:
Increase and diversify franchisee revenue and asset growth
Deeper customer relationships
Distribution growth
NPAT growth
Corporate governance
His individual goals/KPIs that were linked to above were broken down to:
Scorecard Category
Weighting
Measurement
Achievement Comments
Financial Outcome: 50%
Company Cash NPAT
Increase & Diversify
Franchise Revenue
& Asset Growth
5%
Achievement of
MCAF Network
Utilisation targets
10%
Achievement of
targets set for Mortgage
Choice Home Loans
settlement growth
Note: The service and
performance period
for John Flavell was
not completed for
the FY2018 period,
so eligibility for STI
assessment and
payment was forfeited.
25
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 What are the
performance
conditions
for the CEO?
(continued)
Scorecard Category
Weighting
Measurement
Achievement Comments
Note: The service and
performance period
for John Flavell was
not completed for
the FY2018 period,
so eligibility for STI
assessment and
payment was forfeited.
Deeper Customer
Relationships
Distribution
Growth
Governance
Compliance
5%
5%
5%
5%
10%
5%
Achievement of
targets set for home
loan leads
Achievement of
targets set to increase
Prompted Brand
Awareness
Achievement of targets
set to increase Mortgage
Choice Financial
Planning referrals
Achievement of growth
targets set for new
Franchise Greenfields
Delivery of specific
initiatives that will
enhance compliance
capabilities across both
AFSL and ACL
Delivery of specific
initiatives to improve
quality of Financial
Planning advice
Key: Percentage of achievement against targets set:
Exceeded: >105%
Achieved: 95% – 105%
Partly achieved: 85% – 94.9%
Not Met: <85%
What are the
performance
conditions
for other
executive
KMP?
Other executive KMP had four areas of strategic focus in support of the goals and business
objectives for FY2018:
Increase and diversify franchisee revenue and asset growth
Deeper customer relationships
Distribution growth
NPAT growth
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.
26
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
What are the
performance
conditions
for other
executive
KMP?
(continued)
Scorecard Category
Weighting
Measurement
Achievement
Financial Outcome: 20% – 50%
Company Cash NPAT
Increase & Diversify
Franchise Revenue
& Asset Growth
5% – 10%
Mortgage Choice Financial Planning cash NPAT
10% – 45%
Introduction of new Broker Remuneration Model
that aims to increase franchisee profitability
Achievement of targets set to increase
Diversified Revenue
Achievement of targets set for home loans
settlement growth
Achievement of targets set for home loan leads
Deeper Customer
Relationships
5% – 30%
Delivery of customer focused initiatives including
the customer contact nuturing campaign
Achievement of targets set to increase Prompted
Brand Awareness
Distribution
Growth
10% – 45%
Delivery of new online functionalities
in broker platform designed to improve
franchisee productivity
Achievements of growth targets set for new
Franchise Greenfields
Key: Percentage of achievement against targets set:
Exceeded: >105%
Achieved: 95% – 105%
Partly achieved: 85% – 94.9%
Not Met: <85%
How is
performance
assessed?
The Remuneration Committee assesses the CEO’s performance against KPIs and determines the
CEO’s STI award (if any). For other executive KMP, this assessment is completed by the CEO and
approved by the Remuneration Committee. 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.
27
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
How is the
STI pool
calculated?
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.
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 her maximum
STI opportunity.
The group modifier aligns the STI outcome with the Company’s financial objectives. If a cash NPAT
target is exceeded, executives are eligible to share a percentage of the additional value created
for shareholders. Likewise if a cash NPAT target is missed but the profit gateway is exceeded,
executives are penalised even if individual KPIs are achieved.
The group modifier for FY2018 is set at 1.
How is reward
delivered
under the
STI Plan?
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.
The new CEO’s entitlement commenced on the date of her appointment. 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 FY2018, the
report will be signed on or around 20 August 2018.
In limited circumstances, the CEO may adjust the portion of the STI awarded to executive KMP
(other than herself).
Is there
discretion
to adjust
STI awards?
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.
28
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 FY2018, this means that 50% of the performance rights granted to the CEO will vest in
September 2019 and the remaining 50% will vest in September 2020 following the approval the
financial statements for the related period and subject to her continued employment.
As Susan Mitchell was appointed to the position of CEO on the 3 April 2018, as such any STI
entitlement as CEO since her commencement will be calculated on a pro-rata basis, as well as the
STI she would have received while in the CFO position.
Performance rights do not carry any voting or dividend rights, however shares allocated upon
vesting of performance rights will carry the same rights as other ordinary shares.
Performance rights may be forfeited if a material financial misstatement is uncovered relating to
the year of the original STI award.
What are
the vesting
conditions
applicable
to the
performance
rights?
What rights
are attached
to the
performance
rights?
Does the
Board have
discretion to
clawback the
award?
What happens
if the CEO
ceases
employment?
The CEO will forfeit unvested performance rights on cessation of employment with the Company
unless cessation results from death, total and permanent disability, retirement or redundancy as
determined by the Board in its absolute discretion. In these circumstances the Board may, in its
discretion, determine the treatment of any unvested performance rights.
What
restrictions
apply?
The CEO is prohibited from entering into any hedging (or risk reduction) arrangements in relation to
unvested performance rights. In addition, all shares allocated on vesting can only be dealt with in
accordance with the Company’s Share Trading Policy.
Long term incentives
A summary of the Company’s LTI arrangements is set out in the table below.
Table D: Summary of FY2018 LTI arrangements
What is the
LTI plan?
The LTI plan awards executives for achieving specified performance conditions which underpin
sustainable long term growth.
Who can
participate?
What is the
maximum
opportunity
for
executives?
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.
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.
As the former CEO, John Flavell, departed the business on 3 April 2018, per the Company’s Share
Rights Plan offer, he forfeited any rights held under the Performance Rights Plan.
Note: For FY2019, the new CEO, Susan Mitchell’s maximum LTI opportunity will be 50% of
base salary.
For all other executive KMP, the maximum LTI opportunity is between 0% and 30% of base salary.
29
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 How is reward
delivered
under the
LTI Plan?
LTI awards are delivered in the form of performance share rights granted under the Company’s
Share Rights Plan.
The number of performance rights 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.
What is the
performance
period?
What are
the vesting
requirements
for an LTI
award?
What are the
performance
conditions?
Shares allocated in satisfaction of the vesting of performance rights may be sourced on-market or
from a new issue of shares.
Performance rights are offered at no cost to the executives.
Performance is measured over a 3 year performance period. Following testing, vesting of
performance shares rights (if any) occurs in September of each year.
In order for an LTI award to vest:
the executive must be continuously employed by the Group until the vesting date (unless
service ends due to death, disability, redundancy or other exceptional circumstances); and
performance conditions must be met (see below).
Performance share rights are divided in two equal tranches:
40% of the performance share rights are subject to a relative TSR performance hurdle (the “TSR
component”); and
60% of the performance share rights 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.
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
$2 billion as at 31 August 2017, excluding illiquid stocks. The performance period is 1 September 2017
– 31 August 2020. Vesting (if any) will occur in September 2020.
The specific Comparator Group for the Performance Rights Plan offers made in FY2018 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
50%
Between 50th and 75th percentiles
Pro rata vesting between 50% and 100%
Between 75th and 90th percentiles
Pro rata vesting between 100% and 125%
At or above the 90th percentile.
125%
30
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 What are the
performance
conditions?
(continued)
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 2017 – 30 June 2020. Vesting (if any) will occur in September 2020.
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%
At or above 6%.
40%
Pro rata vesting between 40% and 100%
100%
Executives will forfeit unvested performance rights 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 rights may vest at the Board’s discretion.
Executives are prohibited from entering into any hedging (or risk reduction) arrangements in
relation to unvested performance rights. In addition, on vesting allocated shares can only be dealt
with in accordance with the Company’s Share Trading Policy.
As per the Performance Rights Rules, the Board has absolute and unfettered discretion in exercising
any power or discretion concerning the Share Rights Plan.
If the Board determines that a participant has acted fraudulently or dishonestly; has breached his
or her obligations to the Group; or is knowingly involved in a material misstatement of financial
statements ; any shares to which the participant may have become entitled at the end of the
performance period, and any rights held by the participant under the Performance Rights Plan are
forfeited by the participant.
What happens
if an executive
ceases
employment?
What
restrictions
apply?
Is there
discretion
to adjust
awards?
(f) Relationship between remuneration and Mortgage Choice
Limited’s performance
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 40% subject to sustained long
term cash profit creation (tranche 1), which is a direct component of value creation, and 60% subject to the relative
shareholder value created over the performance period (tranche 2). Further information on the LTI performance
criteria is set out below.
31
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Tranche 1: EPS Component
LTI grants made under the PSP from FY2014 to FY2017 and the PRP since FY2018 have been subject to cash EPS growth
hurdle. The following table shows the Company’s cash EPS results in FY2018 and the previous four financial years:
Table E: Cash EPS for FY2014 – FY2018
Financial Year
2014
2015
2016
2017
2018
Cash EPS (cents
per share)
16.2
15.0
16.5
18.1
18.7
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 from FY2014 to FY2017 and the PRP since FY2018 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 FY2018 and the previous four financial years:
Table F: Share price movements, dividends and TSR for FY2014 – FY2018
Financial Year
2014
2015
2016
2017
2018
Opening share
price
$
Closing share
price
$
Dividends paid
during year
(cents)
2.13
2.85
2.30
1.95
2.15
2.84
2.30
1.95
2.15
1.42
14.5
15.5
16.0
17.0
18.0
TSR
41%
-14%
-8%
19%
-26%
32
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 2018.
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
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
06/2013
06/2014
06/2015
06/2016
06/2017
06/2018
Source: Guerdon Associates
(g) 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 chairmen of the Audit Committee, the
Remuneration Committee and 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.
33
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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.
The following table shows the annual fees payable to the Chairman and Non-executive Directors as at 30 June 2018:
Table G: Non-executive Director fees
Role
Chairman
Non-executive Director
Fees for Chairman of the Audit Committee1
Fees for Chairman of the Remuneration Committee1
Fees for Chairman of Mortgage Choice Financial Planning Pty Ltd Investment Committee1
Fees
$145,000
$95,000
$10,000
$10,000
$20,000
1 Commencing 16 May 2018. Prior to this only the Chairman of the Mortgage Choice Financial Planning Committee received an
annual fee of $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
other changes to level of Directors fees in FY2018.
Non-executive Directors do not receive retirement allowances. Superannuation contributions, are paid on
Non-executive Directors’ remuneration in addition to the fees above as required under the Australian superannuation
guarantee legislation, unless there is a specific individual exemption.
(h) Statutory disclosures
The following table sets out the statutory disclosures required under the Corporations Act 2001 (Cth) for the 2017
and 2018 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-Executive Directors
V L Allen, Chaiman
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Termination
benefits
$
Deferred
STI and
Other
$
Perf-
ormance
Shares
and Rights
$
Total
$
FY2018
FY2017
148,123
3,123
–
–
–
–
S J Brennan (from 21 March 2018 to 30 June 2018)1
FY2018
S J Clancy 2
FY2018
FY2017
29,149
96,295
95,000
–
–
–
–
–
–
14,072
297
2,769
9,148
9,025
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
162,195
3,420
31,918
105,443
104,025
34
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Short-term benefits
Post-
employment
benefits
Long term
benefits
Cash
salary,
fees and
annual
leave
$
Name
Non-
monetary
benefits
$
STI
$
Super-
annuation
$
Long
service
leave
$
Termination
benefits
$
A C Gale (from 21 March 2018 to 30 June 2018)2
Share-based payments
Deferred
STI and
Other
$
Perf-
ormance
Shares
and Rights
$
FY2018
29,082
P G Higgins
FY2018
FY2017
R G Higgins
FY2018
FY2017
S C Jermyn4
FY2018
FY2017
95,000
95,000
95,000
95,000
96,295
95,000
–
–
–
–
–
–
–
D E Ralston (from 1 July 2017 to 21 March 2018)3
FY2018
FY2017
93,750
125,000
–
–
Other key management personnel
–
–
–
–
–
–
–
–
–
–
9,025
9,025
9,025
9,025
9,148
9,025
8,906
11,875
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
29,082
104,025
104,025
104,025
104,025
105,443
104,025
102,656
136,875
S R Mitchell6
FY2018
FY2017
375,077
127,653
5,066
20,049
49,846
–
4,379
33,004
615,074
300,609
99,411
4,547
19,616
7,240
–
68,364
499,787
J L Flavell (from 1 July 2017 to 3 April 2018)7
FY2018
FY2017
479,622
–
580,322
266,220
5,565
4,412
N C Rose-Innes
FY2018
FY2017
M J McCarney
327,230
75,624
5,186
298,321
94,080
4,665
FY2018
FY2017
240,975
58,548
226,419
65,553
4,211
4,631
E A Dupont-Brown
FY2018
FY2017
219,103
47,632
197,004
57,000
–
–
20,049
(3,878)
568,528
(161,543)
(315,735) 592,608
19,616
2,647
283,913
216,903 1,374,033
20,049
19,616
20,049
19,616
20,049
19,616
9,145
16,313
5,076
2,272
837
1,311
–
–
–
–
–
–
–
–
–
30,152
467,386
63,149
496,144
20,802
349,661
44,410
362,901
12,147
299,768
19,657
294,588
35
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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
$
Termination
benefits
$
Deferred
STI and
Other
$
Perf-
ormance
Shares
and Rights
$
Total
$
209,223
44,929
192,633
49,139
–
–
158,643
27,477
4,869
165,861
31,406
2,516
173,567
38,173
170,464
30,600
–
–
20,049
19,616
18,840
17,725
19,532
18,598
8,663
4,203
2,827
3,204
1,177
1,989
–
–
–
–
–
–
–
–
–
14,304
297,168
30,752
296,343
9,092
221,748
19,782
240,494
–
–
232,449
221,651
2,866,133
420,036
24,897
220,759
73,693
568,528
(157,164)
(196,234) 3,820,648
2,639,756 693,409
20,771
202,291
39,179
–
283,913
463,017 4,342,336
Name
T J Milnes
FY2018
FY2017
M J Pitton
FY2018
FY2017
V C ten Krooden
FY2018
FY2017
Total
FY2018
FY2017
1 Ms S J Brennan was appointed the Chairman of the Mortgage Choice Financial Planning Investment Committee on 13 April 2018
and receives fees in addition to her base Non-executive Director fees for this role – see section (g) for further details.
2 Mr S J Clancy is the Chairman of the Remuneration Committee and receives fees in addition to his base Non-executive Director
fees for this role – see section (g) for further details.
3 Mr A C Gale has reached his maximum superannuation contribution and has requested he receives his SGC as additional salary
4 Mr S C Jermyn is the Chairman of the Audit Committee and receives fees in addition to his base Non-executive Director fees for
this role – see section (g) for further details.
5 Ms D E Ralston was the Chairman of the Mortgage Choice Financial Planning Investment Committee until her retirement on
21 March 2018 and received fees in addition to her base Non-executive Director fees for this role – see section (g) for further details.
6 Share based payments (Deferred STI and other) relating to Ms S R Mitchell include 2 components:
(a) 90,000 performance rights will be granted to the CEO to focus on critical medium term strategic objectives necessary for
successful transition from the prior broker remuneration model. The grant will vest in two equal tranches in April 2019 and
April 2020 subject to continued service and the achievement of performance criteria to be set by the board.
(b) Deferred STI of $33,151 in relation to FY2018 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 (d).
7 Share based payments (Deferred STI and other) relating to Mr J L Flavell include two components:
(a) share rights granted at commencement to compensate him for the LTI value forfeited on his departure from his former
employer to join the Company. The outstanding rights vested on 15 September 2017.
(b) Deferred STI of $261,000 in relation to FY2016 and $266,220 in relation to FY2017 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 (d). Share based payment expensed in prior years relating to these rights have
been reversed in FY2018, given that unvested rights lapsed on resignation.
36
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 The following table shows the relative proportion of remuneration that each executive received during FY2018 and
whether it is fixed remuneration or performance based remuneration.
Table I: Remuneration mix
Fixed/service based remuneration
Performance Based Remuneration
Name
S R Mitchell
J L Flavell
N C Rose-Innes
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
Fixed remun-
eration
%
Share-
based
%
Commence-
ment shares
rights1
%
Total
%
Cash STI
%
Share Based
%
73%
85%
78%
77%
80%
80%
84%
84%
–
–
–
–
–
–
–
–
–
2%
–
–
–
–
–
–
73%
87%
78%
77%
80%
80%
84%
84%
21%
–
16%
17%
16%
15%
12%
16%
6%
(83%)
6%
6%
4%
5%
4%
–
Total
%
27%
(83%)
22%
23%
20%
20%
16%
16%
Termination
benefits
%
–
96%
–
–
–
–
–
–
1 Footnote 7(a) in Table H describes the terms of this grant.
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, FY2018 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 FY2018
Grant date
Vesting date
FY2015 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
FY2016 LTI grants
17 September 2015
14 September 2018
17 September 2015
14 September 2018
FY2017 LTI grants
25 October 2016
14 September 2019
25 October 2016
14 September 2019
Value per performance share
at grant date1
%
Vested
100
100
100
0
$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 that were tested during, or remain on foot at the end of, FY2018 are set
out in the following table. The table also explains the vesting outcome of awards that were tested during the year.
37
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Table K: Performance rights on foot or tested during FY2018
Grant date
Vesting date
Commencement grant
7 April 2015
15 September 2017
FY2016 deferred STI award
25 August 2016
14 September 2017
FY2018 performance share rights
6 October 2017
6 October 2017
14 September 2020
14 September 2020
Value per performance right
at grant date1
%
Vested
100
100
$2.60
$2.21
$1.78
$1.40
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.
Details of remuneration paid, vested, lapsed or forfeited during FY2018
The percentage of the available grant that was paid, vested or forfeited in FY2018 is set out below.
Table L: Remuneration forfeited and vested during FY2018 and outstanding at 30 June 2018
Cash STI
LTI (Performance shares or rights)
Name
S R Mitchell
Potential
FY2018
bonus paid
%
Potential
FY2018
Bonus
Forfeited
%
87
13
J L Flavell
–
100
N C Rose–Innes
75
25
M J McCarney
80
20
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
$
2018
2018
2017
2016
2015
2018
2017
2017
2017
2016
2015
2018
2017
2016
2015
2018
2017
2016
2015
–
–
–
–
55
–
–
–
–
–
100
–
–
–
55
–
–
–
55
– 30/06/2021
– 30/06/2020
– 30/06/2020
– 30/06/2019
45
100
100
100
100
100
–
–
–
–
–
–
–
–
– 30/06/2021
– 30/06/2020
– 30/06/2019
45
–
– 30/06/2021
– 30/06/2020
– 30/06/2019
45
–
nil
nil
nil
nil
–
–
–
–
–
–
–
nil
nil
nil
–
nil
nil
nil
–
84,863
16,575
76,408
74,189
–
–
–
–
–
–
–
65,944
73,787
67,411
–
50,559
56,575
45,773
–
38
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Cash STI
LTI (Performance shares or rights)
Potential
FY2018
bonus paid
%
Potential
FY2018
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 vest1
$
Name
E A Dupont-Brown
76
24
T J Milnes
70
30
M J Pitton
80
20
V C ten Krooden
85
15
2018
2017
2016
2018
2017
2016
2015
2018
2017
2016
2015
2018
–
–
–
–
–
–
55
–
–
–
55
–
– 30/06/2021
– 30/06/2020
– 30/06/2019
– 30/06/2021
– 30/06/2020
– 30/06/2019
45
–
– 30/06/2021
– 30/06/2020
– 30/06/2019
45
–
– 30/06/2021
nil
nil
nil
nil
nil
nil
–
nil
nil
nil
–
nil
36,428
40,995
30,038
35,803
40,289
31,293
–
23,948
27,104
19,738
–
–
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.
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, Susan Mitchell, 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 Susan Mitchell is terminable by either the Company with 12 months’ notice or the
executive with 6 months’ notice.
(b) The employment contracts of all other 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.
39
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 FY2018
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
115,381
452,236
107,280
76,459
41,676
53,170
34,483
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14,481)
33,017
(11,847)
89,053
–
–
(452,236)
–
(13,159)
30,003
(10,766)
83,355
(8,935)
20,372
(7,310)
60,214
–
–
–
41,676
(6,107)
13,924
(4,997)
42,066
(3,853)
8,785
(3,152)
27,478
–
–
–
–
Executive KMP
S R Mitchell
J L Flavell
N C Rose–Innes
M J McCarney
E A Dupont–Brown
T J Milnes
M J Pitton
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 FY2018
Balance at
the start of
the year
Granted as
compen-
sation
Value
granted
Value at
vesting
date
$
Vested
$
Forfeited
Executive KMP
S R Mitchell (deferred STI)
–
19,052
33,151
–
–
J L Flavell (Commencement)
56,560
–
–
(56,560)
152,024
–
–
John Flavell (deferred STI)
119,544
115,919
266,219
(59,772)
147,174
(175,691)
Balance at
the end of
the year
19,052
–
–
–
–
–
–
–
–
–
–
41,946
68,288
224,580
365,616
40,506
65,944
31,056
50,560
22,376
36,428
21,992
35,803
14,710
23,948
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41,946
(224,580)
–
–
–
–
–
–
–
40,506
31,056
22,376
21,992
14,710
–
Share rights plan
S R Mitchell
J L Flavell
N C Rose-Innes
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
40
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 (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 FY2018
Name
Non-executive Directors
V L Allen
S J Brennan
S J Clancy
A C Gale
P G Higgins
R G Higgins
S C Jermyn
D E Ralston2
P D Ritchie2
Executive KMP
S R Mitchell
J L Flavell2
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
–
–
75,000
–
259,253
15,380,212
2,000,000
145,000
530,125
109,575
94,309
122,231
17,488
–
117,965
22,810
–
–
–
–
–
–
–
–
–
–
–
131,227
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60,000
60,000
–
–
45,000
120,000
–
–
–
–
259,253
15,380,212
500,000
2,500,000
–
–
N/A
N/A
14,481
(11,847)
112,209
–
13,159
8,935
–
6,107
3,853
–
–
(72,049)
–
–
–
(25,105)
–
N/A
63,341
26,423
–
124,072
1,558
–
1 Shares issued on vesting of 116,332 performance rights. Additional shares represent the value of dividends over the vesting period.
2 For these KMPs, the share holdings disclosed are for the period for which they were employed.
41
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 (i) Glossary
The following table defines terms used throughout this Remuneration Report:
Table P: Glossary of terms used
Term
Definition
Comparator group
KMP
KPI
LTI
Genworth Mortgage Insurance Australia Ltd, Eclipx Group Ltd, ClearView Wealth
Australia Ltd, Credit Corp Group Ltd, AUB Group Ltd, Moelis Australia Ltd, Blue Sky
Alternative Investments Ltd, Pepper Group Ltd, FlexiGroup Australia Ltd, Pinnacle
Investment Management Group Ltd, EML Payments Ltd, MyState Ltd, OFX Group Ltd,
HFA Holdings Ltd, Scottish Pacific Group Ltd, Pacific Current Group Ltd, HUB24 Ltd,
EQT Holdings Ltd, IMF Bentham Ltd, Australian Finance Group Ltd, Centuria Capital
Ltd, Pengana Capital Group, Money3 Corp Ltd, Auswide Bank Ltd, zipMoney Ltd,
Freedom Insurance Group Ltd, FSA Group Ltd, Bell Financial Group Ltd, Euroz Ltd,
Onevue Holdings Ltd, Pioneer Credit Ltd, Kina Securities Ltd, APN Property Group Ltd,
Axsesstoday Ltd, K2 Asset Management Holdings 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 pages 19 and 20.
Key Performance Indicator
Long Term Incentive
Performance right
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 share
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. From 2017, LTI awards to executive KMP are delivered using
performance rights.
PSP
Prior to 2017, the Performance Share Plan was used to make LTI awards to executives.
Performance rights
Performance right is a contractual right with Mortgage Choice to receive a given number
of ordinary shares under a Performance Rights Plan. LTI awards to executive KMP are
delivered using performance rights.
PRP
STI
VWAP
The Performance Rights Plan is 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 2018 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.
42
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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
20 August 2018
The Company has entered into deeds of access,
insurance and indemnity with the Directors, the
Chief Executive 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 19.
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 19, 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 44.
43
Directors’ Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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
20 August 2018
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 2018, 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
44
Auditor’s Independence Declarationfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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
2018
$’000
2017
$’000
Notes
5
70,015
106,840
17,905
7,265
119
10
75,859
83,901
18,890
6,573
(53)
53
11,290
10,225
921
577
2,866
1,126
474
2,749
217,808
199,797
(48,839)
(54,611)
(102,668)
(11,048)
(5,513)
–
(9,063)
40,677
(12,458)
(4,992)
(8,675)
(8,705)
5,847
(52,171)
(11,612)
(4,881)
–
(8,153)
68,369
(13,301)
(4,994)
(9,347)
(8,861)
31,866
6
(1,609)
(9,689)
4,238
4,238
22,177
22,177
Notes
Cents
Cents
26
26
3.4
3.4
17.8
17.7
45
Consolidated Income Statementfor the year ended 30 June 2018The above consolidated income statement should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2018
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners of
Mortgage Choice Limited
2018
$’000
2017
$’000
4,238
22,177
–
–
4,238
22,177
46
Consolidated Statement of Comprehensive Incomefor the year ended 30 June 2018The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2018 ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Current tax assets
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
2018
$’000
2017
$’000
3,353
8,646
7
104,038
101,089
112
–
107,503
109,735
7
8
10
11
12
13
14
12
275,685
251,234
686
8,562
658
6,081
284,933
257,973
392,436
367,708
77,211
68,605
–
1,258
78,469
196,711
30,913
691
1,448
965
71,018
153,812
37,899
791
228,315
192,502
306,784
263,520
85,652
104,188
15
16(a)
16(b)
7,764
1,309
76,579
85,652
7,277
2,075
94,836
104,188
47
Consolidated Balance Sheetas at 30 June 2018The above consolidated balance sheet should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2018
Balance at 30 June 2016
6,804
1,664
93,859
102,327
Contributed
equity
$’000
Reserves
$’000
Retained
earnings
$’000
Notes
Total
$’000
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
Total comprehensive income for the year as
reported in the 2018 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 2018
15
17
27
15
17
27
–
–
22,177
22,177
473
(473)
–
–
–
–
473
7,277
–
(21,200)
(21,200)
884
411
–
884
(21,200)
(20,316)
2,075
94,836
104,188
–
–
4,238
4,238
487
(487)
–
–
–
–
487
7,764
–
(22,495)
(22,495)
(279)
(766)
–
(22,495)
1,309
76,579
(279)
(22,774)
85,652
48
Consolidated Statement of Changes in Equityfor the year ended 30 June 2018The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2018 Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
211,084
215,418
Payments to suppliers and employees (inclusive of goods and services tax)
(178,702)
(182,399)
Notes
2018
$’000
2017
$’000
Income taxes paid
Net cash inflow from operating activities
25
Cash flows from investing activities
Payments for property, plant, equipment and intangibles
Loan to franchisees
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
32,382
(10,155)
22,227
(4,137)
(1,502)
37
577
33,019
(9,162)
23,857
(1,395)
(1,159)
1
474
(5,025)
(2,079)
(22,495)
(22,495)
(5,293)
8,646
3,353
(21,200)
(21,200)
578
8,068
8,646
49
Consolidated Statement of Cash Flowsfor the year ended 30 June 2018The above consolidated statement cash flows should be read in conjunction with the accompanying notes.Mortgage Choice Annual Report 2018
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 2017.
New and revised Standards and amendments thereof
and Interpretations effective for the current year that are
relevant to the Group include:
AASB 2016-2 Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to
AASB 107
AASB 2017-2 Amendments to Australian Accounting
Standards – Further Annual Improvements 2014-2016
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.
Prior year comparisons may be reclassified to enhance
year on year comparison.
B. Principles of consolidation
Subsidiaries
(i)
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.
Employee Share Trust
(ii)
The Group has formed two trusts to administer the
Group’s employee share scheme. These trusts are
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
50
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 assessing performance of the operating segments, has
been identified as the Chief Executive Officer.
to the carrying value is recognised as income or expense
in the income statement.
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:
Origination commissions arising from
(i)
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.
Trailing commissions arising from
(ii)
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
(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 continues to receive trailing commission for
health insurance policies sold through its comparison
website, now closed. The recognition of this revenue is
consistent with mortgage trailing commissions arising
from mortgage broking activities detailed in (ii) above.
Financial planning revenue
(v)
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.
Interest income
(vi)
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.
Income tax
E.
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.
51
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 1: Summary of significant accounting
policies (continued)
The current income tax charge is calculated on the
basis of the tax laws substantively enacted at the end
of the reporting period. Management periodically
evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject
to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid
to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements.
However, the deferred income tax is not accounted for if
it arises from initial recognition of an asset or liability in
a transaction, other than a business combination, that at
the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined
using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are
expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability
is settled.
Deferred tax assets are recognised for deductible
temporary differences only if it is probable that future
taxable amounts will be available to utilise those
temporary differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and
tax bases of investments in controlled entities where the
parent entity is able to control the timing of the reversal
of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate
to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle
on a net basis, or to realise the asset and settle the
liability simultaneously.
Mortgage Choice Limited and its wholly-owned
controlled entities have elected to consolidate under the
tax consolidation legislation. As a consequence, these
entities are taxed as a single entity and the deferred tax
assets and liabilities of these entities are set off in the
consolidated financial statements.
Current and deferred tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case the tax is also recognised in other comprehensive
income or directly in equity, respectively.
Investment allowances
Companies within the Group may be entitled to claim
special tax deductions for investments in qualifying
assets or in relation to qualifying expenditure (eg
the Research and Development Tax Incentive regime
in Australia or other investment allowances). The
Group accounts for such allowances as tax credits,
which means that the allowance reduces income tax
payable and current tax expense. A deferred tax asset
is recognised for unclaimed tax credits that are carried
forward as deferred tax assets.
Tax consolidation legislation
Mortgage Choice Limited and its wholly owned
Australian controlled entities are members of a
consolidated group for income tax purposes.
The head entity, Mortgage Choice Limited, and the
controlled entities in the tax consolidated group account
for their own current and deferred tax amounts. These
tax amounts are measured as if each entity in the
tax consolidated group continues to be a standalone
taxpayer in its own right.
In addition to its own current and deferred tax amounts,
Mortgage Choice Limited also recognises current tax
liabilities or assets, and deferred tax assets arising from
unused tax losses and unused tax credits assumed from
controlled entities in the tax consolidated group.
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.
52
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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.
Leases
F.
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.
Impairment of assets
G.
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.
Trade receivables
I.
Trade receivables are recognised initially at fair value
and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
Trade receivables are generally due in 30 days.
Collectability of receivables is reviewed on an ongoing
basis. Debts which are known to be uncollectible
are written off. A provision for impairment of trade
receivables is established when there is objective
evidence that the Group will not be able to collect
all amounts due according to the original terms of
receivables. The amount of the provision is the difference
between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the
original effective interest rate. Cash flows relating to
short term receivables are not discounted if the effect of
discounting is immaterial. The amount of the provision
is recognised in the income statement in other expenses.
Trailing commissions receivable
J.
Receivables related to trailing commissions are
recognised in accordance with the revenue recognition
policy outlined in Note 1(D).
K. 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.
Financial assets, other than those at FVTPL, are assessed
for indicators of impairment at the end of each reporting
period. Financial assets are considered to be impaired
when there is objective evidence that, as a result of one
or more events that occurred after the initial recognition
53
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 1: Summary of significant accounting
policies (continued)
of the financial asset, the estimated future cash flows of
the investment have been affected.
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 7).
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
Computer equipment
3-4 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.
Intangible assets
M.
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 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.
54
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 27.
The fair value of options granted under the Mortgage
Choice Executive Performance Option Plan, performance
shares granted under the Mortgage Choice Performance
Share Plan and share rights granted under the Mortgage
Choice Share Rights Plan is recognised as an employee
benefit expense with a corresponding increase in
equity. The total amount to be expensed is determined
by reference to the fair value of the options and
performance shares granted, which includes any market
performance conditions but excludes the impact of any
service and non-market performance vesting conditions
and the impact of any non-vesting conditions.
Non-market vesting conditions are included in
assumptions about the number of options that are
expected to vest. The total expense is recognised over
the vesting period, which is the period over which all of
the specified vesting conditions are to be satisfied. At
the end of each period, the entity revises its estimates of
the number of options that are expected to vest based
on the non-marketing vesting conditions. It recognises
the impact of the revision to original estimates, if any,
in profit or loss, with a corresponding adjustment
to equity.
The Mortgage Choice Executive Performance Option
Plan, the Mortgage Choice Performance Share Plan and
the Mortgage Choice Share Rights Plan are administered
by the Mortgage Choice Performance Share Plan Trust
and the Mortgage Choice Employee Incentive Trust; see
Note 1(B)(ii).
Short-term incentive plans
The Group recognises a liability and an expense where
contractually obliged or where there is a past practice
that it has created a constructive obligation.
Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or when
an employee accepts voluntary redundancy in exchange
for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either
terminating the employment of current employees
according to a detailed formal plan without possibility of
withdrawal or providing termination benefits as a result
of an offer made to encourage voluntary redundancy.
Benefits falling due more than twelve months after
balance sheet date are discounted to present value.
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
55
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Diluted earnings per share
(ii)
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.
Note 1: Summary of significant accounting
policies (continued)
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.
U. Earnings per share
Basic earnings per share
(i)
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.
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’
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
1 January 2017
30 June 2020
30 June 2018
56
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Standard/Interpretation
AASB 2016-5 ‘Amendments to Australian Accounting
Standards – Classification and Measurement of
Share-based Payment Transactions’
AASB 2008-1 Amendments to Australian Accounting
Standards – Annual Improvements 2015-2017 Cycle
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 15 Revenue from Contracts with Customers
Under AASB 15 revenue is recognised when the
performance obligations have been satisfied and when
the goods and/or services underlying the particular
performance obligation is transferred to the customer.
The Group’s major source of income is origination and
trailing commission on residential mortgages. Until
30 June 2018, the origination and trailing commission
receivables have been measured and recognised under
AASB 139, however, from 1 July 2018 the present value of
the trailing commission receivables will be recognised
under AASB 15 as a contract asset. Under AASB15, this
will be measured using the expected value method.
The impact of this change in revenue recognition is
not expected to have a material impact on the Group's
financial statements.
The Group’s recognition of other sources of income
are not expected to change materially under AASB 15,
with the exception of trailing income on life insurance
products referred by Mortgage Choice brokers to a third
party provider. This is currently recognised when the
commission is received or receivable. Under AASB 15,
the future trailing commission will be estimated and
recognised when the policy is written as no service is
required beyond the referral. The impact of this change
in revenue recognition is not expected to have a material
impact on the Group’s financial statements.
AASB 9 Financial Instruments
AASB 9 and the relevant amending standards
introduced new requirements for the classification and
measurement of financial assets, impairment of financial
assets and hedge accounting.
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
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 2019
30 June 2020
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.
Based on an analysis of the Group’s financial assets and
financial liabilities as at 30 June 2018, on the basis of
the facts and circumstances that exist at that date, the
directors of the Company have assessed of the impact of
AASB 9 to the Group’s consolidated financial statements
as follows:
Classification and measurement
As noted above, future trail commission
receivable will be accounted for under AASB 15 as a
contract asset;
Trail commission payables will not be affected
and will remain a financial liability measured at
amortised cost.
Credit loss impairment
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. As such, the adoption of an expected
credit loss model is not expected to have a material
impact on the Group’s financial results.
The Group does not perform hedge accounting and
as such will not be impacted by the change in hedge
accounting requirements.
AASB 16 Leases
AASB 16 introduces a comprehensive model for the
identification of lease arrangements and accounting
treatments for both lessors and lessees.
AASB 16 distinguishes between leases and service
contracts on the basis of whether an identified asset
is controlled by a customer. AASB 16 eliminates the
distinction between operating leases (off balance
sheet) and finance leases (on balance sheet) for lessee
57
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 1: Summary of significant accounting
policies (continued)
is not currently practicable to provide an estimate of the
financial effect until the directors complete the review.
accounting and replaces it with a lease model where
a right-of-use asset and a corresponding lease liability
will be recognised for all leases (i.e. all on balance
sheet) except for short-term leases and leases of low
value assets.
As at 30 June 2018, the Group currently has various
non-cancellable operating lease commitments in
place. A preliminary assessment indicates that these
arrangements will meet the definition of a lease under
AASB 16, and hence the Group will recognise a right-of-
use asset and a corresponding liability in respect of all
these leases unless they qualify for low value or short-
term leases upon the application of AASB 16.
The new requirement to recognise a right-of-use asset
and a related lease liability is expected to have an impact
on the amounts recognised in the Group’s consolidated
financial statements and the directors are currently
assessing the extent of the potential impact. As such, it
X. Parent entity financial
information
The financial information for the parent entity, Mortgage
Choice Limited, disclosed in Note 28 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.
Financial guarantees
Where the parent entity has provided financial
guarantees in relation to loans and payables of
subsidiaries for no compensation, the fair values of
these guarantees are accounted for as contributions and
recognised as part of the cost of the investment.
Note 2: Financial risk management
The Group has limited exposure to financial risks with the exception of credit risk, liquidity risk and prepayment risk.
The Group does not use derivative financial instruments such as foreign exchange contracts, interest rate swaps or
other derivative instruments to hedge risk exposures. It does not operate internationally, does not have any debt or
significant interest rate exposure and is not exposed to either securities price risk or commodity price risk.
Risk management is carried out by the Group’s finance department under policies approved by the Board of Directors.
The Group holds the following financial instruments:
2018
$’000
2017
$’000
3,353
8,646
103,460
100,620
275,685
251,234
382,498
360,500
Financial Assets
Current
Cash and cash equivalents
Trade and other receivables*
Non-current
Receivables
* Excludes prepayments
58
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Financial Liabilities
Current
Trade and other payables
Non-current
Trade and other payables
2018
$’000
2017
$’000
77,211
68,605
196,711
273,922
153,812
222,417
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 2018 the weighted average
interest rate on its cash balances was 1.5% (2017 1.5%). If interest rates were to increase by 100 basis points, the Group’s
after tax result would increase by $83,000 (2017 $83,000). A decrease of 100 basis points would reduce the Group’s
after tax result by $83,000 (2017 $83,000).
The Group does not have any borrowings and therefore is not exposed to interest rate risk on borrowings.
(b) Credit risk
Credit risk is assessed on a Group basis. It arises from cash and cash equivalents placed with banks as well as credit
exposure to financial institutions on the Group’s lender panel from which future trailing commissions are due. The
majority of these financial institutions are Authorised Deposit-taking Institutions (ADIs) and therefore regulated
by the Australian Prudential Regulation Authority (APRA) and are independently rated. This forms the basis of the
Group’s assessment of credit risk. If the lender has not been independently rated, credit risk is assessed taking into
account its financial position, past experience and other factors. The table below indicates the Group’s exposure to
each ratings category.
59
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 2: Financial risk management (continued)
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’s lender panel is set out in the table below.
2018
ADIs
Non ADIs
Standard &
Poor’s Credit
Rating
Cash
$’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
BBB-
Not rated
3,353
8,654
243,407
–
–
–
–
–
–
–
1,172
1,678
–
236
1,723
–
156
21,458
46,171
–
2,839
31,432
–
5,347
3,353
13,619
350,654
–
–
–
–
–
–
–
–
–
60
307
–
–
1
–
128
8,218
8,714
–
–
–
–
–
–
2,666
7,593
10,259
Total Receivable
3,353
22,333
360,913
60
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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
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
Liquidity risk and fair value estimation
(c)
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.
61
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
Note 2: Financial risk management (continued)
The tables below analyse the Group’s financial assets into relevant maturity groupings based on the expected future
cashflows. No financial assets are past due or impaired.
At 30 June 2018
Non-derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non‑interest bearing
Cash and cash equivalents
Trade receivables
Franchisee and other receivables
Less than
6 months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over 5
years
$’000
Total cash
flows
$’000
Carrying
amount
$’000
3,351
1,190
2
11,751
308
–
–
–
1,119
1,970
3,238
–
–
25
–
–
10
–
–
11
–
419
–
–
–
3,351
7,936
2
11,751
354
3,351
6,238
2
11,751
354
Future trailing commissions receivable1
48,078
43,938
76,009
148,241
114,368
430,635
360,913
64,680
45,082
77,989
151,490
114,787
454,028
382,609
The fair value of the future trailing commissions receivable is $370,131,000. The fair value of all other assets is the
same as their carrying amount. The fair value of the future trailing commissions receivable would be classified as
Level 3 in the fair value heirarchy. It has been determined in accordance with generally accepted pricing models 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 4.34%. There has
been no change to the valuation technique during the year.
At 30 June 2017
Non-derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non‑interest bearing
Cash and cash equivalents
Trade receivables
Franchisee and other receivables
Less than
6 months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over 5
years
$’000
Total cash
flows
$’000
Carrying
amount
$’000
8,644
680
2
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
Future trailing commissions receivable
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.
62
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 2018
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
13,401
–
–
–
–
–
–
–
–
–
13,401
13,401
–
–
Future trailing commissions payable
33,625
31,609
54,747
107,111
83,202
310,194
260,521
47,026
31,609
54,747
107,111
83,202
323,595
273,922
The Group's most significant financial liability is related to the net present value of future trailing commissions
payable. Due to the structure of the Group's commission arrangements, the total future trailing commissions payable
is limited only to the total trailing commissions that are actually received and as a result, naturally limits the liquidity
risk of the Group. 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.
The fair value of the future trailing commissions payable is $266,301,000. The fair value of all other liabilities is the
same as their carrying amount.
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
11,286
3,545
–
–
–
–
–
–
–
–
11,286
11,286
3,545
3,545
Future trailing commissions payable
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
Prepayment risk
(d)
Prepayment risk has been assessed through the sensitivity analysis of run-off rates, refer to Note 3.
Note 3: Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below.
Trailing commissions
The Group receives trailing commissions from lenders on settled loans over the life of the loan based on the loan
book balance outstanding subject to the loan continuing to perform. The Group also makes trailing commission
payments to franchisees based on their individual loan book balance outstanding.
63
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 3: Critical accounting estimates and judgements (continued)
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 a
variety of contributing factors including: an annual assessment 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
2018
2017
4.0 years
3.7 years
5.4%
72%
5.7%
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 $4.7 million (made up of decreases in current assets of $1.0 million, non-current assets
of $23.8 million, current liabilities of $0.7 million, non-current liabilities of $17.4 million and deferred tax liabilities
of $2.0 million) if run-off rates increase by 10%; or
an increase in net assets of $5.3 million (made up of increases in current assets of $1.0 million, non-current assets
of $27.0 million, current liabilities of $0.7 million, non-current liabilities of $19.7 million and deferred tax liabilities
of $2.3 million) if run-off rates decrease by 10%.
Changes to the discount rate are likely to occur as a result of changes to the interest rate. However, management
does not consider this to have a material impact on the value of trailing commissions receivable and payable as they
are calculated using amortised cost rather than fair value. During FY2018 the Group revised the broker remuneration
framework resulting in an increase to the percentage paid to franchisees. Management does not consider further
material changes to the percentage paid to franchisees to be likely.
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 $8.7 million positive adjustment after tax to the Group’s profit and loss for FY2018 (2017 – $1.2 million
positive adjustment). Changes to the model assumptions to reflect the new broker remuneration framework resulted
in a $28.5 million negative adjustment after tax to the Group’s profit and loss for FY2018, refer Note 4 (c) (ii).
Note 4: Segment information
(a) Description of segments
Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer
that are used to make strategic and operating decisions including the allocation of resources.
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 represent the expenses
64
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 solely attributable to that business segment. HMC ceased operations in 2015 but will continue to receive trailing
commissions until August 2018. The Group operates only in Australia.
Information provided to the Chief Executive Officer
(b)
Information provided to the Chief Executive Officer for the year ended 30 June 2018 is as follows:
Product Segments
2018
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
OPEX (excl SBR1)
Income tax expense
NPAT (IFRS)
NPAT (cash)
1 Share-based remuneration
2017
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
OPEX (excl SBR1)
Income tax expense
NPAT (IFRS)
NPAT (cash)
1 Share-based remuneration
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
217,808
206,357
40,677
68,422
1,587
35,110
1,609
4,238
38,289
65,807
1,587
33,389
1,415
3,786
23,382
22,750
11,322
2,259
2,259
–
1,721
155
362
383
129
129
356
–
–
39
90
249
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
199,797
189,452
10,345
68,369
67,756
1,581
35,619
9,689
22,177
22,634
66,177
64,753
1,513
33,665
9,629
22,036
21,889
2,192
2,192
68
1,954
60
141
177
–
–
811
–
–
–
–
568
65
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 4: Segment information (continued)
Cash versus IFRS
2018
2017
% change
2018
Cash1
% change
2017
IFRS
$’000
$’000
$’000
$’000
Origination commission income2
70,015
75,859
(8%)
70,015
75,859
Trailing commission income2
98,459
96,689
2%
124,745
102,791
168,474
172,548
(2%)
194,760
178,650
Origination commission paid
48,839
54,611
(11%)
48,839
54,611
Trailing commission paid3
59,911
59,103
1%
73,048
63,783
108,750
113,714
(4%)
121,887
118,394
Net core commissions
59,724
58,834
72,873
60,256
(8%)
21%
9%
(11%)
15%
3%
21%
4%
7%
1,692
2,072
1,752
2,227
356
2%
4%
7%
1,692
2,072
1,752
2,227
129
811
(56%)
–
100%
4,364
4,349
68,423
67,758
35,110
35,619
0%
1%
(1%)
4,364
4,349
81,345
68,369
35,110
35,619
0%
19%
(1%)
–
–
(279)
884
(132%)
33,313
32,139
4%
46,514
31,866
46%
Diversified products net revenue
Financial Planning net revenue
HMC net revenue
Other income2
Gross Profit
Operating Expenses
Share-based remuneration
Net Profit Before Tax
Balance sheet adjustment – NPV Future
trail payable4
(40,668)
Net Profit After Tax
23,382
22,634
3%
4,238
22,177
(81%)
1 Cash is based on accruals accounting and excludes share-based remuneration and the net present value of future trailing
commissions receivable and payable.
2 Commissions received in 2017 representing the margin earned on white label products have been reclassified from other income
to origination commission ($777k) and trailing commission ($300k).
3 Trailing commission income and trailing commission paid include discount unwind as itemised in the consolidated
income statement.
4 The NPV of future trail payable was adjusted at 30 June 2018 to reflect the change in the broker remuneration structure.
66
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 The following provides additional detail to assist in reconciliation of the above table to the consolidated
income statement:
Diversified products commissions
Diversified products commissions paid
Diversified products net revenue
Financial Planning revenue
Financial Planning commissions paid
Financial Planning net revenue
Help Me Choose commissions1
Help Me Choose direct costs
Help Me Choose net revenue
Franchise income
Interest
Other Income2
Other income
2018
2017
% change
2018
Cash
% change
2017
IFRS
$’000
$’000
$’000
$’000
7,265
5,513
1,752
11,290
9,063
2,227
356
–
356
921
577
2,866
4,364
6,573
4,881
1,692
10,225
8,153
2,072
811
–
811
1,126
474
2,749
4,349
11%
13%
4%
10%
11%
7%
(56%)
0%
(56%)
(18%)
22%
4%
0%
7,265
5,513
1,752
11,290
9,063
2,227
129
–
129
921
577
2,866
4,364
6,573
4,881
1,692
10,225
8,153
2,072
–
–
–
1,126
474
2,749
4,349
11%
13%
4%
10%
11%
7%
100%
0%
100%
(18%)
22%
4%
0%
1 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.
2 Commissions received in 2017 representing the margin earned on white label products have been reclassified from other income
to origination commission ($777k) and trailing commission ($300k).
(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.
67
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 4: Segment information (continued)
(ii) Net Profit After Tax
The cash net profit after tax (as shown above) reconciles to the IFRS profit after tax as follows:
Cash Net profit after tax
NPV future trails on new loans originated, net of payout
Less net cash from trail previously recognised under IFRS
Plus adjustments to loan book assumptions
Gain/(loss) on prepayment/(establishment) of trail liability
Plus reversal of amortisation of trail liability1
NPV future trails on Help Me Choose policies
Less net cash from trail previously recognised under IFRS
Less share based payments expense
IFRS before adjustment to NPV Trail Payable
Less Balance Sheet adjustment to NPV Trail payable
IFRS
2018
$’000
2017
$’000
23,382
20,996
22,634
20,336
(20,445)
(20,536)
8,680
(183)
156
20
(179)
279
1,151
(75)
119
–
(568)
(884)
32,706
22,177
(28,468)
–
4,238
22,177
1 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:
Cash
NPV future trails on new loans originated, net of payout
Gross Profit
Net Core Commissions
2018
$’000
2017
$’000
2018
$’000
2017
$’000
68,423
29,995
67,758
29,051
59,724
29,995
58,834
29,051
Less net cash from trail previously recognised under IFRS
(29,206)
(29,335)
(29,206)
(29,335)
Plus adjustments to loan book assumptions
Gain/(loss) on prepayment/(establishment) of trail liability
Plus reversal of amortisation of trail liability1
NPV future trails on Help Me Choose policies written
Less net cash from trail previously recognised under IFRS
12,400
(261)
221
29
(256)
1,644
(108)
170
–
(811)
12,400
(261)
221
–
–
1,644
(108)
170
–
–
IFRS before adjustment to NPV Trail Payable
81,345
68,369
72,873
60,256
Less Balance Sheet adjustment to NPV Trail payable
(40,668)
–
(40,668)
–
IFRS
40,677
68,369
32,205
60,256
1 Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
68
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 5: Revenue
Revenue from continuing operations
Sales revenue
Services
Other revenue
Interest earned on deposits and loans
Interest in relation to discount unwind
Sponsorship and other income
Note 6: 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 9)
Increase/(decrease) in deferred tax liabilities (note 14)
2018
$’000
2017
$’000
196,450
177,631
577
17,915
2,866
474
18,943
2,749
217,808
199,797
2018
$’000
2017
$’000
8,601
(6,986)
(6)
9,472
238
(21)
1,609
9,689
1,609
1,609
(15,678)
8,692
(6,986)
9,689
9,689
(1,344)
1,582
238
69
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 6: Income tax (continued)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Income tax calculated @ 30% (2017 – 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
No part of the deferred tax asset shown above and in note 9 is attributable to tax losses.
Note 7: Trade and other receivables
2018
$’000
2017
$’000
5,847
1,754
166
(305)
1,615
(6)
1,609
31,866
9,560
231
(81)
9,710
(21)
9,689
2018
Non-
current
$’000
Current
$’000
Total
$’000
Current
$’000
2017
Non-
current
$’000
Total
$’000
Trade receivables(1)
11,751
–
11,751
11,907
–
11,907
Net present value of future trailing
commissions receivable
89,640
271,273
360,913
86,955
247,898
334,853
Franchisee receivables
1,972
4,412
6,384
1,505
3,332
4,837
Other receivables
Prepayments
97
578
–
–
97
578
252
470
4
–
256
470
104,038
275,685
379,723
101,089
251,234
352,323
(1) Subject to a limited charge in favour of The Loan Book Security Trust (refer to note 11)
(a) Other receivables
These amounts generally arise from transactions outside the usual operating activities of the consolidated entity.
Impaired trade receivables
(b)
As at 30 June 2018 current trade receivables were not impaired (2017 – nil).
Risk exposure
(c)
Information about the Group’s exposure to credit risk and interest rate risk is provided in Note 2.
Fair values
(d)
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. The fair values of the net present value of future trailing commission receivable are presented in
Note 2.
70
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 8: Non-current assets – Property, plant and equipment
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
Year ended 30 June 2018
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2018
Cost
Accumulated depreciation
Net book amount
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
Total
$’000
340
272
–
(193)
419
1,901
(1,482)
419
419
164
(41)
(196)
346
1,977
(1,631)
346
110
185
–
(56)
239
1,241
(1,002)
239
239
204
–
(103)
340
1,444
(1,104)
340
450
457
–
(249)
658
3,142
(2,484)
658
658
368
(41)
(299)
686
3,421
(2,735)
686
71
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 9: Non-current assets – Deferred tax assets
The balance comprises temporary differences attributable to:
Net present value of future trailing commissions payable
78,156
62,276
2018
$’000
2017
$’000
Employee benefits
Depreciation and amortisation
Accrued expenses
Total deferred tax assets
Set off of deferred tax assets pursuant to set off provisions (note 14)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
750
74
643
843
142
684
79,623
63,945
(79,623)
(63,945)
–
20,454
59,169
79,623
–
17,578
46,367
63,945
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 2016
60,883
898
203
Charged/(credited) to the
income statement
At 30 June 2017
Charged/(credited) to the
income statement
At 30 June 2018
1,393
62,276
15,880
78,156
(55)
843
(93)
750
(61)
142
(68)
74
617
67
684
(41)
643
–
–
–
–
–
62,601
1,344
63,945
15,678
79,623
72
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 10: Non-current assets – Intangible assets
Year ended 30 June 2017
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2017
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2018
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2018
Cost
Accumulated depreciation
Net book amount
Computer
Software
$’000
6,475
937
(1,331)
–
6,081
16,090
(10,009)
6,081
6,081
3,769
(1,288)
–
8,562
19,859
(11,297)
8,562
Note 11: Current liabilities – Trade and other payables
Trade payables(a)
Net present value of future trailing commissions payable
Licence fees repayable
Other payables
2018
$’000
2017
$’000
10,052
63,810
–
3,349
77,211
11,286
53,775
91
3,453
68,605
(a) Loan Book Security Trust
The Loan Book Security Scheme provides security for the trailing commissions payable to certain eligible franchisees
based on performance criteria. Mortgage Choice Limited has granted two charges in favour of a trustee on behalf of
the eligible franchisees. The independent trustee is AET Structured Finance Services Pty Limited.
73
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 11: Current liabilities – Trade and other payables (continued)
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 2018, 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 $4,691,001 (2017 – $4,962,579).
This is included as part of the balance of trade payables at 30 June 2018 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. The fair values of the net present value of future trailing commission payable are presented in Note 2.
Note 12: Provisions
Make good provision(a)
Employee entitlements – annual leave
Employee entitlements – long service leave
2018
Non-
current
$’000
420
–
271
691
Current
$’000
68
731
459
1,258
Total
$’000
Current
$’000
488
731
730
1,949
40
647
278
965
2017
Non-
current
$’000
448
–
343
791
Total
$’000
488
647
621
1,756
(a) Make good provision
Mortgage Choice is required to restore the leased premises of its offices to their original condition at the end of
the respective lease terms. A provision has been recognised for the present value of the estimated expenditure
required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold
improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. Make good
costs that are not expected to be settled within twelve months have been included in non-current liabilities.
Note 13: Non-current liabilities – Trade and other payables
Net present value of future trailing commissions payable
Licence fees repayable
2018
$’000
2017
$’000
196,711
153,812
–
–
196,711
153,812
74
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 14: Non-current liabilities – Deferred tax liabilities
The balance comprises temporary differences attributable to:
NPV of future trailing commissions receivable
Intangibles
Prepayments and other receivables
Set-off of deferred tax assets pursuant to set off provisions (note 9)
Net deferred tax assets
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
2018
$’000
2017
$’000
108,274
100,456
2,131
131
1,346
42
110,536
101,844
(79,623)
(63,945)
30,913
27,437
83,099
110,536
37,899
26,396
75,448
101,844
Movements – Consolidated
At 30 June 2016
Charged to the income statement
At 30 June 2017
Charged to the income statement
At 30 June 2018
NPV of future
trailing
commissions
payable
$’000
Intangibles
$’000
Prepayments
and other
receivables
$’000
98,869
1,587
100,456
7,818
108,274
1,355
(9)
1,346
785
2,131
38
4
42
89
131
Total
$’000
100,262
1,582
101,844
8,692
110,536
Note 15: Contributed equity
(a) Share capital
Ordinary shares – fully paid
2018
shares
$’000
2017
shares
$’000
2018
$’000
2017
$’000
123,964
123,756
7,764
7,277
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.
75
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 15: Contributed equity (continued)
Total contributed equity as at 30 June 2018:
Details
Total ordinary shares on issue
Treasury shares(a)
Total ordinary shares held as contributed equity
Number of
shares
124,997,440
(1,033,825)
123,963,615
Treasury shares
(a)
Share Plan Trust for the purpose of issuing shares under the Mortgage Choice Performance Share Plan (PSP) (see
Note 27 for further information).
Date
Details
30 June 2016
Balance
14 September 2016
Shares issued under the Performance Share Plan to employees
15 September 2016
Shares issued under the Share Rights Plan to employees
1 December 2016
Treasury shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2017
Balance
14 September 2017
Shares issued under the Share Rights Plan to employees
14 September 2017
Shares issued under the Performance Share Plan to employees
15 September 2017
Shares issued under the Share Rights Plan to employees
17 September 2017
Treasury shares issued to the Mortgage Choice Employee Incentive Trust
30 June 2018
Balance
Number of
shares
887,336
(119,995)
(64,339)
499,871
1,202,873
(64,550)
(76,527)
(66,677)
38,706
1,033,825
76
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Movements in ordinary share capital:
Date
Details
30 June 2016
Balance
14 September 2016
Shares issued under the Performance Share Plan to employees
15 September 2016
Shares issued under the Share Rights Plan to employees
1 December 2016
Treasury shares issued to the Mortgage Choice Employee
Incentive Trust
1 December 2016
Held as treasury shares
30 June 2017
Balance
14 September 2017
Shares issued under the Share Rights Plan to employees
14 September 2017
Shares issued under the Performance Share Plan to employees
15 September 2017
Shares issued under the Share Rights Plan to employees
17 September 2017
Treasury shares issued to the Mortgage Choice Employee
Incentive Trust
17 September 2017
Held as treasury shares
30 June 2018
Balance
Number of
shares
$’000
$’000
123,571,527
6,804
119,995
64,339
499,871
(499,871)
123,755,861
64,550
76,527
66,677
38,706
(38,706)
326
147
–
–
7,277
132
208
147
–
–
123,963,615
7,764
Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in
Note 27.
Note 16: 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
2018
$’000
2017
$’000
1,309
2,075
2,075
(279)
(487)
1,309
1,664
884
(473)
2,075
Nature and purpose of reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of options and performance shares granted but
not vested.
77
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 16: Reserves and retained profits (continued)
(b) Retained profits
Balance 1 July
Net profit for the year
Dividends
Balance 30 June
Note 17: Dividends
(a) Ordinary shares
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
Final dividend declared out of profits of the Company for the year ended 30 June 2017 of
9.0 cents per fully paid share paid on 21 September 2017:
Fully franked based on tax paid @ 30%
9.0 cents per share
Interim dividend declared out of profits of the Company for the half-year ended
31 December 2017 of 9.0 cents per fully paid share paid 22 March 2018:
Fully franked based on tax paid @ 30%
9.0 cents per share
(b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have declared a final
dividend of 9 cents per fully paid ordinary share, (2017 – 9.0 cents) fully franked based
on tax paid at 30%. The aggregate amount of the dividend expected to be paid on
10 October 2018 out of retained profits at 30 June 2018, but not recognised as a liability
at year end, is
2018
$’000
2017
$’000
94,836
4,238
93,859
22,177
(22,495)
(21,200)
76,579
94,836
2018
$’000
2017
$’000
–
–
11,246
11,249
22,495
10,579
10,621
–
–
21,200
11,250
11,246
Franked dividend
(c)
The franked portions of the final dividends after 30 June 2018 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 2018.
78
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 2018
$’000
2017
$’000
Franking credits available for subsequent financial years to the equity holders of the
parent entity based on a tax rate of 30% (2017 – 30%)
2,078
3,206
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The impact on the franking account of the dividend recommended by the Directors since year end, but not recognised
as a liability at year end, will be a reduction in the franking account of $4,821,000 (2017: $4,820,000).
Note 18: Key management personnel disclosures
Short-term employee benefits
Post-employment benefits
Long term benefits
Termination benefits
Share-based payments
Balance 30 June
2018
$’000
2017
$’000
2,628,373
2,845,813
158,666
154,019
73,693
39,179
568,528
–
(353,398)
746,930
3,075,862
3,785,941
Detailed remuneration disclosures are provided in the directors' report on pages 19-42 of the remuneration report.
Note 19: 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:
2018
(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 services
Total remuneration for non-audit services
$
213,230
213,230
75,000
18,344
137,400
230,744
79
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 19: Remuneration of auditors (continued)
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 services
Total remuneration for non-audit services
Note 20: Contingencies
Contingent liabilities
The Group had contingent liabilities at 30 June 2018 in respect of:
Guarantees
Guarantees given in respect of premises leases $853,111 (2017: $723,150).
$
201,490
201,490
75,000
17,723
276,350
369,073
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 2018 and 30 June 2017, 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.
80
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 21: Commitments
Lease commitments
Non-cancellable operating leases
The Group leases various offices under non cancellable operating leases expiring within one to six years. The leases
have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The
Group also leases various pieces of office equipment under non-cancellable operating leases.
Operating leases
Operating lease expenditure contracted for at the reporting date but not recognised as
liabilities payable:
Within one year
Later than one year but not later than five years
Later than five years
2018
$’000
2017
$’000
1,212
4,841
–
6,053
1,197
1,289
–
2,486
Note 22: Related party transactions
Parent entity
(a)
The ultimate parent entity within the Group is Mortgage Choice Limited.
Subsidiaries
(b)
Interests in subsidiaries are set out in Note 23.
Key management personnel
(c)
Disclosures relating to key management personnel are set out in Note 18. Additional disclosures are set out in the
Directors’ report in the remuneration report.
Loans to/from related parties
(d)
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.
81
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 23: 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
MC Loan Book Security Pty Limited
Help Me Choose Pty Limited
Country of
incorporation
Australia
Australia
Mortgage Choice Financial Planning Pty Limited
Australia
Class of Shares
Ordinary
Ordinary
Ordinary
Equity holding*
2018
%
100
100
100
2017
%
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 24: Events occurring after the balance sheet date
Dividend payment
Subsequent to year end, a final ordinary dividend of $11,250,000 (9 cents per fully paid share) was declared out of
profits of the Company for the year ended 30 June 2018 on 20 August 2018 to be paid on 10 October 2018.
82
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 25: 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 26: Earnings per share
(a) Basic earnings per share
From continuing operations
(b) Diluted earnings per share
From continuing operations
Earnings used in calculating earnings per share
Profit from continuing operations
2018
$’000
2017
$’000
4,238
1,587
(26,060)
52,934
(279)
(577)
–
4
270
(109)
(1,234)
(195)
(1,559)
(6,986)
193
22,177
1,581
(5,291)
4,741
884
(474)
–
(1)
(1,377)
2,202
(1,003)
(1,276)
289
238
8
22,227
22,698
Consolidated
2018
Cents
2017
Cents
3.4
3.4
17.8
17.7
Consolidated
2018
$’000
2017
$’000
4,238
22,177
83
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
Note 26: Earnings per share (continued)
2018
Number
2017
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
124,988,956
124,749,199
Adjustments for calculation of diluted earnings per share:
Share rights
213,989
367,192
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
125,202,945
125,116,391
Information concerning the
classification of securities
Performance Share Plan
(a)
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.
Share Rights Plan
(b)
Share rights granted to eligible employees 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 27: Share-based
payments
Performance Share Plan (PSP)
(a)
The PSP permits eligible employees as identified by the
Board to be granted allocated unvested shares from the
outset of the applicable performance period, with the
shares to be held on trust for the participants by a share
plan trustee. The shares granted to those employees
are subject to the achievement of performance and
service requirements as specified by the Board. The PSP
is designed to provide the medium-term to long term
incentive component of remuneration for executives and
other designated employees.
Participation in the PSP is offered on an annual basis.
Eligible employees are granted shares to a value
determined by reference to the Company’s reward policy
and market practice with regard to share based incentive
arrangements provided by peer organisations. The right
to receive vested shares will lapse if the performance
and service criteria are not met.
Shares will be acquired for participants following their
acceptance of an offer made under the Plan. The shares
will be acquired by the plan trustee and held on trust
for participants until they are withdrawn from the Plan
(after they have vested or are deemed to be vested) or
are forfeited, in circumstances outlined below. Shares
will be acquired only at times permitted under the
Company’s share trading policy. Shares may be acquired
by on-market or off-market purchases, by subscribing
for new shares to be issued by the Company, or through
the reallocation of forfeited shares. The method of
acquisition for each share allocation will be determined
by the Board. The costs of all share acquisitions under
the Plan will be funded by the Group. Participants will
not be required to make any payment for the acquisition
of shares under the Plan.
A Notice of Withdrawal may be lodged by a participant
following the earlier of:
a date ten years from grant date;
the participant ceasing to be an employee of
the Company;
a ‘capital event’ (generally, a successful takeover
offer or scheme of arrangement relating to the
Company) occurring; or
the date upon which the Board gives its written
consent to the lodgement of a Notice of Withdrawal
by the participant.
While shares remain subject to the PSP rules,
participants will, in general, enjoy the rights 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”,
84
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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 below.
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 eligible employees 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.
Share Rights Plan
(b)
The Share Rights Plan (SRP) permits eligible employees
as identified by the Board from time to time to be
granted share rights (“rights’) from the outset of the
applicable performance period. The rights granted to
those employees are subject to the achievement of
performance and service requirements as specified by
the Board. Eligible employees are granted rights to a
value determined by reference to the Company’s reward
policy and market practice with regard to share based
incentive arrangements provided by peer organisations.
The rights lapse if the performance and service criteria
are not met.
Upon vesting, the Company must acquire or issue the
number of shares, or the fraction thereof, into which
the rights are convertible under the terms of the
specific grant. The method of acquisition for each share
allocation will be determined by the Board. The costs of
all share acquisitions under the SRP will be funded by
the Group. Participants will not be required to make any
payment for the acquisition of rights under the SRP. The
Board at its discretion may choose to settle the rights as
a cash payment at its sole discretion.
If a participant ceases to be employed by the Company
unvested rights lapse immediately. Notwithstanding
this rule if a participant ceases to be an employee
for a qualifying reason (including death, disability,
retirement, redundancy, corporate restructure, or any
other circumstances determined by the Board), the Board
may in its discretion determine the treatment of any
unvested rights.
If the Board determines that a participant has acted
fraudulently or dishonestly; is in breach of his or her
obligations to the Group; or is knowingly involved in a
material misstatement of financial statements, the Board
may determine that the conditions attached to the rights
may be reset; the rights that have not vested may lapse;
allocated or vested shares may be forfeited; or shares
that have been sold on vesting must be repaid in part or
in full.
The Board may in its sole discretion determine whether
some or all of the rights vest or lapse or whether
unvested rights remain subject to applicable conditions
of vesting on the event of a change of control.
The assessed fair value at grant date of the rights granted
to individuals is allocated equally over the period from
grant date to vesting date, and the amount is included in
the remuneration tables below.
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 and the
risk free interest rate for the term of the rights.
85
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 27: Share-based payments (continued)
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
2018
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
22 September 2014
14 September 2017
$2.72
76,527
22 September 2014
14 September 2017
$1.68
62,610
17 September 2015
14 September 2018
$2.01
255,254
17 September 2015
14 September 2018
$1.19
255,254
25 October 2016
14 September 2019
$2.28
254,431
25 October 2016
14 September 2019
$1.30
254,431
Total
Weighted average price
1,158,507
$1.76
–
–
–
–
–
–
–
–
(76,527)
–
–
–
–
–
–
–
–
–
–
–
–
(62,610)
–
–
(117,731)
137,523
(117,731)
137,523
(108,387)
146,044
(108,387)
146,044
(76,527)
– (514,846)
567,134
$2.72
–
$1.69
$1.70
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
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
(98,396)
–
(15,379)
(1,819)
(1,489)
(1,456)
(1,456)
–
–
Total
Weighted average price
887,534
523,520
(119,995)
$1.87
$1.79
$2.72
–
–
–
–
–
–
–
–
–
–
–
–
(80,510)
–
–
–
–
(6,234)
76,527
(5,098)
62,610
(13,026)
255,254
(13,026)
255,254
(7,329)
254,431
(7,329)
254,431
(132,552) 1,158,507
$1.73
$1.76
The weighted average remaining contractual life of performance shares outstanding at the end of the period was
0.72 years (2017 – 1.53 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;
(c) share price at grant date: $2.28;
86
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 (d) expected price volatility of the Company’s shares: 29.04%;
(e) expected dividend yield: 0%; and
(f) risk-free interest rate: 1.686%.
Set out below are summaries of shares conditionally issued under the Share Rights Plan:
Offer Date
Vesting date
Value
2018
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
7 April 2015
15 September 2017
$2.21
56,560
25 August 2016
14 September 2017
25 August 2016
14 September 2018
6 October 2017
14 September 2020
6 October 2017
14 September 2020
$2.21
$2.21
$1.78
$1.40
59,772
59,772
–
305,816
–
203,876
–
–
–
(56,560)
(59,772)
–
–
–
–
–
–
–
–
(59,772)
–
–
–
–
(134,748)
171,068
–
(89,832)
114,044
Total
176,104
509,692
(116,332)
– (284,352)
285,112
Weighted average price
$2.33
$1.63
$2.40
–
$1.75
$1.63
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
15 September 2017
$2.60
56,560
–
–
25 August 2016
14 September 2017
25 August 2016
14 September 2018
$2.21
$2.21
–
–
59,772
59,772
(56,559)
–
–
–
Total
Weighted average price
113,119
119,544
(56,559)
$2.60
$2.21
$2.60
–
–
–
–
–
–
–
–
–
–
–
–
–
56,560
59,772
59,772
176,104
$2.33
The weighted average remaining contractual life of performance shares outstanding at the end of the period was
2.21 years (2017 – 0.52 years).
FY2018 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 FY2018
as per her 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 2018 with 50% vesting 14 September 2019 and 50% vesting 14 September 2020. The accounting
grant date for these share rights are 3 April 2018.
87
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 Note 27: Share-based payments (continued)
Expenses arising from share-based payment transactions
(c)
Total expenses arising from share based payment transactions recognised during the period as part of employee
benefit expense were as follows:
Shares issued under PSP
2018
$’000
2017
$’000
(279)
(279)
884
884
Note 28: Parent entity financial information
Summary financial information
(a)
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
2018
$’000
2017
$’000
105,831
107,795
390,764
365,768
79,459
307,774
70,016
262,518
7,764
1,309
7,277
2,075
73,917
93,898
82,990
103,250
3,842
3,842
22,036
22,036
(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 $853,111 (2017 – $723,150). 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 2018 or 30 June 2017.
88
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 In the Directors’ opinion:
(a) the financial statements and notes set out on pages 44 – 88 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 2018 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.
Vicki Allen
Chairman
Sydney
20 August 2018
89
Directors’ Declarationfor the year ended 30 June 2018Mortgage Choice Annual Report 2018 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
2018, 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 Group’s financial position as at 30 June 2018 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
responsibilities under
the Auditor’s
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
90
Independent Auditor’s Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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
How the scope of our audit responded to
the Key Audit Matter
Our audit procedures included but were not
limited to:
trailing
As at 30 June 2018, the Group has
recognised
commissions
receivable of $361 million as disclosed
in Note 7 and trailing commissions
payable of $261 million as disclosed in
Note 11 and 13 representing the net
present value of
trailing
commissions receivable and payable by
the Group.
future
These are measured at fair value at
initial recognition and at amortised cost
subsequent to initial recognition of the
trailing commissions receivable and
payables. Fair value at recognition
requires
significant management
judgement with regard to:
Estimation of the discount rate
to be applied to loans originated
in that year,
book
Loan
rate
run
off
assumptions; and
Percentage of commissions paid
to franchisees.
Evaluating and testing the key controls
to
management have
determine the net present value of the
future trailing commission receivable
and payable,
in place
Comparing previously forecast trailing
commission income and expense by
management to the actual results to
assess historical accuracy of
management’s estimates,
Assessing the extraction of loan data
used in management’s model for
completeness,
Evaluating the accuracy of the loan
data by matching a sample of loans
listed on the loan data to external
Lender Commission Statements,
Challenging the reasonableness of
management’s assumptions in the
determination of the trailing
commission receivable and payable
based on industry comparative run off
rates and market observable inputs
for the discount rate,
Developing an expectation of the
percentage to be paid to franchisees
based on the loan book data and new
remuneration structure
communicated; and
Engaging internal experts to
independently develop a model, using
the loan data inputs and assumptions
applied by management, to
recalculate the valuation of trailing
commission receivable and payable.
This was compared to management’s
valuation, in order to test the
integrity and mathematical accuracy
of management’s model.
We also considered the appropriateness of the
Group’s disclosures in Note 3 the financial
statements.
91
Independent Auditor’s Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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 2018,
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
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.
92
Independent Auditor’s Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
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.
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 14 to 35 of the Directors’
Report for the year ended 30 June 2018.
In our opinion, the Remuneration Report of Mortgage Choice Limited, for the year ended
30 June 2018, 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.
93
Independent Auditor’s Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
DELOITTE TOUCHE TOHMATSU
Heather Baister
Partner
Chartered Accountants
Sydney, 20 August 2018
94
Independent Auditor’s Reportfor the year ended 30 June 2018Mortgage Choice Annual Report 2018
95
Shareholder Informationfor the year ended 30 June 2018The shareholder information set out below was applicable as at 31 July 2018.A. Distribution of equity securitiesAnalysis of numbers of equity security holders by size of holding:Class of equity securityOrdinary Shares1 – 1,0001,0381,001 – 5,0002,2305,001 – 10,0001,11210,001 – 100,0001,253100,001 and over605,693There were 200 holders of less than a marketable parcel of ordinary shares.Mortgage Choice Annual Report 2018 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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