More annual reports from Mortgage Choice Limited:
2019 ReportPeers and competitors of Mortgage Choice Limited:
Waterstone Financial, Inc2019 Annual Report
A
Contents
01 2019 Performance
03 Chairman’s Report
05 CEO Overview
09 Mortgage Choice’s
Innovative Technology
11 Directors’ Report
37 Auditor’s Independence
Declaration
38 2019 Financial Report
90 Shareholder Information
92 Corporate Directory
Our commitment to help more Australians
make better choices for a better life drives
everything we do.
27.5k+
home loans
written in FY19
FY2019 was a landmark year for Mortgage
Choice, making substantial leaps forward
in how we equip our franchisee network to
best serve their customers.
23.4
22.6
20.5
18.6
$14.0m
Against the backdrop of a challenging
property and mortgage market and
significant regulatory scrutiny, the Company
made considerable improvements to its
mortgage broker and financial adviser
offerings to build a platform for long-term
sustainable growth.
These investments have given the Company
a competitive advantage, strengthening
the overall customer experience and
advocacy for the brand.
15
16
17
18
2019
NPAT Cash
$m
Across
28
lenders
Mortgage Choice Annual Report 2019
B Mortgage Choice Annual Report 2019
WITH YOU EVERY STEP OF THE WAY Others 2%
Financial Planning 6%
Diversified products 3%
Broking 89%
$54.3bn
Loan book in FY19
Gross revenue
by division
$9.4bn
$54.3bn
6c
$29.65m
12.2 12.3
11.5
11.5
54.6
53.4
18.0
17.5
16.5
15.5
51.7
49.5
Funds under advice
1,000
Premiums in force
35
27.829
24.182
19.196
15.034
800
600
400
200
0
30
25
20
15
10
5
0
15
16
17
18 2019
15
16
17
18
2019
15
16
17
18 2019
15
16
17
18
19
Total settlements
$bn
Loan book
$bn
Total dividends
Cents
Funds under advice
and Premiums in force
$m
02
WITH YOU EVERY STEP OF THE WAY Chairmans Report
Nov 2015
Government announces
ASIC Review into Mortgage
Broker Remuneration
Mar 2017
APRA introduces Macro-
Prudential controls including
caps on interest-only lending
Feb 2018
Royal Commission
commences
Mar 2017
ASIC releases findings and
recommendations with
focus on changes to broker
remuneration structure
Jan 2018
FINANCIAL PLANNING INDUSTRY ONLY
Life Insurance Remuneration
Reforms commence
May 2018
APRA directed lender
credit policy tightening
03 Mortgage Choice Annual Report 2019
03 Mortgage Choice Annual Report 2019
“ A thriving professional broker channel is essential so that all Australian consumers can continue to experience real choice and access to credit.”Vicki Allen, Chairman The past year was one dominated by scrutiny of the financial
services sector by government, regulators and the media.
In addition, the broking sector was impacted by tightened
lending policies and a slowing property market across Australia.
Uncertain business environment
The past year was one dominated by
scrutiny of the financial services sector by
government, regulators and the media. In
addition, the broking sector was impacted
by tightened lending policies and a slowing
property market across Australia.
The scrutiny prevailed through the Royal
Commission into Misconduct in the
Banking, Superannuation and Financial
Services Industry (Royal Commission).
The Royal Commission recommended
significant changes to broker remuneration
structures, which created much uncertainty
for the broking sector. However, both sides
of parliament acknowledged the important
role mortgage brokers play in driving
competition in the home lending market.
Consequently, the current remuneration
model, which delivers brokers an upfront
and trail commission on settled residential
mortgages, will be retained for the next
three years. Treasury will then review the
broker remuneration structure.
We will continue to work with regulators,
industry and government to ensure
Mortgage Choice brokers and financial
advisers provide professional support and
advice for our customers within a sound
governance framework.
Important role of mortgage brokers
Over the past year a record share of
Australians turned to a mortgage broker.
In uncertain times, borrowers value the
choice and support of a professional
broker. We are committed to enabling
competition in the home lending market.
A thriving professional broker channel is
essential so that all Australian consumers
can continue to experience real choice and
access to credit.
Strong leadership
Last year we welcomed Susan Mitchell
as the Chief Executive Officer of Mortgage
Choice. In her first full year, Susan delivered
a new online broker platform as well as
enhanced software for our financial advisers.
Both were designed to provide a better
customer, broker and adviser experience, as
well as deal with the increasing compliance
requirements for both lending and advice
through more efficient tools and processes.
She remains highly committed to evolve
and strengthen the business within the new
lending landscape.
Board Renewal
Our ongoing board renewal continued this
year and in February 2019 Dharmendra
(Dharma) Chandran was appointed to
the Mortgage Choice Board. Dharma is
an experienced non-executive director
and brings a deep understanding of the
financial services industry and franchising,
as well as a track record in transformational
business and cultural change.
Steve Jermyn retired as a director of the
Company in June 2019. Steve joined the
Mortgage Choice Board in May 2004
and made a significant contribution
to Mortgage Choice during that time.
Steve chaired the Audit Committee
for most of his tenure and his financial
nous and franchising experience was
invaluable. On behalf of my fellow Board
members, I would like to thank Steve
for his commitment to the success of
Mortgage Choice over the last 15 years.
We wish him well for the future.
Dividends
The Board has resolved to pay a final
ordinary dividend of 3 cents per share.
This results in a total ordinary dividend
payment for the year ended 30 June 2019
of 6 cents per share.
On behalf of the board, I would like to
thank our staff and franchisees for their
commitment and efforts over the past
year and thank our shareholders for your
continued support.
Vicki Allen
Chairman
Jun 2018
Productivity Commission
releases final report on
Competition in the Australian
Financial System, which is
consistent with findings
and recommendations in
ASIC Report
Dec 2018
APRA softens Macro Prudential
controls including those on
interest-only lending
Feb 2019
Royal Commission releases
final report and findings
May 2019
Australian
Federation Election
Sep 2018
Royal Commission releases
Interim Report
Jan 2019
FINANCIAL PLANNING INDUSTRY ONLY
Higher educational requirements
commence under FASEA for new
financial advisers
Feb 2019
Industry rolls out consumer
campaign to highlight importance
of brokers to competition
04
CEO Overview
Susan Mitchell, Chief Executive Officer
05 Mortgage Choice Annual Report 2019
05 Mortgage Choice Annual Report 2019
“Looking to the financial year ahead, in FY2020 Mortgage Choice will continue to implement its strategic change program to build a platform for growth over the long term.” The most pleasing outcome of this difficult year is the undisputed
value of the mortgage broker industry, which received the
strongest vote of confidence yet from borrowers, lenders and
the Australian Government.
Following a tumultuous year for the
financial services industry, Mortgage
Choice continued to excel in helping
Australians with their evolving financial
needs by delivering a range of financial
choices teamed with trusted expert advice.
The most pleasing outcome of this
difficult year is the undisputed value of
the mortgage broker industry, which
received the strongest vote of confidence
yet from borrowers, lenders and the
Australian Government.
Before I discuss Company performance
and achievements over the past
12 months and look ahead to the goals
for the coming year, I’d first like to review
the challenging economic and regulatory
environment the business faced in FY2019.
Tightened lending environment
and falling property prices
Over the course of the year lenders
tightened their lending policies and
increased the level of information
required on home loan applications in
response to heightened scrutiny by APRA
in parallel with the Royal Commission
inquiry. As a result, in FY2019, home loan
applications took longer to complete and
people borrowed less money. This had
a flow-on effect on prices and lending
volumes, with lending volumes reaching
their lowest point in 5 years.
Impact of Royal Commission
At the half-year, ABS housing and finance
approval volumes were impacted by
the slowing property and home loan
markets with a 9.7% decline in approvals
in comparison to the same period in the
previous year (1H2018) 1. These volumes
were further impacted in the second
half by a significant level of uncertainty
regarding the impact of the Banking Royal
Commission recommendations. In the
second half we saw a further 8.9% drop
on the first half, resulting in a full year
reduction of 12.9%.
1. ABS Data 5601 Table 01 Total Lending to Households;
Value of Commitments
2. Comparator Quarterly Report commissioned
by MFAA, Jan-March 2019 quarter
3. Deloitte, The Value of Mortgage Broking July 2018
Impact of election result
The election result in May 2019 has shifted
the economic outlook for property.
Proposed tax changes affecting property,
specifically to negative gearing and capital
gains tax, are now off the table. Interest
rates have moved to further historical lows
and the trajectory of the fall in property
prices in both Melbourne and Sydney
has levelled out. The signs all point to a
recovery in lending volumes. It remains
to be seen how these early signals are
translated into strong market statistics.
Royal Commission –
impact on remuneration
As part of this inquiry, broker remuneration
and conduct was scrutinised and
the Commissioner made two key
recommendations. The first related to
changes to trail commission structures which
post-election will not be implemented by
the Government. The current structures
are to be retained with a review to be
undertaken by Treasury in three years
time. The second recommendation related
to the introduction of new governance
frameworks ensuring customer’s best
interests are at the forefront of brokers’
minds in each transaction.
We have over 25 years of doing the right
thing by our customers. In a period where
conflicted remuneration is subject to
the scrutiny of regulators and a Royal
Commission, Mortgage Choice’s history of
its ‘paid the same’ commission structure
gives customers confidence that our
brokers are putting their clients’ interests
ahead of their own.
There were also a number of
recommendations by the Royal
Commission related to Financial Planning,
including ceasing Grandfathered
commissions (by January 2021). Due to
the fundamentals underlying the existing
Mortgage Choice Financial Planning
model, these recommendations will have
minimal impact on the business.
As CEO of Mortgage Choice I am happy
to support any inquiry that strives to
strengthen the industry and improve
outcomes for the customer. I remain
committed to working collaboratively with
the industry to implement these changes
whilst retaining competition within the
home lending market.
Brokers fight for competition
As the broker industry was called into
the spotlight, Mortgage Choice joined
forces with the Mortgage and Finance
Association of Australia (MFAA) and
other industry participants to execute an
advertising and lobbying campaign to the
consumer public.
I am so very proud of our network and
brokers who stood together under the
Mortgage Choice banner to lobby their
local members of Parliament, and take
every opportunity available to influence
opinion by sharing their customer success
stories, while the Company engaged in
activity at a national level.
The high impact campaign raised
awareness of issues impacting
mortgage brokers and created a deeper
understanding of their role, and stronger
reputation for trust and customer
care by communicating the benefits
brokers bring to borrowers and the
wider economy.
This coordinated approach demonstrated
the strength in a unified voice of the
industry and the collective ability to work
together and achieve a positive result for
both brokers and their customers.
59.7%
share of residential home loan
market originated through
the broker channel 2
90%
of customers are satisfied
with services provided
by a mortgage broker 3
06
CEO Overview
51.9%
53.7%
53.6%
55.3%
59.7%
60
58
56
54
52
50
48
46
44
Sep
14
Dec
14
Mar
15
Jun
15
Sep
15
Dec
15
Jun
16
Sep
16
Mar
17
Mar
Sep
Dec
16
17
16
Broker usage, MFAA 1
%
Jun
17
Dec
17
Mar
18
Jun
18
Sep
18
Dec
18
Mar
19
Growth in broker market share
As housing affordability and the increasing
complexity of the lending environment
continued to challenge investors and
home buyers in FY2019, mortgage brokers
achieved the highest ever residential home
loan market share at 59.7% 1 and 90%
of customers are satisfied with services
provided by a mortgage broker 2. This is a
testament to the choice of products
that cater to wider financial needs and
professional service brokers provide, which
make mortgage applications proceed more
smoothly to settlement.
With six out of ten Australian borrowers
choosing the services of a broker to
secure their property finance, Mortgage
Choice’s reach into local communities
across Australia deepens our relationship
with lenders.
Property market outlook 3
Over the last year, Mortgage Choice
brokers faced challenging conditions in
the Australian property market, which
continued its correction. National dwelling
values recorded an annual decline of 6.9%
in the 12 months to June 2019, Led by
Sydney (-9.9%), Darwin (-9.3%), Melbourne
(-9.2%) and Perth (-9.1%), followed by
Brisbane (-2.6%) and Adelaide (-0.3%).
Hobart and Canberra were the only cities
to record dwelling value growth, rising
2.9% and 1.4% respectively.
Across the regional markets, values were
down 3.1% for the financial year. The
decline in the property market was due
in part to tightening credit policy from
lenders whose forensic scrutiny of home
loan applications significantly delayed
loan approvals and reduced the borrowing
power of many applicants.
Since the federal election the decline in
property prices has lost its momentum
and we have seen more stability in house
prices. In July the RBA cut the official
interest rate to a historic low of 1% which
many lenders have passed on, reducing
the cost of borrowing for investors and
Australian families. This, added to APRA’s
serviceability changes, will enable people
to borrow more, which could put some
positive motion back in to Australia’s
property cycle.
As the spring buying season approaches,
these factors provide an improved
backdrop for better business flows. As
lenders continue to forensically assess
home loan applications against borrower
debt to income ratios and living expenses,
brokers remain to be borrowers’ preferred
method for securing home finance in an
increasingly complex lending environment.
1. Comparator Quarterly Report commissioned by MFAA, Jan-March 2019 quarter
2. Deloitte, The Value of Mortgage Broking July 2018
3. CoreLogic Hedonic Home Value Index July 2019
07 Mortgage Choice Annual Report 2019
Broker remuneration
As FY2019 began, the Company undertook
a program of change to introduce a new
broker remuneration framework and drive
operational efficiencies. The Company
acknowledges the impact this measure
has had on shareholders and believes this
was a necessary step to ensure Mortgage
Choice is better placed in the mortgage
broking industry to attract franchisees
thus supporting the long term viability
of the business.
Network regeneration
The uncertainties overshadowing the
broker industry in FY2019 created a
difficult set of circumstances in which
to recruit. Looking ahead, improved
conditions should help Mortgage Choice
drive the regeneration of its franchise
network, by attracting new business
owners who are motivated to partner with
the experience and expertise our national
brand provides.
Financial Planning
There has been a significant restructuring
of wealth businesses across a number
of Australia’s financial institutions in
FY2019. Following the delivery of the
Royal Commission recommendations, the
financial planning industry continues to
experience an intense period of disruption.
Due to the fundamentals underlying
the existing Mortgage Choice Financial
Planning model, many of the Royal
Commission recommendations will have
little impact on Mortgage Choice, which
has a fee for service advice model and is
not reliant on Grandfathered commissions.
Mortgage Choice Financial Planning
continues to perform with Premiums In
Force growing by 7% and Funds Under
Advice rising 30%. Overall the financial
planning arm achieved $10.5m in gross
revenue in FY2019 to deliver a loss
of $0.1m. These results reflect a new
remuneration model for the Financial
Planning business introduced on
1 October 2018.
The Company continues to capitalise
on the disruption in the financial planning
industry by seeking out high quality
advisers who are considering changing
licensees and take advantage of the
opportunity to build strong referral
relationships within the Mortgage
Choice network.
Despite the challenging operating
environment in FY2019 the Company
has performed well against its profit
guidance given in 1H2019, to deliver
Net Profit After Tax at $14.0 million.
Business priorities for FY2020
Looking to the financial year ahead, in
FY2020 Mortgage Choice will continue to
implement its strategic change program to
build a platform for growth and long term
sustainability. This entails:
Attracting brokers and advisers
– Attract new brokers to regenerate
our existing network, as longer tenure
franchisees look to sell their businesses
to franchise owners who can take the
business to the next level. Additionally,
attract new business owners into the
network who are motivated to partner
with the experience and expertise our
national brand provides.
– Capitalise on the disruption in the
financial planning industry by attracting
talented advisers who are considering
changing licensees to Mortgage Choice
Financial Planning.
Attracting customers
– Mortgage Choice will focus on
attracting and retaining more
customers by continuing to invest
in the Mortgage Choice brand.
Structuring the business for success
– Ensure the majority of the Company’s
resources are focused on revenue
generating activities while maintaining
a program of operational efficiencies to
reduce costs.
Maintaining our investment in IT
– Continue IT investment to enhance our
broker and adviser platforms, while
enabling back office automation and an
improved digital customer experience.
Susan Mitchell
Chief Executive Officer
Innovative Technology
Mortgage Choice has proven its skill
in building, delivering and maintaining
technology that provides the Company
and its franchise network with a
competitive edge.
Our new Broker Platform was built to meet
the specific requirements of Mortgage
Choice brokers and enables them to
operate more efficiently and achieve
higher business performance outcomes.
As technology advancements continue
unabated, our technology team
is well placed to incorporate new
features to futureproof the Company
for tomorrow’s business needs and
customer requirements.
In late FY2019, Mortgage Choice
incorporated its new File Management
feature, which is a workflow engine with
a set of standard tasks that can be set
and managed at a franchise level. This
technology will be a key driver of efficiency
in our franchisees businesses and will
support consistent process management
of loans from application to settlement.
Our continued investment in best of breed
technology was extended to the financial
planning business in FY2019 to enable
our advisers to improve the efficiency and
success of their businesses.
Business Outcomes
In our last annual report, I shared the
Company’s four priorities for the year.
They were:
– Embed the new broker and adviser
remuneration models.
– Undertake a program of
operational efficiencies.
– Build brand awareness and improve
customer experience.
– Position Mortgage Choice as
an aggregator of choice for
potential franchisees.
08
BUILDING A STRONGER REPUTATION FOR TRUST & CUSTOMER CARE Mortgage Choice’s Innovative Technology
Mortgage Choice Technology strives to deliver state of
the art digital services and solutions that connect people
and information, enabling insights and understanding to
build loyalty and brand advocacy.
In FY2019, the business focussed its IT investment on uplifting the broker and adviser systems to build a strong
foundation for the future and enable efficiency improvements for Group Office and the franchise network.
Broker Platform
The Mortgage Choice broking network
has been using the Broker Platform to
process customer loan applications since
its release in October 2018. The system
was specifically designed to transform the
loan-processing experience for our broker
network whilst providing an interface that
is equally engaging for customers. The
Broker Platform is now Mortgage Choice’s
core system, enabling the network to
work more efficiently whilst supporting
future growth and increased productivity.
Some of the ways in which the Broker
Platform benefits franchisees include:
– Single data entry and one source
of truth for all customer home loan
related data;
– A more user-friendly tool that can be
accessed online in realtime from any
tablet or laptop;
– Improvement in broker productivity
in the loan submission process by up
to 30% as compared to the previous
technology system; and
– Improved system reliability and
availability, with the system in operation
over 99.99% of the time, including real
time platform upgrades.
The introduction of this new system
has also created some productivity
improvements in Group Office, with
a 50% reduction in loan submission
system support costs including
reduced call volumes into the IT
HelpDesk and a reduction in the level
of system maintenance and network
training required.
With all franchisees now operating on
this new robust, dynamic, reliable and
feature-rich platform, the business is
positioned for faster and easier updates
and enhancements going forward.
Mortgage Choice is now also a step closer
to providing its network with a
one-platform user experience.
09 Mortgage Choice Annual Report 2019
“ The new Broker Platform has
delivered substantial business
productivity benefits including
consolidation of several
previous systems into one
platform, easier access to lender
product and rate information,
and a very impressive loan
comparison tool called the
Home Loan Doctor, allowing us
to more effectively recommend
the right lending solution for
clients. A key benefit has been
the way in which we present
lending solutions to clients in a
more visually effective manner
that helps reinforce and engage
clients in the lender selection
decision. In terms of benefit
realisation, we estimate a 15%
improvement in productivity and
a stronger client engagement in
lender choice decisions”
Paul Williams,
Mortgage Choice Franchise Owner,
South Melbourne, Victoria
“ I am really enjoying using the
Broker Platform. I find the new
platform has more data fields so
it allows me to build a complete
picture of my client’s financial
position in minimal time, that
data also flows directly into
ApplyOnline so there’s less
double handling of data. I’m a big
fan of the reporting functionality
too – I can run reports quickly and
easily so I can track and analyse
my monthly activity, conversion
and loan book balance as part of
my regular business operations.
It’s the best place to go to take
the pulse of your business”
Jo Duncan,
Mortgage Choice Franchise Owner,
Inner South West Brisbane, Queensland
File Management
The delivery of the Broker Platform is
one part of our journey to delivering
an exceptional digital home-buying
experience for mortgage brokers and
customers. It is the fundamental building
block on which further developments will
be built to help us achieve the desired
outcome and grow our business. The
second phase of this journey – the delivery
of a File Management solution, focuses on
building on the platform’s foundation to
enable a one-platform user experience.
In FY2019, Mortgage Choice developed
a standardised, best practice file
management process and built this into
File Management software. This software
delivers efficient workflow management
to our broking franchises enabling more
consistent business processes when it
comes to managing loan application
pipelines. As this solution has been fully
integrated with the Broker Platform, it
also provides greater efficiencies for our
network and delivers a more consistent
customer experience for those engaging
the services of a Mortgage Choice broker.
In essence, the File Management
workflow engine:
– Enables improved productivity of
mortgage brokers, with less switching
between systems and prompting
of subsequent tasks for loan
application management;
– Reduces training requirements for loan
processors and new recruits due to its
intuitive system capability; and
– Enables Mortgage Choice to move
towards a standardised ‘best practice’
approach across the network so
the process is ‘one-way, same-way’
improving operational governance.
Mortgage Choice took the new software
into pilot with a group of franchisees at
the close of FY2019. The solutions are
being released to the wider network in
the first quarter of FY2020.
In time, Mortgage Choice has the
opportunity to expand the workflow
management capabilities of File
Management into Group Office driving
further efficiencies, and to leverage the
system for future growth opportunities.
This leading edge technology helps
us to deliver a great client experience
now and into the future, and positions
our business more competitively for
adviser recruitment.
“It took some time to learn the
new software but now that
we’ve done that we can see it’s
a good solution which provides
efficiencies in running the
business. CommPay makes it
easy to lodge and then track
& reconcile expected revenue
to effectively manage cash
flow. The workflows are more
streamlined with an easier
flow, supporting the processes
the business needs. Both the
insurance and super research
tools provide a quicker and
more comprehensive way
to input client data, do the
comparative research and make
recommendations for clients
than the process with the
previous software. ”
Matthew La Rocca,
Mortgage Choice Financial Adviser
Hoppers Crossing, Victoria
HelpCentre
The delivery of the new Mortgage Choice
HelpCentre at the end of June 2019
forms the basis of our new service model
to the franchise network.
The HelpCentre has transformed the
way we support our network, enabling
users to self-serve information and lodge
requests or enquiries to Group Office in
the one portal. By bringing all network
interactions into one dynamic interface,
it enables the business to better manage
requests from the network and be more
productive, while providing the network
an easier, faster and more efficient way
of obtaining information. Our phone
based support team is also freed up to
focus on the more complex queries.
“ We have been using File
Management during the
pilot phase and while we
understand there are still some
enhancements to be made prior
to final release, the improvement
that has occurred already is
fantastic. We see the end result
of this system as a time effective
and user-friendly loan tracking
and communications tool that
will save an immense amount of
time throughout the loan process
and enable us to communicate
effectively with our clients”
Scott Bament,
Mortgage Choice Franchise Owner
Morphett Vale, South Australia
XPLAN
The development of the Broker Platform
sets the foundation for future integration
of client data across all Mortgage Choice
businesses. In FY2019 our focus has been
on driving the enhancements and process
efficiencies required across our financial
planning business to ensure advisers
can provide advice in a cost-efficient
manner. This also prepares both sides
of the business for the closer integration
of client data. We have transitioned the
adviser network to new financial planning
software, market-leading XPLAN, and in
doing so delivered the network a more
robust solution, whilst helping to reduce
the cost to provide advice into the future.
Operating on this new platform will:
– Significantly reduce the time required
to manage client files, enabling our
advisers to work with more clients
over time without increasing resources
and costs;
– Allow advisers to produce more advice
in-house, reducing the need to use
external paraplanning providers; and
– Provide better tracking and reporting
on the delivery of ongoing regulatory
requirements.
All advisers are now operating on the
new system, with regular training available
and continued system improvements
and functionality enhancements being
delivered on an ongoing basis to ensure
the experience is continually optimised.
In addition, the benefits of the HelpCentre
to the network include:
– Quick and easy search functionality
with an intuitive search engine; and
– Ability to submit and track enquiries
and view any previous requests.
Additional benefits for Group Office include:
– Analytics and insights on the type of
questions and issues being raised by the
network to help improve processes
and/or network knowledge and
training; and
– Improved governance through a
consistent content management process.
Our aim is to now build on the HelpCentre
functionality to continue to transform
the way we service our network, bringing
about further improvements in the service
experience while seeking additional
operational efficiencies for the business.
“ The delivery of the HelpCentre
is the first step in transforming
our service experience for our
network of brokers, advisers
and staff. The new platform
brings all network support
interactions together so we
can respond more effectively
and obtain insights that will
assist in identifying further
opportunities for efficiency
and innovation. We’ve been
receiving great feedback since
its launch and I’m excited about
the additional functionality
that we can add in the future
that will further enhance the
network’s experience.”
Dan O’Malley,
HelpCentre Manager
10
Directors’ Report
For the year ended 30 June 2019
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 2019, hereafter referred to as “Mortgage Choice”, or
“the Mortgage Choice Group” or “the Group”.
Directors
The following persons were the Directors of Mortgage Choice
Limited during the financial year and up to the date of this report:
V L Allen
S J Brennan
D Chandran (appointed 20 February 2019)
S J Clancy
A C Gale
P G Higgins
R G Higgins
S C Jermyn (retired 19 June 2019)
Principal activities
Mortgage 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; and
– The submission of loan applications on behalf of intending
borrowers.
Loans & Other Credit Services
– The provision of assistance with credit services, for example
car loans, equipment finance, general insurance and personal
loans to support personal and home pursuits and/or
consolidate debts.
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.
11 Mortgage Choice Annual Report 2019
Dividends
Dividends paid or payable to members during the financial year are
as follows:
A final ordinary dividend of $11.250 million (9.0 cents per fully paid
share) was declared for the year ended 30 June 2018 on 20 August
2018 and paid on 10 October 2018.
An interim ordinary dividend of $3.750 million (3.0 cents per fully
paid share) was declared for the half-year ended 31 December
2018 on 20 February 2019 and paid on 15 April 2019.
A final ordinary dividend of $3.750 million (3.0 cents per fully
paid share) was declared for the year ended 30 June 2019 on
21 August 2019 to be paid on 15 October 2019.
Corporate Governance Statement
The Company’s Corporate Governance Statement can be found at
http://www.mortgagechoice.com.au/about-us/shareholder-centre/
corporate-governance
Review of Operations
A review of the Group’s operations is set out in the Operating and
Financial Review below.
Operating and Financial Highlights
The FY2019 results were driven by three significant factors.
Firstly, we made a considered strategic decision to change our
broker remuneration model to competitively position Mortgage
Choice to attract high quality new franchisees now and into the
future. During the year, we saw a substantial fall in settlements
unrelated to the change in the model, but linked to the external
lending environment. Tightening credit conditions, easing of
property markets and economic uncertainty surrounding the
Royal Commission and Federal Election had a combined effect
to slow settlement activity across the business. We also saw the
withdrawal of our white label home loans partner mid-year.
Mortgage Choice’s IFRS NPAT of $13.7m reflected the change in the
broker payout as well as a fall in annual settlements of 18%. It is not
comparable to the prior year which included a one-off adjustment to
reflect the retroactive nature of the change in the broker payout of
more than $28m. The cash NPAT fell significantly to $14.0m for the
year, or down 40% on FY2018 primarily as a result of the change in
broker payout introduced from 1 August 2018.
During the year, Mortgage Choice rolled out several significant
IT projects. It invested $3.4 million in its new Broker Platform in
FY2019 to enable our brokers to write loans faster while improving
the overall customer experience.
Further investments were made within the Financial Planning
business. It refreshed its technology platform by transitioning its
advice software to XPLAN and revised its remuneration structure
to encourage growth in the business.
The new financial planning adviser remuneration model, which was
introduced in October 2018, is reflected in the result for Mortgage
Choice Financial Planning (MCFP).
Directors’ Report
For the year ended 30 June 2019
Mortgage Choice focussed on reducing operating expenses by
10% in FY2019 as compared to FY2018. The actual result achieved
for the year exceeded our target for a total reduction in operating
expenses of 17%. This further reduction was achieved due to the
non-payment of employee performance incentives in a challenging
economic environment. We do, however, expect this to reset next
year as the lending environment improves.
Following the broker remuneration model review a number of
smaller franchisees and/or offices were rationalised through
the merging by owners of multiple franchises and the buyback
of a number of very small books. New franchise recruitment
was impacted by the uncertainties resulting from the Royal
Commission leading up to the Federal Election. Together these
influences led to a one-off reduction in overall franchise numbers.
Operating Review
Regulation
FY2019 was dominated by the highest form of public inquiry, the
Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry. Despite the range of issues
identified by the Commission across the financial services industry,
there was no evidence of systemic misconduct in the mortgage
broking industry introduced.
Further, the Australian Financial Complaints Authority (AFCA)
revealed that of 35,263 complaints against financial service
providers, 107 related to mortgage brokers in the six month
period from 1 November 2018 to 30 April 2019. This is 0.3% of
reported complaints.
As an active participant of the Combined Industry Forum (CIF),
Mortgage Choice is committed to the implementation of the
recommendations developed by the CIF, in response to ASIC’s
2017 Review of Mortgage Broker Remuneration.
In the face of regulatory pressure, the Board is confident that the
valued service our mortgage brokers and financial advisers have
provided will continue to deliver positive outcomes for consumers.
New Remuneration Models
Mortgage Choice underwent a program of companywide change
in FY2019 which included the implementation of a new broker
remuneration model to drive sustainable growth. The revised
model coupled with the support services the Company provides
franchisees is expected to attract new, motivated individuals with a
business-owner mindset to our organisation over the coming years.
In a similar vein, a new remuneration model was rolled out to
the MCFP network. It recognises growth sooner and faster to
encourage MCFP franchise owners to invest in growing their
businesses and improves the competitiveness of the model.
Investment in innovative technology
In FY2019 Mortgage Choice has delivered best in class technology
that provides our brokers with the platform to operate more
efficiently and achieve higher business performance outcomes.
We have achieved this by ensuring the reliability and 99.99%
availability of our new Broker Platform. In achieving the ‘four nines’
of high availability, Mortgage Choice has proven its undisputed
skills in building, delivering and maintaining technology
that provides the Company and its franchise network with a
competitive edge. As technology advancements continue to be
rolled out, our technology team are well placed to incorporate
new features to futureproof the Company for tomorrow’s
business needs and customer requirements.
Our key technology achievements in FY2019
New Broker Platform
In FY2018, Mortgage Choice invested $3.4 million on the new
Broker Platform. Our core IT stack was built to meet the specific
requirements of Mortgage Choice brokers and reduces data
entry across multiple systems to enable a quicker, smoother
loan submission. By building the new Broker Platform on
microservices based architecture and exposing capability based
APIs, the Company has futureproofed this core platform for the
technological needs of tomorrow.
In FY2019, technology continued to be an important enabler at
Mortgage Choice, with activity focussed on delivering powerful
new features that allow our brokers to increase efficiencies and
better serve their clientele.
– Within the heart of the new Broker Platform, the Product
Catalogue enables brokers to quickly and simply show
customers suitable home loan products from thousands of
product options.
– Through our Home Loan Doctor brokers can compare home
loan products and show customers useful graphs and loan
payment schedules to assist them in making informed
purchasing decisions.
– Driving efficiencies in processing files whilst delivering
a consistent customer experience across our franchise
network has been enabled through the establishment of File
Management software, a rules-based workflow engine with a
simple interface and a standard set of tasks that brokers can
add to and customise for their franchise business.
– We have built a secure online Customer Portal where the
customer can interact with the broker through a document
repository and by sharing personal finance information such as
salary slips, bank statements and tax returns, so our brokers can
accurately model scenarios.
– With security at the forefront, the Company adopted next
generation firewall products and further protects customer
data with leading identity and access management platforms.
HelpCentre
The new Mortgage Choice HelpCentre is an online self-service
resource that is designed to assist franchisees across our network
easily locate information and submit requests to Group Office. The
new tool provides a range of operational efficiencies for Group
Office, while providing a fast and user-friendly experience to the
franchise network due to its functional design and enhanced
search capability.
12
Directors’ Report
For the year ended 30 June 2019
Advisers XPLAN migration
To further increase practice efficiency, in FY2019 Mortgage
Choice Financial Planning rolled out a fully configured version
of the industry-leading technology platform XPLAN. The new
system provides many enhanced features and functionality that
will enable our advisers to improve efficiency and strengthen
compliance processes, all of which are critically important in the
current environment. Mortgage Choice successfully migrated our
advice franchises to the integrated financial planning software and
provided each adviser and staff member with face-to-face training.
The new software will be both a powerful and practical tool to
help advisers provide clients with quality, goal-oriented advice as
enhancements continue to roll out over the next six months.
Technology roadmap
In the fiercely competitive mortgage broker market, companies
that choose to innovate through technology have a higher
propensity to drive financial performance. To reflect this, we have
ambitious plans for our FY2020 roadmap, where the focus will
shift to enabling back office automation and an improved digital
customer experience.
Diversification
Mortgage Choice continues to develop its product offering in line
with increasing customer expectations and our objective to build
on our full financial services proposition.
Products to meet customer needs
To provide our customers with increased choice, Mortgage Choice
added eight new business partners to its product panel in FY2019.
The broadening of our panel ensures we can offer a greater
breadth of tailored solutions across mortgages, insurances,
personal loans and commercial finance. This enables our brokers to
navigate increased complexities in lending policies to better meet
the evolving needs of our customers. We expect to further expand
our panel across multiple products throughout FY2020.
Financial Planning
Mortgage Choice Financial Planning continues to perform with
Premiums In Force growing by 7% and Funds Under Advice rising
30%. Overall the financial planning arm achieved $10.5m in gross
revenue in FY2019 to deliver an IFRS loss of $88,000.
In a watershed year for the advice industry, which saw the
restructuring of wealth businesses across a number of Australia’s
financial institutions. Mortgage Choice is active in attracting
quality advisers seeking the backing of a national brand and the
opportunity to build referral relationships within the Mortgage
Choice broker network.
Brand Presence
For over 27 years, Mortgage Choice has been helping Australians
with their financial needs by delivering a range of financial choices
teamed with trusted expert advice. Effective brand marketing
is key to customer acquisition and retention and our marketing
communications strategy continues to drive awareness of how our
wide range of products and services can help.
By connecting with customers in a meaningful way, via a range of
traditional and digital channels, we have driven engagement and
preference for Mortgage Choice in FY2019.
13 Mortgage Choice Annual Report 2019
Boot Camp
In the current lending environment borrowers need to be
financially fit to get a home loan. In response to borrowers’
increasing need for financial education, we launched our first
Mortgage Choice Home Loan Boot Camp in FY2019. Based around
a core digital content program including interactive quizzes and
educational videos, Boot Camp was spearheaded by a national
advertising campaign and supported by providing brokers with
local area marketing materials. The successful collaboration
enabled us to increase our brand awareness to drive over 6,000+
webpage views and an additional 250,000 views through our paid
partnership with realestate.com.au.
Customer communications program
In FY2019 we have continued to have success in reaching our
customers via our flagship customer communications program,
MC Connect. This centralised program sends curated emails that
are relevant to a customer’s stage in the home loan journey, which
are personalised with local broker’s details. Our Lead Nurture
and Trigger based communication programs create further
opportunities to provide information and cross sell opportunities.
Social Media
In FY2019 we have enabled more brokers to connect with customers
through social media via our custom-built Metigy platform. This
platform gives brokers access to a range of quality content created by
the Mortgage Choice Marketing team, to post across a range of their
social platforms such as Facebook, Instagram, Twitter and LinkedIn.
Corporate Affairs
The Corporate Affairs team drives our strategic communications
outreach to position Mortgage Choice as a pioneer of opinion
and thought leadership with key business, trade, consumer and
political media.
This year, the Mortgage Choice Corporate Affairs team have been
successful in securing regular broadcast media segments for CEO,
Susan Mitchell to provide market updates and discuss current
industry issues. This gave the Company a presence in Canberra
and enabled Mortgage Choice to show case the value of mortgage
brokers with decision makers, in this most important of years.
The Mortgage Choice press office is prolific in its creation of national
media opportunities through the provision of customer case studies;
independent commissioned research and whitepapers, which
support the Company’s advertising campaigns; and provide a broader
narrative on the Mortgage Choice value proposition.
The Company’s renewed focus on entering Industry Awards helps
solidify brand reputation and market positioning as we look to
regenerate the franchise network.
Directors’ Report
For the year ended 30 June 2019
Distribution
Mortgage Choice is active in driving the regeneration of its broker network through recruitment. We are selling new franchise areas with
existing marketing databases, which enable new entrants to kickstart their business, with opportunities to service clients and build a sales
pipeline from day one.
Where franchise owners are seeking a transition of their business by recruiting for future growth, or transitioning out of the business,
Mortgage Choice assists with succession planning to introduce new talent into the network.
It should be noted that FY2019 was a challenging period for new business owners and brokers across the industry due to the ongoing
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. With this major inquiry behind us and
clear support from government and consumers, Mortgage Choice continues to attract new business owners who are keen to partner with
the experience and expertise our brand provides.
Financial Review
Our statutory IFRS profit increased by 224% to $13.7 million as the prior comparable period included a one-off adjustment of $28m to
reflect the retroactive nature of the remuneration model change introduced as of 1 August 2018, as discussed earlier. Our cash profit
decreased by 40% to $14.0m, also reflecting the strategic change in the broker remuneration model. Settlements for the year were
$9.4 billion, down 18% on FY18.
1,200
1,100
900
800
700
600
500
Jul 14
Dec 14
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Settlement Trends
$m
As at 30 June, Mortgage Choice’s total loan book (including residential and commercial loans) was $54.3 billion – down from $54.6 billion
in FY18.
54.35bn
53.37
54.62
51.74
49.54
45.29
43.57
47.36
41.43
39.30
36.23
33.27
29.64
25.70
21.69
17.69
13.08
9.52
6.84
01
02
03
04
05
06
07
08
11
09
10
Loanbook
$bn
12
13
14
15
16
17
18
19
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
slower than the assumptions used in the valuation at 30 June 2018. Management determined that this required a positive balance sheet
adjustment of $2.7m at year end to bring the valuation in line with the actual loan book position and assumed future run-off profile.
The underlying operating revenue before adjustment, is down 15.8% year on year due to the fall in settlements. The table below shows
the movement in the underlying statutory results year on year.
14
Directors’ Report
For the year ended 30 June 2019
Underlying Statutory Results
Operating Revenue
Underlying operating revenue
Adjustment to NPV receivable (contract asset) for changes in run-off and other assumptions
Total operating revenue
Profit after tax
Underlying result after tax
Adjustment to net NPV receivable (contract asset) for changes in run-off and other assumptions
Adjustment to valuation of loan book payable due to model changes
Total profit after tax
2019
$’000
2018
$’000
163,711
13,644
177,355
194,439
23,369
217,808
11,058
2,666
25,651
7,055
—
(28,468)
13,724
4,238
Cash results decreased 40% to $14.0 million for the year.
This fall in cash results was due to a reduction in settlements
combined with an increase in payout offset by a 17% reduction in
operating expenses.
Focus areas for FY2020
Mortgage Choice will continue to implement its strategic
change program to build a platform for growth and long
term sustainability.
Attracting brokers and advisers
The remuneration and system changes delivered in FY2019
strengthen both the broking and financial advice recruitment
propositions and with the dissipation of the uncertainty
surrounding the Royal Commission, Mortgage Choice is now in a
strong position to attract new franchise owners.
The recruitment efforts for mortgage broking will be focused on
regenerating the existing network as longer tenure franchisees
look to turn over their businesses to new franchise owners set to
take the business to the next level.
The recruitment efforts for MCFP will focus on growing the scale
of the financial planning network. Due to the amount of change
occurring in the advice industry, advisers are considering changing
licensees in unprecedented numbers. Many are leaving the large
institutions in favour of self-licencing or smaller, established
licensees. There is an opportunity for Mortgage Choice to capture
a share of this market.
Attracting customers
Mortgage Choice will continue to invest in ensuring Mortgage Choice
is a strong, well known brand that creates value for the Company and
its franchisees by attracting and retaining more customers.
Structuring the business for success
The business will continue to challenge the current operating
model in order to reduce costs whilst maintaining the service
support for brokers and advisers. Processes will be re-engineered,
automated or outsourced to improve efficiencies and to ensure
the majority of the Company’s resources are focused on revenue
generating activities.
Maintaining our investment in IT
Our future success is dependent on continued investment in IT. We
will continue to enhance the broker and adviser platforms with an
added focus of enabling back office automation and an improved
digital customer experience.
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 2019 that
have significantly affected, or may significantly affect:
a) the Group’s operations in future financial years,
b) the results of those operations in future financial years, or
c) the Group’s state of affairs in future financial years.
Likely developments and expected results of operations
Information on likely developments in the operations of the Group
and the expected results of operations have not been included in
this report because the Directors believe it would be likely to result
in unreasonable prejudice to the Group.
Environmental regulation
The Group is not subject to any significant environmental
regulation under a law of the Commonwealth or of a State or
Territory in respect to its activities.
Information on Directors
Mortgage Choice made two changes to its Board of Directors
in FY2019.
In June 2019 we announced the retirement of Steve Jermyn as a
Director of the Company. Steve joined the Mortgage Choice Board
in May 2004 and has provided invaluable guidance and leadership
through his extensive franchising experience.
Mortgage Choice continues to attract highly experienced board
members who can leverage the fresh skills and knowledge needed
to effectively steer the company to future success. In February
2019 the Company announced the appointment of Dharmendra
(Dharma) Chandran to the Mortgage Choice Board of Directors.
15 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Board of 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 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
Chairman of the BT Funds board. 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 57.
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
Sean Clancy
Dip Mkt, FAICD
– Independent Non-Executive
Director
– Chairman of remuneration
committee and member of
audit and risk committee
– Director since 18 May 2009
Andrew Gale
BA (actuarial major), MBA,
FAICD, FIAA
– Independent Non-Executive
Director
– Chairman of audit and risk
committee and member of
nomination 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 brings with her 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 52.
With a sales and marketing background across many industries including banking, fast moving
consumer goods, liquor, pharmacy, consumer electronics, telecommunications and hardware,
Sean brings a diverse range of knowledge and expertise to the Mortgage Choice Board. He
is also a Director and Chief Executive Officer of Transfusion Ltd, Chairman of Metropolis
Inc., Campaign Express, Non-Executive Director of Gowing Brothers and of Whitecoat and
Ambassador to Business Events Sydney. Age 59.
Andrew Gale is a qualified actuary with extensive knowledge of the financial services sector.
He has had a deep involvement in financial services regulatory issues in a range of capacities
and brings expertise in general management, M&A, corporate strategy, marketing, distribution
and risk management. 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 (NED) for the NAB Advice & Licences Board, NULIS Nominees (Aust)
Limited (trustee for MLC’s superannuation entities), and Harper Bernays Limited. He was a NED
of the SMSF Association Limited for 6 years to June 2018, and its Chairman for 2 years. Andrew
is a past President of the Institute of Actuaries of Australia. Age 62.
Peter Higgins
– Non-Executive Director
– Member of audit and risk
committee
– Director since 30 November
1989
Peter is co-founder of Mortgage Choice. He is also Executive Chairman of Technology
Company Power & Data Corporation Pty Ltd, trading as Mainlinepower.com and a Director of
Argosy Agricultural Group Pty Ltd and a Member of the Hawkesbury Valley Economic Advisory
Committee. 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 59.
Rodney Higgins
– Non-Executive Director
– Member of nomination and
remuneration committees
– Director since 30 January 1986
Rodney is co-founder of Mortgage Choice. With a background in residential and commercial
property, sales and leasing, he has been a Director of companies involved in manufacturing,
wholesaling, importing, retailing and finance. Age 64.
Dharmendra Chandran
MCom, LLB, BCom
– Independent Non-Executive
Director
– Member of audit and risk
committee
– Director since 20 February 2019
Dharma is a highly respected corporate strategy and human resources executive with a
track record in business transformation and cultural change. Dharma developed a deep
understanding of the financial services industry throughout his time in various consulting
roles and his five years at Westpac. He has held various Board roles for private companies and
government related organisations, more recently, as a Non-Executive Director and Chair of
the Board People Committee for 7-Eleven. Age 55.
Steve Jermyn
FCPA
– Independent Non-Executive
Director, resigned 19 June 2019
– Director since 24 May 2004
Steve joined McDonald’s Australia in 1984 and joined the Board of Directors in 1986. In June
1999, he was appointed Deputy Managing Director. Steve has been involved in all aspects
of the development of the McDonald’s restaurant business in Australia and brings with him
significant experience in the development of new business and franchising. He retired from
McDonald’s Australia in 2005. Steve is Chairman of Half the Sky Foundation Australia Ltd,
Director of Guzman Y Gomez (Holdings) Pty Ltd and Director of Ronald McDonald House
Charities. Age 70.
16
Directors’ Report
For the year ended 30 June 2019
Directors’ interests
The table below sets out the DIrectors’ interests at 30 June 2019:
Director
V L Allen
S J Brennan
D Chandran
S J Clancy
A C Gale
P G Higgins
R G Higgins
Particulars of Director’s interests in shares
Ordinary shares
60,000
—
—
120,000
—
259,253
15,380,212
Company Secretary
The Company Secretary is Mr Ian Parkes BEc, MBA, CA who is also the Company’s Chief Financial Officer.
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 2019,
and the number of meetings attended by each Director were:
Full meetings of Directors
Audit
Nomination
Remuneration
Meetings of committees
A
10
10
2
9
10
9
6
9
B
10
10
2
10
10
10
10
10
A
*
*
*
3
3
3
*
3
B
*
*
*
3
3
3
*
3
A
4
*
*
*
4
*
2
*
B
4
*
*
*
4
*
4
*
A
3
3
*
3
*
*
2
*
B
3
3
*
3
*
*
3
*
V L Allen
S J Brennan
D Chandran
S J Clancy
A C Gale
P G Higgins
R G Higgins
S C Jermyn
A = Number of meetings attended
B = Number of meetings held
* = Not a member of the relevant committee
17 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report
This Remuneration Report sets out the FY 2019 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) KMP included in this report
c) Remuneration governance
d) Executive remuneration policy and framework
e) Executive remuneration for FY 2019
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 FY 2019
Remuneration Report to you.
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.
Despite the achievement of a number of key strategic initiatives
during the year, and the achievement of a range of individual KPI’s,
the KMP did not achieve the cash profit target gateway set by the
Board and accordingly for FY2019, there were no executive KMP
STI payments.
In addition, the performance hurdles for the 2016 Long Term
Incentive were only partially met and as a result 50% of the 2016
LTI vested and 50% of the 2016 LTI lapsed.
Looking ahead, we will continue to monitor and adjust our
remuneration policies and processes to ensure we create the best
environment to achieve our strategic goals.
Sean Clancy
Chair of the Remuneration Committee
b) KMP included in this report
Table A: KMP during FY 2019
Name
Non-executive Directors
Vicki L Allen
Sarah J Brennan
Sean J Clancy
Andrew C Gale
Peter G Higgins
Rodney G Higgins
Dharmendra Chandran 1
Stephen C Jermyn 2
Executive KMP
Susan R Mitchell
Ian J Parkes 3
Neill C Rose-Innes
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer
General Manager – Distribution
Melissa J McCarney
General Manager – Group Marketing
Emma A Dupont-Brown
Tania J Milnes
Marie J Pitton
General Manager – Product and
Corporate Communications
General Manager – Financial Planning
General Manager – Human Resources
Vincent C ten Krooden
Head of IT
1 Mr Chandran was appointed as a Director on 20 February 2019.
2 Mr Jermyn retired from the Board on 19 June 2019.
3 Mr Parkes commenced in the role of Chief Financial Officer on 15 October 2018.
18
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
c) Remuneration governance
The diagram below provides an overview of the Company’s remuneration governance framework.
Remuneration Governance Framework
Board
Remuneration Consultants
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
& delegate
Recommend
& 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 located
on the Mortgage Choice website provides
information on the role and composition of
the Remuneration Committee.
www.mortgagechoice.com.au/about-us/
shareholder-centre/corporate-governance.aspx
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 Company’s Remuneration Committee engaged
the services of AON Hewitt to review and provide guidance on the
Executive Team’s remuneration framework. This formed the basis
for the remuneration framework applied in FY 2019.
The following arrangements were made to ensure that the
remuneration recommendations were 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 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 Committee; 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.
As a consequence, the Board is satisfied that the recommendations
were made free from undue influence from any members of the
key management personnel.
Engage
Advise
19 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
d) Executive remuneration policy and framework
The following diagram shows the remuneration policy and framework that the Board, as advised by the Remuneration Committee,
applies in setting executive remuneration.
Executive Remuneration Policy & Framework
Remuneration policy
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;
– transparent; and
– acceptable to shareholders.
Fixed
Performance based
Fixed Remuneration
Short Term Incentive (“STI”)
Long Term Incentive (“LTI”)
– Fixed remuneration consists of base
– Designed to reward short
– Designed to reward longer
cash salary and superannuation.
term performance.
term performance.
– Base salary is reviewed annually against
– STI awards are awarded based on
– LTI awards are delivered as performance
external benchmarks to ensure it
remains within market parameters.
– Superannuation is paid up to the
maximum super contribution base.
performance against a balanced scorecard.
– Scorecards are structured as a
combination of financial, strategic and
operational KPIs.
– CEO’s STI is 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.
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
20
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
CEO Remuneration
The Company appointed the CEO, Susan Mitchell, in April 2018. Her remuneration is as follows:
– Base Salary: $550,000
– Maximum STI: $440,000 (50% at target to a maximum STI of 80% at stretch performance)
– Maximum LTI: $275,000
– Maximum Total Remuneration: $1,265,000 (plus Superannuation in accordance with the superannuation guarantee legislation).
In accordance with Susan’s employment agreement, she received a special one-off grant of 90,000 performance rights which vest in two
equal tranches in April 2019 and April 2020 subject to achievement of performance criteria set by the Board. The performance criteria
for the April 2019 tranche were associated with the implementation of the new broker and adviser remuneration structures. These rights
vested during the year. The second tranche, due to vest in April 2020, has performance criteria relating to network engagement measures
and continued service.
The CEO’s remuneration mix (excluding the one-off share rights grant) is below.
Table B: CEO remuneration mix
Position
CEO
Fixed
Performance Based
Base remuneration
Maximum STI opportunity Maximum LTI opportunity
45%
34%
21%
e) Executive remuneration for FY 2019
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 FY 2019 STI arrangements
What is the STI plan?
The STI plan is an incentive plan under which participants are eligible to receive an annual award if they satisfy
pre-determined 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.
Who can
participate?
What is the
maximum
opportunity for
executives?
Is there a gateway
performance
requirement before
any incentive is paid?
What is the
performance period?
The CEO and other executive KMP are eligible to participate in the STI plan.
The maximum STI opportunity is:
– CEO – 80% of fixed remuneration.
– Other executive KMP – between 24% and 42% of fixed remuneration.
The maximum STI opportunity for exceptional performance against the KPIs is set at 120% of target.
Yes, the Board will not authorise the payment of STI to any executive KMP unless a minimum cash NPAT
gateway has been achieved.
Individual executive KMP cannot receive an STI unless they have met a minimum conduct gateway.
The performance period is 1 year and aligns with the financial year. For FY 2019, the performance period was
1 July 2018 – 30 June 2019.
21 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
What are the
conditions for an STI
award to be made?
STI awards are 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 at least a minimum standard;
– the executive has met the conduct gateway; and
– the Company has achieved the NPAT gateway.
How does the
STI Pool Group
Modifier work?
What are the
performance
conditions for
the CEO?
The Group Modifier adjusts the STI pool in line with the Group’s profit result. This means that STI payments will
vary with the Company’s capacity to pay.
If the Group does not meet the gateway level of cash NPAT performance, as set by the Board, the modifier is
zero and the STI outcome is $0 regardless of the performance by individual executive KMP in accomplishing
their Individual and Business KPIs.
The Group Modifier for FY2019 was set at zero and no STI payments were awarded.
The CEO was assessed against the following three areas of strategic focus in support of the Group’s business
objectives for FY 2019 to drive profitability for the benefit of our franchise network and shareholders:
– Operational Efficiencies (including key IT projects);
– Recruitment/Distribution Growth; and
– Network Engagement.
The CEO’s individual goals/KPIs that were linked to the above objectives were broken down to:
Scorecard Category
Weighting Measurement
Achievement
Cash NPAT
Gateway
Cash NPAT target as set by board
Operational efficiencies
Recruitment /
Distribution Growth
Engagement
20%
20%
20%
10%
30%
Delivery of IT Projects to schedule and agreed budget
Identify & implement efficiency opportunities
Achievement of growth targets set for new
franchisees & loan writers
Achievement of growth targets set for new
financial advisers
Franchisee Engagement Survey Score
As the cash NPAT KPI gateway was not met in FY 2019, the STI outcome for the CEO was nil regardless of the
successful outcomes achieved against the majority of her individual KPIs.
Key: Percentage of achievement against targets set:
Exceed expectations:
105.1%+
All objectives met:
95.01–105%
Most objectives met:
75.01–95%
Several objectives met:
55.01–75%
Few objectives met:
35.01–55%
Not met:
<35%
22
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
What are the
performance
conditions for other
executive KMP?
The executive KMP were assessed against the following four areas of strategic focus in support of the Group’s
business objectives for FY 2019 to drive profitability for the benefit of our franchise network and shareholders:
– Sustainable Growth;
– Operational Efficiencies;
– Recruitment / Distribution growth; and
– Franchisee engagement.
KMP individual goals/KPIs that were linked to the above objectives were broken down to:
Scorecard Category
Weighting Measurement
Achievement
Cash NPAT
Gateway
Cash NPAT target as set by Board
Sustainable Growth
Brand awareness
10–25%
Achievement of target to increase Diversified Revenue
Operational Efficiencies
Delivery of IT Projects to schedule and agreed budget
Recruitment /
Distribution Growth
10–25%
Identify & implement departmental
efficiency opportunities
15–45%
Achievement of growth targets for new franchisees
and loan writers
Achievement of growth targets set for new
financial advisers
Engagement
10–35%
Franchisee Engagement Survey Score
Staff Engagement Survey
As the cash NPAT KPI gateway was not met in 2019, the STI outcome for executive KMP was Nil regardless of
the outcomes delivered against individual KPIs.
Key: Percentage of achievement against targets set:
Exceed expectations:
105.1%+
All objectives met:
95.01–105%
Most objectives met:
75.01–95%
Several objectives met:
55.01–75%
Few objectives met:
35.01–55%
Not met:
<35%
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.
Performance against the performance measures is assessed annually as part of the broader performance review
process for each member of Executive KMP.
Both financial and non-financial conditions are assessed quantitatively against predetermined benchmarks
where appropriate. For the purposes of testing the financial hurdles, financial results are extracted by reference
to the Company’s audited financial statements. Where quantitative assessment is not practicable, qualitative
performance appraisals are undertaken.
These methods of assessing performance were chosen because they are, as far as practicable, objective and
fair. The use of financial statements ensures the integrity of the measure and alignment with the true financial
performance of the Company.
How is the STI
pool calculated?
STI awards are paid out of a defined STI pool. The STI pool is based on the combined value of the STI
participants’ target STI (an agreed percentage of the individual’s base salary) and is funded from the NPAT
result delivered for the year.
The actual cash NPAT result operates as a modifier to the final STI pool value. i.e. as cash NPAT increases or
decreases so does the STI pool and in turn the individual’s potential STI payment for the year.
As the cash NPAT threshold for FY2019 was not delivered the Group Modifier for FY 2019 was set at zero and
the STI pool for FY 2019 was reduced to $0.
23 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
How is reward
delivered under the
STI Plan?
CEO: If an STI award is made, the STI award is delivered 50% in cash and 50% in performance rights. Vesting of
performance rights is deferred for up to two years. Further details regarding the deferred component of the
CEO’s STI award are set out below.
Other executive KMP: If an STI award is made, the STI outcome is paid 100% in cash.
STI cash payments (if any) are made following board approval of the Annual Report.
Is there discretion to
adjust STI awards?
Individual STI awards are not formulaic and the Board may adjust awards up or down where circumstances
warrant e.g. positive franchisee outcomes and engagement or where the risk tolerance is breached.
Deferred STI arrangements for the CEO
How do the deferred
STI arrangements
work?
If an STI award is made to the CEO, 50% of the award is deferred 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 date.
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.
Performance rights are subject to both a continuous service condition and clawback provisions. 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% 12 months after the end of the STI performance period; and
– 50% 2 years after the end of the STI performance period.
No performance rights have been or will be granted in relation to FY 2019 STI.
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.
If the Board determines that the CEO has acted fraudulently or dishonestly; has breached her obligations to
the Group; or is knowingly involved in a material misstatement of financial statements; any shares to which she
may have become entitled at the end of the performance period, and any rights held by the CEO under the
Performance Rights Plan are forfeited.
What are the
vesting conditions
applicable to the STI
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.
24
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
Long-term incentives
A summary of the Company’s LTI arrangements is set out in the table below.
Table D: Summary of FY 2019 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
executive KMP?
How is reward
delivered under the
LTI Plan?
What is the
performance
period?
What are the
vesting conditions
for an LTI award?
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.
The 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.
The maximum LTI opportunity is:
CEO: 50% of base salary face value at the grant date.
Other executive KMP: between 20% and 35% of base salary face value at the grant date.
LTI awards are delivered in the form of performance rights granted under the Company’s Share Rights Plan.
The number of performance rights granted 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 date.
Shares allocated on the vesting of performance rights may be sourced on-market or from a new issue of shares.
The number of performance rights that will vest will be determined by the % vesting outcome applied to each
tranche as detailed below. Subject to these vesting conditions being met, executives 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.
Performance rights are offered at no cost to the executives.
Performance is measured over a 3 year performance period. Following testing, vesting of performance 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
– the performance conditions must be met (see below).
25 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
What are the
performance
conditions?
Performance rights are divided into two tranches:
– 40% of the performance rights are subject to a relative TSR performance hurdle (the “TSR component”); and
– 60% of the performance 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 2018, excluding illiquid stocks. The
performance period is 1 September 2018 – 31 August 2021. Vesting (if any) will occur in September 2021.
The specific Comparator Group for the FY 2019 LTI award 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
Below the 50th percentile
At the 50th percentile
Between 50th and 75th percentiles
Between 75th and 90th percentiles
At or above the 90th percentile.
Nil
50%
Pro rata vesting between 50% and 100%
Pro rata vesting between 100% and 125%
125%
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 2018 to
30 June 2021 with the budget approved by the Board for the financial year ended 30 June 2019 to be used as
the base. Vesting (if any) will occur in September 2021.
Cash profits are calculated by adjusting audited statutory profits for trail commission recognised on a net
present value basis and excluding non-cash 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
Below 3%
At 3%
Between 3% and 8%
At or above 8%.
Nil
25%
Pro rata vesting between 25% and 100%
100%
26
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
What happens if an
executive ceases
employment?
What restrictions
apply?
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.
Is there discretion to
adjust awards?
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.
As per the Performance Rights Rules, the Board has absolute and unfettered discretion in exercising its power
to either lapse or vest some or all unvested performance rights as appropriate to the context of the event.
What happens if
there is a change
in control?
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 60% subject to sustained long term cash profit
creation (tranche 1), which is a direct component of value creation, and 40% subject to the relative shareholder value created over the
performance period (tranche 2). Further information on the LTI performance criteria is set out below.
Tranche 1: EPS Component
LTI grants made under the Performance Share Plan (PSP) from FY2014 to FY2017 and the Performance Rights Plan (PRP) since FY2018
have been subject to cash EPS growth hurdle. The following table shows the Company’s cash EPS results in FY2019 and the previous four
financial years:
Table E: Cash EPS for FY 2015 – FY 2019
Financial year
2015
2016
2017
2018
2019
Cash EPS (cents per share)
15.0
16.5
18.1
18.7
11.2
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.
27 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
Tranche 2: TSR Component
LTI grants made under the PSP from FY 2014 to FY 2017 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 FY 2019 and the previous four financial years:
Table F: Share price movements, dividends and TSR for FY 2015 – FY 2019
Financial year
2015
2016
2017
2018
2019
Opening share price
$
Closing share price
$
Dividends
paid during year
¢
2.85
2.30
1.95
2.15
1.42
2.30
1.95
2.15
1.42
1.09
15.5
16.0
17.0
18.0
12.0
TSR
-14%
-8%
19%
-26%
-15%
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 2019.
Mortgage Choice TSR compared to S&P / ASX 200 Index TSR
Total Shareholder Return
80%
60
40
20
0
-20
-40
-60
-80
S&P/ASX 200
Mortgage Choice
Jun
14
Jun
15
Jun
16
Jun
17
Jun
18
Jun
19
Source: Guerdon Associates
g) Non-executive Director remuneration
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. The chairmen of the Audit Committee,
the Remuneration Committee and the Mortgage Choice Financial Planning Pty Ltd Investment Committee receive an additional payment
for their role on these committees.
No element of Non-executive Director remuneration is performance-based to preserve the independence and impartiality of Directors.
Fee levels and fee pool
Shareholders set the maximum aggregate fee pool for the Non-executive Directors of the Board at $1,000,000 per annum at the 2016
Annual General Meeting.
28
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
The following table shows the annual fees payable to the Chairman and Non-executive Directors as at 30 June 2019:
Table G: Non-executive Director fees
Role
Chairman
Non-executive Director
Fees for Chairman of the Audit and Risk Committee
Fees for Chairman of the Remuneration Committee
Fees for Chairman of Mortgage Choice Financial Planning Pty Ltd Investment Committee
Fees
$145,000
$95,000
$10,000
$10,000
$20,000
The Board reviews fees paid to Non-executive Directors periodically. There were no changes to the level of Directors fees in FY 2019.
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 2018 and 2019 financial
years for 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
and Fees
$
Employee
Entitlements
$
STI
$
Name
Non-
monetary
Benefits
$
Super-
annuation
$
Long
Service
Leave
$
Deferred
STI and
Other
$
Performance
Shares and
Rights
$
Total
$
Non-Executive Directors
V L Allen, Chairman
FY2019
FY2018
145,000
148,123
S J Brennan 1
FY2019
FY2018
S J Clancy 2
FY2019
FY2018
115,000
29,149
105,000
96,295
—
—
—
—
—
—
—
—
—
—
—
—
D Chandran (from 20 February 2019 to 30 June 2019)
FY2019
34,224
A C Gale 3
FY2019
FY2018
P G Higgins
FY2019
FY2018
R G Higgins
FY2019
FY2018
113,150
29,082
95,000
95,000
95,000
95,000
—
—
—
—
—
—
—
S C Jermyn (from 1 July 2018 to 19 June 2019) 4
FY2019
FY2018
96,667
96,295
—
—
29 Mortgage Choice Annual Report 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,775
14,072
10,925
2,769
9,975
9,148
3,251
—
—
9,025
9,025
9,025
9,025
9,183
9,148
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
158,775
162,195
125,925
31,918
114,975
105,443
37,475
113,150
29,082
104,025
104,025
104,025
104,025
105,850
105,443
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
Table H: Statutory remuneration table continued
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based payments
Cash Salary
and Fees
$
Employee
Entitlements
$
STI
$
Name
Non-
monetary
Benefits
$
Super-
annuation
$
Long
Service
Leave
$
Deferred
STI & Other
$
Performance
Shares &
Rights
$
Total
$
Other key management personnel
S R Mitchell 5
FY2019
FY2018
550,000
—
375,077
127,653
—
5,635
4,928
5,066
20,531
20,049
15,615
49,846
99,658
4,379
62,355
33,004
753,087
620,709
I J Parkes (from 15 October 2018 to 30 June 2019)
FY2019
220,417
—
8,167
2,091
15,399
—
N C Rose-Innes 6
FY2019
FY2018
337,346
327,230
—
(16,566)
75,624
13,681
M J McCarney 6
FY2019
FY2018
260,991
240,975
—
58,548
E A Dupont-Brown 6
228,426
219,103
—
47,632
227,154
209,223
—
44,929
FY2019
FY2018
T J Milnes 6
FY2019
FY2018
M J Pitton 6
FY2019
FY2018
4,928
5,186
4,928
4,211
4,907
—
—
—
20,531
20,049
20,531
20,049
20,531
20,049
5,959
9,145
5,473
5,076
2,290
837
20,531
20,049
(5,550)
8,663
2,353
(574)
3,414
5,626
254
5,528
177,794
158,643
—
5,242
27,477
(8,261)
4,426
4,869
19,002
18,840
V C ten Krooden
FY2019
FY2018
Totals
FY2019
FY2018
195,000
173,567
—
4,542
38,173
(1,433)
—
—
20,531
19,532
2,996,169
—
7,406
26,208
222,746
2,292,762
420,036
20,202
19,332
191,804
3,204
2,827
3,183
1,177
30,174
77,571
—
—
—
—
—
—
—
—
—
—
—
—
—
14,029
260,103
35,656
30,152
387,854
481,067
27,026
20,802
321,302
349,087
19,207
12,147
278,775
305,394
19,330
14,304
261,719
302,696
12,667
222,335
9,092
213,487
5,611
228,867
—
231,016
99,658
195,881
3,578,242
4,379
119,501
3,145,587
1 Ms S J Brennan is the Chairman of the Mortgage Choice Financial Planning Investment Committee and receives fees in addition to her base Non-executive Director fees for this
role – see section g) for further details.
2 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 was appointed Chairman of the Audit Committee on 20 August 2018 and receives fees in addition to his base Non-executive Director fees for this role – see section
g) for further details. Mr Gale has reached his maximum superannuation contribution and has requested he receives his SGC as additional salary.
4 Mr S C Jermyn resigned as Chairman of the Audit Committee on 20 August 2018 and received fees in addition to his base Non-executive Director fees for this role – see section
g) for further details.
5 Share based payments (Deferred STI and other) relating to Ms S R Mitchell include 2 components:
a) 90,000 performance rights granted to the CEO to focus on critical medium term strategic objectives necessary for successful transition from the prior broker remuneration
model. The grant vests in two equal tranches in April 2019 and April 2020. The performance criteria for the April 2019 tranche was the implementation of the new broker and
adviser remuneration structures. These right vested during the year. The second tranche, due to vest in April 2020, has performance criteria relating to network engagement
measures and continued service.
b) Deferred STI of $33,151 in relation to FY 2018 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 in section d).
6 Cash salary includes a one-off payment to compensate KMPs for changes to the LTI Plan.
30
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
The following table shows the relative proportion of remuneration that each executive received during FY 2019 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
I J Parkes
N C Rose-Innes
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
Fixed
remuneration
%
Share based
%
Commencement
share rights 1
%
78%
95%
91%
92%
93%
93%
94%
98%
—
—
—
—
—
—
—
—
11%
—
—
—
—
—
—
—
1 Footnote 5a) in Table H describes the terms of this grant.
Total
%
89%
95%
91%
92%
93%
93%
94%
98%
Cash ST
% I
Share based
%
—
—
—
—
—
—
—
—
11%
5%
9%
8%
7%
7%
6%
2%
Total
%
11%
5%
9%
8%
7%
7%
6%
2%
Details of share-based remuneration
The key terms of performance shares granted as LTI awards to executive KMP that were tested during, or remain on foot at the end of, FY
2019 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 FY 2019
% Vested
100
0
% Vested
100
Grant date
FY 2016 LTI grants
17 September 2015
17 September 2015
FY 2017 LTI grants
25 October 2016
25 October 2016
Vesting date
Value per performance
share at grant date 1
14 September 2018
14 September 2018
14 September 2019
14 September 2019
$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, FY 2019 are set out in the
following table. The table also explains the vesting outcome of awards that were tested during the year.
Table K: Performance rights on foot or tested during FY 2019
Grant date
Commencement grant
5 November 2018
5 November 2018
FY 2018 deferred STI award
7 September 2018
7 September 2018
FY 2018 performance rights
6 October 2017
6 October 2017
FY 2019 performance rights
28 November 2018
28 November 2018
Vesting date
Value per performance right
at grant date 1
3 April 2019
3 April 2020
14 September 2019
14 September 2020
14 September 2020
14 September 2020
14 September 2021
14 September 2021
$1.26
$1.26
$1.50
$1.50
$1.78
$1.40
$1.23
$0.81
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.
31 Mortgage Choice Annual Report 2019
Financial
year
granted
Vested
%
Forfeited
%
Financial
years in
which shares
or rights
may vest
Minimum
total value
of grant yet
to vest
$
Maximum
total value
of grant yet
to vest 1
$
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
Details of remuneration paid, vested or forfeited during FY 2019
The percentage of the available grant that was paid, vested or forfeited in FY 2019 is set out below.
Table L: Remuneration forfeited and vested during FY 2019 and outstanding at 30 June 2019
Cash STI
LTI (Performance shares or rights)
Potential
FY 2019
bonus paid
%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Potential
FY 2019
bonus
forfeited
%
100
—
—
—
—
—
—
100
100
—
—
—
100
—
—
—
100
—
—
—
100
—
—
—
100
—
—
—
100
Name
S R Mitchell
I J Parkes
N C Rose-Innes
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
2019
2019
2019
2018
2018
2017
2016
2019
2019
2018
2017
2016
2019
2018
2017
2016
2019
2018
2017
2016
2019
2018
2017
2016
2019
2018
2017
2016
2019
—
—
100
—
—
—
50
—
—
—
—
50
—
—
—
50
—
—
—
50
—
—
—
50
—
—
—
50
—
—
—
—
—
—
—
50
—
—
—
—
50
—
—
—
50
—
—
—
50
—
—
—
50
—
—
—
50
—
30/6/22
30/6/20
—
30/6/21
30/6/20
30/6/20
—
30/6/22
30/6/22
30/6/21
30/6/20
—
30/6/22
30/6/21
30/6/20
—
30/6/22
30/6/21
30/6/20
—
30/6/22
30/6/21
30/6/20
—
30/6/22
30/6/21
30/6/20
—
30/6/22
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.
nil
nil
—
nil
nil
nil
—
nil
nil
nil
nil
—
nil
nil
nil
—
nil
nil
nil
—
nil
nil
nil
—
nil
nil
nil
—
nil
188,080
56,475
—
101,487
33,200
76,408
—
66,683
66,248
65,944
73,787
—
51,275
50,559
56,575
—
36,601
36,428
40,995
—
37,497
35,803
40,289
—
24,065
23,948
27,104
—
26,673
32
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
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 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.
KMP equity holdings
a) Performance shares
The movements in performance shares held by executive KMP and their related parties are set out below.
Table M: Movements in performance shares during FY 2019
Balance
at the start
of the year
Granted as
compensation
Value
granted
$
Value at
vesting date
$
Vested
Balance
at the end
of the year
Forfeited
89,053
—
83,355
60,214
41,676
42,066
27,478
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(23,184)
33,849
(23,184)
42,685
—
(21,066)
(14,304)
(9,287)
(9,779)
(6,168)
—
—
30,756
20,884
13,559
14,277
9,005
—
—
(21,066)
(14,304)
(9,287)
(9,779)
(6,168)
—
—
41,223
31,606
23,102
22,508
15,142
—
Executive KMP
Susan Mitchell
Ian Parkes
Neill Rose-Innes
Melissa McCarney
Emma Dupont-Brown
Tania Milnes
Marie Pitton
Vincent ten Krooden
b) Performance rights
The movements in performance rights held by executive KMP and their related parties are set out below.
Table N: Movements in performance rights during FY 2019
Balance
at the start
of the year
Granted as
compensation
Value
granted 1
$
Value at
vesting date
$
Vested
Forfeited
S R Mitchell (Commencement)
—
90,000
112,950
(45,000)
44,223
S R Mitchell (deferred STI)
19,052
—
—
Share rights plan
S R Mitchell
I J Parkes
N C Rose-Innes
M J McCarney
E A Dupont-Brown
T J Milnes
M J Pitton
V C ten Krooden
41,946
177,100
188,080
—
40,506
31,056
22,376
21,992
14,710
—
62,790
62,380
48,282
34,464
35,308
22,660
25,116
66,683
66,247
51,275
36,600
37,497
24,065
26,674
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance
at the end
of the year
45,000
19,052
219,046
62,790
102,886
79,338
56,840
57,300
37,370
25,116
1 The value of commencement performance rights granted to Susan Mitchell during the year was $1.255 each. The unit value of performance rights subject to EPS hurdles granted
during the year under the share rights plan was $1.23. The unit value of performance rights subject to TSR hurdles granted during the year under the share rights plan was $0.81.
33 Mortgage Choice Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
c) Share holdings
The number of shares in the Company held during the financial year by each KMP, including their close family members and their
controlled entities, are set out below.
Table O: Movements in KMP shareholdings during FY 2019
Name
Non-executive Directors
Vicki Allen
Sarah Brennan
Sean Clancy
Andrew Gale
Peter Higgins
Rod Higgins
Dharmendra Chandran
Steve Jermyn 2
Executive KMP
Susan Mitchell
Ian Parkes
Neill Rose-Innes
Melissa McCarney
Emma Dupont-Brown
Tania Milnes
Marie Pitton
Vincent ten Krooden
Received during
the year on
the vesting of
performance
rights 1
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
60,000
—
120,000
—
259,253
15,380,212
—
2,500,000
112,208
—
63,341
—
—
124,072
1,558
—
—
—
—
—
—
—
—
—
48,068
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23,184
—
21,066
14,304
9,287
9,779
6,168
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
60,000
—
120,000
—
259,253
15,380,212
—
N/A
183,460
—
84,407
14,304
9,287
133,851
7,726
—
1 Shares issued on vesting of 45,000 performance rights. Additional shares represent the value of dividends over the vesting period.
2 For S Jermyn, the shareholdings disclosed are for the period for which he was a Non-executive Director of the Company.
34
Directors’ Report
For the year ended 30 June 2019
Remuneration Report continued
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
Pinnace Investment Management Group Ltd, Genworth Mortgage Insurance Australia Ltd, Credit Corp Group Ltd,
Navigator Global Investments Ltd, Moelis Australia Ltd, AUB Group Ltd, Eclipx Group Ltd, HUB24 Ltd, FlexiGroup
Australia Ltd, ClearView Wealth Australia Ltd, Scottish Pacific Group Ltd, OFX Group Ltd, EQT Holdings Ltd,
Evans Dixon Ltd, IMF Bentham Ltd, MyState Ltd, Centuria Capital Ltd, Money3 Corp Ltd, Australian Finance Group
Ltd, Zip Co Ltd, Pacific Current Group Ltd, Bell Financial Group Ltd, Credible Labs Inc, Auswide Bank Ltd, Onevue
Holdings Ltd, Pioneer Credit Ltd, Euroz Ltd, Australian Ethical Investment Ltd, FSA Group Ltd, Kina Securities
Ltd, Fiducian Group Ltd, APN Property Group Ltd, Blue Sky Alternative Investments Ltd, Axsesstoday Ltd,
Mainstream Group Holdings Ltd, Managed Accounts Holdings Ltd, Raiz Invest Ltd, Freedom Insurance Group 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 the Executives
and Non-executive Directors as detailed on page 18.
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 rights are used to deliver the CEO’s deferred STI awards and LTI awards to executive KMP. Prior to
FY2019, KMP LTI awards only entitled the holder to one share per performance right.
Performance
share
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
PRP
STI
VWAP
Prior to 2017, the Performance Share Plan was used to make LTI awards to executives.
The Performance Rights Plan is used to make LTI awards to executives.
Short Term Incentive
Volume weighted average price
35 Mortgage Choice Annual Report 2019
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 37.
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
21 August 2019
Directors’ Report
For the year ended 30 June 2019
Insurance of Directors and Officers
Insurance premiums were paid for the year ended 30 June 2019 in
respect of Directors’ and Officers’ liability and legal expenses for
Directors and Officers of the Company and all controlled entities.
The insurance contract prohibits disclosure of the premium paid.
The insurance premiums relate to:
– Costs and expenses incurred by relevant Directors and Officers
in defending any proceedings; and
– Other liabilities that may arise from their position, with
the exception of conduct involving dishonesty, wrongful
acts, or improper use of information or position to gain
personal advantage.
The Company has entered into deeds of access, insurance and
indemnity with the Directors, the Chief Executive Officer 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.
36
Auditors Independence Declaration
For the year ended 30 June 2019
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
21 August 2019
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 2019, 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 Asia Pacific Limited and the Deloitte Network.
37 Mortgage Choice Annual Report 2019
Annual Financial Report — 30 June 2019
Contents
Financial Statements
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Audit Report to members of Mortgage Choice Limited
39
40
41
42
43
44
84
85
These financial statements are the consolidated financial statements of the consolidated entity consisting of Mortgage Choice Limited
and its subsidiaries. The financial statements are presented in the Australian currency.
Mortgage Choice Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place
of business is:
Mortgage Choice Limited
Level 10, 100 Pacific Highway
North Sydney NSW 2060
A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report which is
not part of these financial statements.
The financial statements were authorised for issue by the Directors on 21 August 2019.
Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum
cost to the Company. All financial statements and other information are available in the Shareholders section of Company’s website:
www.mortgagechoice.com.au.
38
Consolidated Income Statement
For the year ended 30 June 2019
Revenue
Origination commission
Trailing commission excluding discount unwind
Trailing commission discount unwind
Diversified products commission
Insurance trailing commission exc. discount unwind
Insurance trailing commission discount unwind
Financial Planning income
Franchise income
Interest
Sponsorship and other income
Direct costs
Origination commission
Trailing commission excluding discount unwind
Trailing commission discount unwind – finance costs
Diversified products commission
Insurance trailing commission exc. discount unwind
Insurance trailing commission discount unwind
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
2019
$’000
2018
$’000
Notes
5
57,858
82,642
17,663
4,677
2,480
913
7,087
1,054
600
2,381
70,015
106,840
17,905
7,265
—
—
11,290
921
577
2,995
177,355
217,808
(44,380)
(58,682)
(12,639)
(3,400)
(2,048)
(770)
(5,944)
49,492
(9,591)
(5,234)
(6,403)
(8,331)
19,933
(6,209)
13,724
13,724
Cents
11.0
10.9
(48,839)
(102,668)
(11,048)
(5,513)
—
—
(9,063)
40,677
(12,458)
(4,992)
(8,675)
(8,705)
5,847
(1,609)
4,238
4,238
Cents
3.4
3.4
6
26
26
The above consolidated income statement should be read in conjunction with the accompanying notes.
39 Mortgage Choice Annual Report 2019
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
Profit for the year
Other comprehensive income
Total comprehensive income attributable to the owners of Mortgage Choice Limited
2019
$’000
13,724
—
13,724
2018
$’000
4,238
—
4,238
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
40
Consolidated Balance Sheet
For the year ended 30 June 2019
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Current tax assets
Total current assets
Non-current assets
Receivables
Contract assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
External borrowings
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
2019
$’000
2018
$’000
7
7
7
7
8
10
11
2
12
13
14
12
15
16(a)
16(b)
1,927
13,750
98,519
—
3,353
104,038
—
112
114,196
107,503
4,220
277,949
717
10,132
293,018
275,685
—
686
8,562
284,933
407,214
392,436
82,043
2,500
510
1,339
86,392
201,396
32,168
774
234,338
320,730
86,484
8,097
1,379
77,008
86,484
77,211
—
—
1,258
78,469
196,711
30,913
691
228,315
306,784
85,652
7,764
1,309
76,579
85,652
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
41 Mortgage Choice Annual Report 2019
Consolidated Statement of Changes in Equity
For the year ended 30 June 2019
Balance at 30 June 2017
7,277
2,075
94,836
104,188
Contributed
equity
$’000
Notes
Reserves
$’000
Retained
earnings
$’000
Total
$’000
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
Adjustment for adoption of AASB15
Balance as at 1 July 2018
Total comprehensive income for the year as reported
in the 2019 financial statements
Contributions of equity net of transaction costs
Dividends paid
Employee share plans – value of employee services
—
—
4,238
4,238
487
—
—
487
7,764
—
7,764
—
333
—
—
333
(487)
—
(279)
(766)
1,309
—
1,309
—
—
(22,495)
(22,495)
—
(279)
(22,495)
(22,774)
76,579
1,705
78,284
85,652
1,705
87,357
—
13,724
13,724
(333)
—
403
70
—
—
(15,000)
(15,000)
—
403
(15,000)
(14,597)
15
17
27
1
15
17
27
Balance at 30 June 2019
8,097
1,379
77,008
86,484
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
42
Consolidated Statement of Cash Flows
For the year ended 30 June 2019
Notes
2019
$’000
2018
$’000
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Income taxes paid
Net cash inflow from operating activities
25
Cash flows from investing activities
Payments for property, plant, equipment and intangibles
Loans to franchisees net of repayments
Proceeds from sale of property, plant and equipment
Interest received
Net cash (outflow) from investing activities
Cash flows from financing activities
External borrowings
Interest paid
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
195,400
(176,201)
19,199
(5,064)
14,135
(3,755)
150
—
600
211,084
(178,702)
32,382
(10,155)
22,227
(4,137)
(1,502)
37
577
(3,005)
(5,025)
2,500
(56)
(15,000)
(12,556)
(1,426)
3,353
1,927
—
—
(22,495)
(22,495)
(5,293)
8,646
3,353
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
43 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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 the Corporations Act 2001, Accounting Standards
and other authoritative pronouncements issued by the Australian
Accounting Standards Board (AASB), and comply with other
requirements of the law. 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
Compliance with Australian Accounting Standards ensures that
the financial statements and notes of the Group comply with
International Financial Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (IASB). Consequently,
this financial report has been prepared in accordance with and
complies with IFRS as issued by the IASB. Consequently, this
financial report has been prepared in accordance with and
complies with IFRS as issued by the IASB.
Amendments to Accounting Standards and new Interpretations
that are mandatorily effective for the current reporting period.
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 the accounting period that begins on or after 1 July 2018.
New and revised Standards and amendments thereof and
Interpretations effective for the current year that are relevant to
the Group include:
– AASB 9 Financial Instruments and related amending Standards
– AASB 15 Revenue from Contracts with Customers and related
amending Standards
– AASB 2016-5 Amendments to Australian Accounting Standards
– Classification and Measurement of Share-based Payment
Transactions.
Impact of the application of AASB 9 Financial Instruments
and related amending Standards
AASB 9 introduced new requirements for:
– the classification and measurement of financial assets
and financial liabilities;
– impairment of financial assets; and
– general hedge accounting.
Details of these new requirements as well as their impact on the
Group’s consolidated financial statements are described below.
Classification and measurement of financial assets
and financial liabilities
Under AASB 9, on initial recognition, a financial asset is classified
and measured at:
– amortised cost;
– fair value through other comprehensive income (FVTOCI)
– debt instrument
– fair value through other comprehensive income (FVTOCI)
– equity instrument
– fair value through profit or loss (FVTPL).
The new standard eliminates the previous AASB 139 financial asset
categories.
All recognised financial assets that are within the scope of AASB
9 are required to be subsequently measured at amortised cost or
fair value on the basis of the entity’s business model for managing
the financial assets and the contractual cash flow characteristics of
the financial assets.
On 1 July 2018 (the date of initial application of AASB 9), the
Group’s management assessed which business models apply to the
financial assets held by the Group and the contractual cash flow
characteristics of the financial assets and has classified its financial
instruments into the appropriate AASB 9 categories as identified
in the table below.
Financial assets at amortised cost
The amortised cost of a financial asset is:
– the amount at which the financial asset is measured at
initial recognition;
– minus the principal repayments;
– plus the cumulative amortisation using the effective interest
method of any difference between that initial amount and
the maturity amount; and
– adjusted for any loss allowance.
44
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
The following accounting policies apply to recognition and subsequent measurement of financial assets and liabilities on adoption of
AASB 9 prior to the application off the new credit loss model:
Financial assets
Original classification
under AASB 139
New classification
under AASB 9
Cash and cash equivalents
Amortised cost
Amortised cost
Trade receivables
Net present value of future mortgage trailing
commissions receivable
Franchisee receivables
Other receivables
Financial liabilities
Loans and
receivables
Loans and
receivables
Loans and
receivables
Loans and
receivables
Amortised cost a
Contract asset under
AASB 15 carried at
expected value b
Carrying amount
under AASB 139
as at 30 June 2018
$’000
Carrying amount
under AASB 9
as at 1 July 2018
$’000
$3,353
$11,751
$3,353
$11,751
$360,913
b
Amortised cost a
$6,384
$6,384
Amortised cost a
$97
$97
Net present value of future mortgage trailing
commissions payable
Amortised cost
Amortised cost
$260,521
$260,521
Net present value of future insurance trailing
commissions payable
Nil amount as at
30 June 2018
Amortised cost
Nil
$13,370(c)
a) When these cash flows consist solely of payments of principal and interest on the principal amount outstanding, the Group has classified and measured them at amortised cost.
b) The future mortgage trailing commission receivable is now classified as a contract asset under AASB 15. The value of net present value of future mortgage trailing commission
receivable is unchanged on transition at $360,913,000.
c) Future insurance trailing commissions payable have been recognised as a result of adoption of AASB 15. Refer to impact of AASB 15 section of this note.
Impairment
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an
‘expected credit loss’ (ECL) model. This applies to financial assets
measured at amortised cost and debt investments at fair value
through other comprehensive income (FVTOCI). The Group does
not hold any debt or equity investments at FVTOCI.
AASB 9 also provides a simplified approach for measuring the loss
allowance at an amount equal to lifetime ECL for trade receivables,
contract assets and lease receivables in certain circumstances.
Specifically, AASB 9 requires the Group to recognise a loss
allowance for expected credit losses on:
– debt investments measured subsequently at amortised cost
ECLs are a probability-weighted estimate of credit losses. Credit
losses are measured as the present value of all cash shortfalls and
consists of three components:
1) Probability of default (PD): represents the possibility of a
default over the next 12 months and remaining lifetime of the
financial asset;
2) A loss given default (LGD): expected loss if a default occurs,
taking into consideration the mitigating effect of collateral
assets and time value of money;
3) Exposure at default (EAD): the expected loss when a default
takes place.
AASB 9 requires the Group to measure the loss allowance for
a financial instrument at an amount equal to the lifetime ECL
if the credit risk on that financial instrument has increased
significantly since initial recognition, or if the financial instrument
has not increased significantly since initial recognition (except
for a purchase or originated credit-impaired financial asset),
the Group is required to measure the loss allowance for that
financial instrument at an amount equal to a 12 month ECL.
or at FVTOCI,
– lease receivables,
– trade receivables and contract assets, and
– financial guarantee contracts to which the impairment
requirements of AASB 9 apply.
The Group has applied a three stage model to determine the loss
allowances for any change in risk since initial recognition:
Stage 1: 12 month ECL – At initial recognition a collective
assessment is done for classes of financial assets with the same
credit risk based on the PD within the next 12 months and the
LGD’s with consideration to forward looking economic indicators.
Stage 2: Lifetime ECL – When there has been a significant change
in credit risk since initial recognition, a lifetime ECL is recognised
taking into account the cash flows for the remaining life of
the asset.
Stage 3: Lifetime ECL – When a financial asset is credit impaired
a lifetime ECL is recognised as a collective or specific provision
with interest calculated on the amortised cost instead of the
carrying amount.
45 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
Mortgage Choice has the following major financial asset classes that need to be considered.
Asset
Cash
Commissions
receivable
Future Trail
commission
receivable
Franchisee loans
Assessment
As all cash is held with major financial institutions (ADI)’s and there has been no history of loss, it has been
determined that ECL would not be material and consequently has not been recognised.
Upfront and current trail commission receivables are due from a combination of highly rated major lenders and
smaller banks and non-bank lenders. There has been no historical instances where a loss has been incurred,
including through the GFC. ECL would not be material and consequently has not been recognised.
Future trail commission receivables are due from a combination of highly rated major lenders and smaller banks,
non-bank lenders and insurance companies. There has been no historical instances where a loss has been incurred,
including through the GFC. ECL would not be material and consequently has not been recognised.
As at 30 June 2019, the group has outstanding loan receivables from various franchisees totalling $6.1m ($6.3m
at 30 June 2018). All the loans are secured against the franchisees trail book. There have not been any material
historical defaults on these loans. The Group has assessed that there is sufficient collateral for each of the loans
such that any loss given default would be insignificant. Therefore, ECL would not be material and consequently has
not been recognised.
The Group often enters into transactions that will give rise to
different streams of fees, for example, financial advice and
placement of life insurance. In all cases, the total transaction
price for a contract is allocated amongst the various performance
obligations based on their relative stand-alone selling prices. The
transaction price for a contract excludes any amounts collected on
behalf of third parties.
The Group recognises contract liabilities for consideration received
in respect of unsatisfied performance obligations and reports
these amounts as other liabilities in the statement of financial
position. Similarly, if the Group satisfies a performance obligation
before it receives the consideration, the Group recognises either a
contract asset or a receivable in its statement of financial position,
depending on whether something other than the passage of time
is required before the consideration is due.
Under AASB 15, revenue is recognised when the Group satisfies
performance obligations by transferring the promised services to
its customers. Determining the timing of the transfer of control
– at a point in time or over time – requires judgement. Below
is a summary of the major services provided and the Group’s
accounting policy on recognition as a result of adopting AASB 15.
Transition
The Group has taken the exemption to not restate comparative
information for prior periods with respect to classification and
measurement (including impairment) requirements. Differences
in the carrying amounts of financial assets and financial liabilities
resulting from the adoption of AASB 9 are recognised in retained
earnings and reserves as at 1 July 2018. Accordingly, the
information presented for FY 2018 does not generally reflect the
requirements of AASB 9 but rather those of AASB 139.
Impact of the application of AASB 15 Revenue from
Contracts with Customers
The Group has adopted AASB 15 Revenue from Contracts
with Customers from 1 July 2018 which resulted in changes in
accounting policies and adjustments to the amounts recognised
in the financial statements. The Group has adopted AASB 15 using
the cumulative effect method (without practical expedients), with
the effect of initially applying this standard recognised at the date
of initial application (i.e. 1 July 2018). Therefore, comparative
periods have not been restated.
AASB 15 uses the terms ‘contract asset’ and ‘contract liability’
to describe what might more commonly be known as ‘accrued
revenue’ and ‘deferred revenue’, however the Standard does
not prohibit an entity from using alternative descriptions in the
statement of financial position.
Revenue to the Group arises mainly from mortgage broking,
financial planning advice and placement of life insurance.
To determine whether to recognise revenue, the Group follows
a 5 step process:
1) Identifying the contract with a customer
2) Identifying the performance obligations
3) Determining the transaction price
4) Allocating the transaction price to the performance obligations
5) Recognising revenue when or as performance obligations
are satisfied
46
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
Revenue recognition
policy under AASB 118
Revenue recognition
policy under AASB 15
Summary of changes
in accounting policy
Origination commissions
received by the Group are
recognised as revenue
on settlement of the
loan, net of estimated
clawbacks.
Revenue
item
Origination
commission
Nature and timing
of satisfaction of
performance obligations
The performance
obligation for the Group
is to introduce successful
applicants to the lender.
The performance
obligations are satisfied at
the point in time the loan
is advanced by the lender.
Cash is received in
the month following
settlement of the loan.
Commissions on loans
that are discharged within
two years will be subject
to clawback in full or part.
Trailing
commission
The performance
obligation for the Group
is to introduce successful
applicants to the lender.
Trailing commission
revenue has historically
been recognised under
AASB 139.
The performance
obligations are satisfied at
the point in time the loan
is advanced by the lender.
The Group has no further
performance obligations
after this.
Cash is received each
month based on the loan
balance of the previous
month. Trail ceases once
the loan is discharged.
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.
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.
47 Mortgage Choice Annual Report 2019
AASB 15 did not
have a significant
impact on the Group’s
accounting policies.
With the introduction
of AASB 15, trailing
commission is now
accounted for under
the revenue standard,
instead of the financial
instruments standard.
However, no material
change occurs from AASB
139 to AASB 15 as the
approach to estimating
the expected value of the
trailing commission is in
line with the approach
under AASB 139.
Once the Group has
referred a successful loan
application to the lender,
its performance obligations
have been met. As such,
the Group recognises this
revenue at a point in time,
being when the loan is
settled with the lender.
The transaction price is
adjusted for any expected
clawbacks using the
expected value method.
The transaction price is a
percentage of the settlement
value of the loan.
Once the Group has referred
a successful loan application
to the lender, its performance
obligations have been met.
As such, the Group recognises
this revenue at a point in
time, being when the loan is
settled with the lender.
On initial recognition a
contract asset is recognised,
representing management’s
estimate of the variable
consideration to be received
from the completion of this
performance obligation. The
Group uses the ‘expected
value’ method of estimating
the variable consideration.
A significant financing
component is also involved
when determining this
variable consideration. As
such, the contract asset is
adjusted by recalculating
the net present value of
estimated future cash flows
at the original effective
interest rate. The transaction
price is a percentage of
the expected outstanding
balance of the loan.
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
Revenue
item
Diversified
commission
Financial
planning
income – advice
Financial
planning
income –
ongoing service
Nature and timing
of satisfaction of
performance obligations
Diversified commissions
represent origination and
trailing commission on
non-mortgage products
including general
insurance and product
referral commissions.
The Group’s performance
obligations are to refer
successful applications to
the lender or provider.
The performance
obligations are satisfied
at the point in time the
application is accepted by
the lender or provider.
Cash for upfront revenue
is received in the month
following settlement of
the loan or writing of the
insurance product.
Cash for trail revenue
is received each month
based on the loan balance
of the previous month.
Trail ceases once the loan
is discharged.
The performance
obligations for the Group
are to provide initial advice
through the preparation
and provision of a
Statement of Advice (SOA).
As such, performance
obligations have been
satisfied at a point in
time, being when the SOA
has been provided.
Each ongoing service
package that the Group
offers contains a list of
distinct services to be
provided over an annual
period. However, these
services have the same
pattern of transfer
and each performance
obligation will be
recognised over time.
As such, these services will
be recognised as a bundle
of services over time.
Cash is received either
annually in advance
or monthly.
Revenue recognition
policy under AASB 118
Revenue recognition
policy under AASB 15
Summary of changes
in accounting policy
Revenue is recognised
when the commissions are
received or receivable.
Trailing commission
revenue has historically
been recognised under
AASB 139.
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.
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.
Revenue from the
provision of financial
services is recognised
at the time the service
is provided.
Revenue from the
provision of financial
services is recognised
over time.
AASB 15 did not
have a significant
impact on the Group’s
accounting policies.
Once the Group has referred
a successful application to
the lender or provider, its
performance obligations
have been met. As such,
the Group recognises this
revenue at a point in time.
The transaction price is a
percentage of the settlement
value of the loan or policy
value of the insurance
product or expected
outstanding balance of the
loan or policy value of the
insurance product.
Revenue is recognised at a
point in time the advice is
delivered to the customer.
AASB 15 did not
have a significant
impact on the Group’s
accounting policies.
AASB 15 did not have
a significant impact on
the Group’s accounting
policies.
Annual ongoing service
revenue is recognised over a
period of time.
A time elapsed method is
used to measure progress
towards completion.
On average the entity
provides services to customers
evenly throughout the year
and therefore recognises
revenue accordingly.
The transaction price is
based on the service package
provided and is paid annually
or monthly.
48
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
Revenue
item
Financial
Planning
income – life
insurance
upfront
commission
Insurance
trailing
commission
Nature and timing
of satisfaction of
performance obligations
The Group’s performance
obligations are to
introduce or refer
successful insurance
policy applications.
The performance
obligations are therefore
satisfied at the point in
time the policy is placed
by the provider.
Cash is received in
the month the policy
is written or the
following month.
The Group’s performance
obligations are to
introduce or refer
successful insurance
policy applications.
The performance
obligations are therefore
satisfied at the point in
time the policy is placed
by the provider.
Cash is received each
month based on the
premium paid by the
client in the previous
month. Trail ceases once
the policy is terminated.
Revenue recognition
policy under AASB 118
Revenue recognition
policy under AASB 15
Summary of changes
in accounting policy
Revenue is recognised
at the point in time the
policy is placed by the
provider.
Revenue is recognised
when the life insurance
trailing commissions are
received or receivable
AASB 15 did not have
a significant impact on
the Group’s accounting
policies.
Under AASB 118 revenue
was recognised on receipt
whereas under AASB
15, due to performance
obligations being satisfied
at a point in time, the net
present value of all future
revenue is estimated and
recognised when the
policy is placed by the
provider.
Once the Group has referred
a successful insurance
application to the provider,
its performance obligations
have been met. As such,
the Group recognises this
revenue at a point in time,
being when the policy is
placed by the provider.
The transaction price is a
percentage of the policy
value of the insurance
product.
Once the Group has referred
a successful insurance
application to the insurance
provider, its performance
obligations have been
met. As such, the Group
recognises this revenue at
a point in time, being when
the policy is placed by the
provider.
On initial recognition a
contract asset is recognised,
representing management’s
estimate of the variable
consideration to be received
from the completion of this
performance obligation. The
Group uses the ‘expected
value’ method of estimating
the variable consideration.
A significant financing
component is also involved
when determining this
variable consideration.
As such, the contract asset
is adjusted by recalculating
the net present value of
estimated future cash flows
at the original effective
interest rate.
The transaction price
is a percentage of the
expected policy value of the
insurance product.
49 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
Revenue recognition
policy under AASB 118
Revenue recognition
policy under AASB 15
Summary of changes
in accounting policy
Revenue is recognised at a
point in time the conference
or workshop is delivered.
AASB 15 did not have
a significant impact on
the Group’s accounting
policies.
Other income includes
contributions from
lenders towards
conferences and
workshops which are
recognised as income
at a point in time in the
period the conference or
workshop is held.
Revenue
item
Sponsorship
and other
income
Nature and timing
of satisfaction of
performance obligations
Each sponsorship package
offered by the Group
contains a list of distinct
services to be provided
over an annual period.
The key services to
be provided relate
to conference and
workshops held by
the Company.
Once the relevant
conference or workshop
has been held, the
performance obligation
is satisfied.
Cash is received in
the form of an annual
package, paid upfront.
The impact of these changes on the Group’s retained earnings is as follows:
Opening balance under AASB 139 and AASB 118
Increase for initial recognition of insurance trail receivable
Decrease for initial recognition of insurance trail payable
Impact of first time adoption of AASB 9
Impact before tax effect
Tax effect
Total impact
Opening balance under AASB 9 and AASB 15
Effect on Retained Earnings
$’000
76,579
15,806
(13,370)
—
2,436
(731)
1,705
78,284
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets
and liabilities (including derivative instruments) at fair value through profit and loss.
Critical accounting estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise
its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
B) Principles of consolidation
i) Subsidiaries
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities)
controlled by the Company and its subsidiaries. Control is achieved when the Company:
– has power over the investee;
– is exposed, or has rights, to variable returns from its involvement with the investee; and
– has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control listed above and at each reporting date.
50
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
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.
A significant financing component is also involved when
determining this variable consideration. As such, the contract asset
is adjusted by recalculating the net present value of estimated
future cash flows at the original effective interest rate.
ii) Employee Share Trust
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 assessing performance of the operating
segments, has been identified as the Chief Executive Officer.
D) Revenue recognition
Revenue is measured based on the consideration to which the
Group expects to be entitled in a contract with a customer and
excludes amounts collected on behalf of third parties.
The Company provides loan origination services through its
franchise network and receives origination commission on the
settlement of loans. Additionally, the lender will normally pay a
trailing commission over the life of the loan. Revenue over the
estimated life of loans written is recognised on the settlement
of the loans as no additional services are required to receive the
entitled funds. Additionally, the Company earns income from the
sale of franchises and franchisee services.
Revenue from sale of services is recognised as follows:
i) Origination commissions arising from mortgage
broking activities
Once the Group has referred a successful loan application to the
lender, its performance obligations have been met. As such, the
Group recognises this revenue at a point in time, being when the
loan is settled with the lender. The transaction price is adjusted for
any expected clawbacks using the expected value method.
The transaction price is a percentage of the settlement value
of the loan.
ii) Trailing commissions arising from mortgage broking activities
Once the Group has referred a successful loan application to the
lender, its performance obligations have been met. As such, the
Group recognises this revenue at a point in time, being when the
loan is settled with the lender.
On initial recognition a contract asset is recognised, representing
management’s estimate of the variable consideration to be
received from the completion of this performance obligation.
The Group uses the ‘expected value’ method of estimating the
variable consideration.
The transaction price is a percentage of the expected outstanding
balance of the loan.
iii) Diversified commissions
Once the Group has referred a successful application to the lender
or provider, its performance obligations have been met. As such,
the Group recognises this revenue at a point in time.
The transaction price is a percentage of the settlement
value of the loan or policy value of the insurance product or
expected outstanding balance of the loan or policy value of the
insurance product.
iv) Financial planning revenue
a) Advice fees
Revenue is recognised at a point in time the advice is delivered
to the customer.
Annual ongoing service revenue is recognised over a period
of time. A time elapsed method is used to measure progress
towards completion. On average the entity provides services
to customers evenly throughout the year and therefore
recognises revenue accordingly.
The transaction price is based on the service package provided
and is paid annually or monthly.
b) Life insurance commission
Once the Group has referred a successful insurance application
to the provider, its performance obligations have been met. As
such, the Group recognises this upfront commission revenue at
a point in time, being when the policy is placed by the provider.
Group recognises trailing commission revenue at a point in
time, being when the policy is placed by the provider. On
initial recognition a contract asset is recognised, representing
management’s estimate of the variable consideration to be
received from the completion of this performance obligation.
The Group uses the ‘expected value’ method of estimating the
variable consideration. A significant financing component is
also involved when determining this variable consideration.
As such, the contract asset is adjusted by recalculating the net
present value of estimated future cash flows at the original
effective interest rate.
The transaction price is a percentage of the policy value of the
insurance product for upfront commissions or expected policy
value for trailing commissions.
v) Franchise income
Franchise income is predominantly the recovery of costs of
meeting regulatory requirements and is charged to franchisees on
a monthly basis. This revenue is recognised as the performance
obligation relating to these requirements are performed.
51 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
vi) Interest income
Interest income is recognised using the effective interest method.
When a receivable is impaired, the Group reduces the carrying
amount to its recoverable amount, being the estimated future
cash flow discounted at the original effective interest rate
of the instrument, and continues unwinding the discount as
interest income.
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.
vii) Sponsorship and other income
Other income includes contributions from lenders towards
conferences and workshops which are recognised as income at
a point in time in the period the conference or workshop is held.
Also included in this category are other non-operating revenues
recognised in the period to which the income relates.
E) Income tax
The income tax expense for the period is the tax payable on the
current period’s taxable income, based on the applicable income
tax rate adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences.
The current income tax charge is calculated on the basis of the
tax laws substantively enacted at the end of the reporting period.
Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation
is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the
tax authorities.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, the deferred income tax is not
accounted for if it arises from initial recognition of an asset or
liability in a transaction, other than a business combination, that at
the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax
liability is settled.
Deferred tax assets are recognised for deductible temporary
differences only if it is probable that future taxable amounts will
be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax
bases of investments in controlled entities where the parent entity
is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation
authority. Current tax assets and tax liabilities are offset where
the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
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 Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
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.
I) Trade receivables
Trade receivables are recognised at amortised cost using the
effective interest method, less expected credit losses (ECL).
Trade receivables are generally due in 30 days.
F) Leases
Leases of property, plant and equipment, where the Group as
lessee has substantially all the risks and rewards of ownership, are
classified as finance leases.
Leases in which a significant portion of the risks and rewards of
ownership are not transferred to the Group as lessee are classified
as operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
G) Impairment of tangible and intangible assets
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). When it is not possible to
estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit
to which the asset belongs. When a reasonable and consistent
basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at
least annually, and whenever there is an indication that the asset
may be impaired. Recoverable amount is the higher of fair value
less costs of disposal and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
H) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with
financial institutions, other short-term, highly liquid investments
with original maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
The Group recognises lifetime ECL for trade receivables. The
expected credit losses are estimated using a provision matrix
based on the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including
time value of money where appropriate.
J) Contract assets
Contract assets recognised are primarily related to trailing
commission arising from mortgage broking activities.
Any amount previously recognised as a contract asset is
reclassified to trade receivables at the point in which the right
becomes unconditional.
K) Financial assets
On initial recognition, a financial asset is classified and
measured at:
– Amortised cost;
• Fair value through other comprehensive income (FVTOCI)
– debt instrument
• Fair value through other comprehensive income (FVTOCI)
– equity instrument
• Fair value through profit or loss (FVTPL)
Debt instruments that meet the following conditions are
measured subsequently at amortised cost:
– the financial asset is held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows; and
– the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
The amortised cost of a financial asset is the amount at which
the financial asset is measured at initial recognition minus the
principal repayments, plus the cumulative amortisation using the
effective interest method of any difference between that initial
amount and the maturity amount, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the amortised cost
of a financial asset before adjusting for any loss allowance.
Impairment of financial assets
The Group recognises a loss allowance for expected credit
losses on investments in debt instruments that are measured at
amortised cost or at FVTOCI, lease receivables, trade receivables
and contract assets, as well as on financial guarantee contracts.
The amount of expected credit losses is updated at each reporting
date to reflect changes in credit risk since initial recognition of the
respective financial instrument.
53 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
The Group recognises lifetime ECL for trade receivables, contract
assets and lease receivables. The expected credit losses on these
financial assets are estimated using a provision matrix based on
the Group’s historical credit loss experience, adjusted for factors
that are specific to the debtors, general economic conditions and
an assessment of both the current as well as the forecast direction
of conditions at the reporting date, including time value of money
where appropriate.
M) Intangible assets
Software
Acquired computer software licences are capitalised on the basis
of the costs incurred to acquire and bring to use the specific
software. These costs are amortised over their estimated useful
lives (three to seven years).
For all other financial instruments, the Group recognises lifetime
ECL when there has been a significant increase in credit risk since
initial recognition. However, if the credit risk on the financial
instrument has not increased significantly since initial recognition,
the Group measures the loss allowance for that financial
instrument at an amount equal to 12 month ECL.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected life
of a financial instrument. In contrast, 12 month ECL represents
the portion of lifetime ECL that is expected to result from
default events on a financial instrument that are possible within
12 months after the reporting date.
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 Group 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.
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.
O) Trailing commissions payable
Payables related to trailing commissions are recognised in
accordance with the revenue recognition policy outlined in
Note 1D.
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.
P) Borrowing costs
Borrowing costs are recognised as expenses using the effective
interest method.
Q) External borrowings
All borrowings are initially recognised at fair value of the
consideration received less directly attributable transaction costs.
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:
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest method other than those which are measured at fair value
through profit or loss (FVTPL).
Office equipment
Computer equipment
Furniture and fittings
5-10 years
3-4 years
5-15 years
Amortised cost is calculated by taking into account any fees paid
or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs, and all other
premiums or discounts on acquisition, over the period to maturity.
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 1G).
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.
R) Provisions
Provisions for legal claims and make good obligations are
recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow
of resources will be required to settle the obligation and the
amount has been reliably estimated. Provisions are not recognised
for future operating losses.
Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to
determine the present value reflects current market assessments
of the time value of money and the risks specific to the liability.
The increase in the provision due to the passage of time is
recognised as interest expense.
54
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
S) Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non monetary benefits
and annual leave expected to be settled within twelve months
after the end of the period in which the employees render the
related service, are recognised in respect of employees’ services
up to the end of the reporting period and are measured at the
amounts expected to be paid. The liability for annual leave
is included in provisions. The liability for all other short-term
employee benefits is included in trade and other payables.
Other long-term employee benefit obligations
The liability for long service leave and any annual leave, which
is not expected to be settled within 12 months after the end of
the period in which the employees render the related service, is
recognised in the provisions and measured as the present value
of expected future payments to be made in respect of services
provided by employees up to the end of the reporting period
using the projected unit credit method. Consideration is given to
expected future wage and salary levels, experience of employee
departures and periods of service. Expected future payments are
discounted using market yields at the reporting period on high
quality corporate bonds with terms and currency that match, as
closely as possible, the estimated future cash outflows.
The obligations are presented as current liabilities in the balance
sheet if the entity does not have an unconditional right to defer
settlement for at least twelve months after the reporting date,
regardless of when the actual settlement is expected to occur.
Retirement benefit obligations
Contributions to the defined contribution fund are recognised
as an expense as they become payable. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Share-based payments
Share based compensation benefits are provided to employees
via the Mortgage Choice Executive Performance Option Plan,
the Mortgage Choice Performance Share Plan and the Mortgage
Choice Share Rights Plan. Information relating to these schemes is
set out in Note 27.
The fair value of 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 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 shares 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 shares 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.
55 Mortgage Choice Annual Report 2019
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.
T) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds. Incremental
costs directly attributable to the issue of new shares or options
for the acquisition of a business are not included in the cost of the
acquisition as part of the purchase consideration.
Where any group company purchases the Company’s equity
instruments, for example as the result of a share buy-back or a
share-based payment plan, the consideration paid, including any
directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the owners of Mortgage
Choice Limited as treasury shares until the shares are cancelled or
reissued. Where such ordinary shares are subsequently reissued, any
consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in
equity attributable to the owners of Mortgage Choice Limited.
U) Dividends
Provision is made for the amount of any dividend declared, that
is approved by the Directors on or before the end of the financial
year but not yet paid at the reporting date.
V) Earnings per share
i) Basic earnings per share
Basic earnings per share is determined by dividing net profit after
income tax attributable to members of the Company, excluding
any costs of servicing equity other than ordinary shares, by the
weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares
issued during the year.
ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares and the weighted
average number of shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary shares.
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
W) 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.
X) New accounting standards and interpretations
At the date of authorisation of the financial statements, the
Standards and Interpretations listed below were in issue but not
yet effective.
Standard/Interpretation
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied in
the financial year
ending
AASB 16 ‘Leases’
1 January 2019
30 June 2020
AASB 2018-1
Amendments to Australian
Accounting Standards – Annual
Improvements 2015–2017 Cycle
1 January 2019
30 June 2020
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 16 Leases
AASB 16 will replace AASB 117 Leases, Interpretation 4 Determining
whether an Arrangement contains a Lease, Interpretation
115 Operating Leases – Incentives and Interpretation 127 Evaluating
the Substance of Transactions Involving the Legal Form of a Lease.
The Standard will provide a comprehensive model for the
identification of lease arrangements and their treatment in the
financial statements of both lessees and lessors.
Key requirements of AASB 16:
AASB 16 distinguishes leases and service contacts on the basis of
whether an identified asset is controlled by a customer. Distinctions
of operating leases (off balance sheet) and finance leases (on
balance sheet) are removed for lessee accounting, and is replaced
by a model where a right-of-use asset and a corresponding liability
have to be recognised for all leases by lessees (i.e. all on balance
sheet) except for short-term leases or leases of low value assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is initially
measured at the present value of the lease payments that are
not paid at that date. Subsequently, the lease liability is adjusted
for interest and lease payments, as well as the impact of lease
modifications, amongst others. Furthermore, the classification of
cash flows will also be affected as operating lease payments under
AASB 117 are presented as operating cash flows; whereas under
the AASB 16 model, the lease payments will be split into a principal
and an interest portion which will be presented as financing and
operating cash flows respectively.
In contrast to lessee accounting, AASB 16 substantially carries
forward the lessor accounting requirements in AASB 117, and
continues to require a lessor to classify a lease either as an
operating lease or a finance lease.
Furthermore, extensive disclosures are required by AASB 16.
AASB 16 applies to annual period beginning on or after 1 January
2019. The Group anticipates that the application of AASB 16 in the
future may have a material impact on amounts reported in respect
of the Group’s financial assets and financial liabilities.
Based on the Group’s assessment of the leases the Group has
as at 30 June 2018 on the basis of the facts and circumstances
that exist as at that date, the changes to AASB 16 Leases will
result in the inclusion of a lease liability and a right of use asset
on the balance sheet. There will also be changes to the profile
of the expense. Rather than being a straight line rental expense,
there will be more expensed in early years and less in later years.
In addition, the nature of expenses related to those leases will
now change because the new standard replaces the straightline
operating lease expense with a depreciation charge for right-of-
use assets and interest expense on lease liabilities. As a result,
there will be an increase in cash inflow from operations arising
from the depreciation charge, and an increase in cash outflow
from financing activities from the interest expense.
This will also increase metrics such as EBITDA as rather than an
operating rental expense there will be a movement of expenses
below the EBITDA line.
The Group has lease commitments of $4.753m (refer note 21).
The amount disclosed does not include any lease extension
options and is not discounted as the Group is still in the process of
determining its incremental borrowing rate, and as such is not able
to determine the impact on the statement of financial position and
statement of comprehensive income at this stage.
As a lessee, the Group can either apply the standard using the
retrospective approach or modified retrospective approach with
optional practical expedients. The lessee applies the election
consistently to all of its leases. The standard is mandatory for first
interim periods within annual reporting periods beginning on or
after 1 January 2019. The Group plans to apply the accounting
standard initially on 1 July 2019, using a modified retrospective
approach. Therefore, the cumulative effect of adopting AASB
16 will be recognised as an adjustment to the opening balance
of retained earnings at 1 July 2019, with no restatement of
comparative information. The Group has not yet decided whether
it will use the optional exemptions. 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
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.
56
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 1 Summary of significant accounting policies continued
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 is not currently practicable to provide an estimate of the financial effect until the directors complete the review.
Y) 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.
57 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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 significant interest rate exposure and is not exposed to either securities
price risk or commodity price risk.
Risk management is carried out by the Group’s finance department under policies approved by the Board of Directors.
The Group holds the following financial instruments:
Financial Assets
Current
Cash and cash equivalents
Trade and other receivables a,b
Contract assets
Non—current
Receivables b
Contract assets
a) Excludes prepayments.
b) FY2018 includes receivables treated as Contract assets under AASB 15 in FY2019.
Financial Liabilities
Current
Trade and other payables
External borrowings
Non—current
Trade and other payables
2019
$’000
2018
$’000
1,927
13,146
98,519
4,220
277,949
395,761
3,353
103,460
—
275,685
—
382,498
2019
$’000
2018
$’000
82,043
2,500
201,396
285,939
77,211
—
196,711
273,922
The Group’s policies in relation to financial risks to which it has exposure are detailed below.
I) Market risk
Interest rate risk
The Group’s main interest rate risk arises from cash, cash equivalents and external borrowings. At 30 June 2019 the weighted average
interest rate on its cash balances was 1.25% (2018 1.5%). If interest rates were to increase by 100 basis points, the Group’s after tax
result would increase by $57,000 (2018 $83,000). A decrease of 100 basis points would reduce the Group’s after tax result by $57,000
(2018 $83,000). At 30 June 2019 the interest rate on the Group’s external borrowings was 1.27%. If interest rates were to increase by
100 basis points, the Group’s after tax result would reduce by $17,000. A decrease of 100 basis points would increase the Group’s after
tax result by $17,000.
II) Credit risk
Credit risk is assessed on a Group basis. It arises from cash and cash equivalents placed with banks as well as credit exposure to
financial institutions on the Group’s lender panel from which future trailing commissions are due. The majority of these financial
institutions are Authorised Deposit—taking Institutions (ADIs) and therefore regulated by the Australian Prudential Regulation
Authority (APRA) and are independently rated. This forms the basis of the Group’s assessment of credit risk. If the lender has not been
independently rated, credit risk is assessed taking into account its financial position, past experience and other factors. The table
below indicates the Group’s exposure to each ratings category.
The Group bears the risk of non—payment of future trailing commissions by lenders should they become insolvent but
correspondingly, there is no legal requirement to pay franchisees trailing commissions that have not been received. The Group
judges there to be an increase in credit risk if the receivable becomes 30 days past due. The Group’s expected credit losses has been
determined to be not material due to the Group’s history of no historical losses and the risk profile of the Group’s lender panel. Refer
to the table below.
58
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 2 Financial risk management continued
2019
ADI's
Non ADI's
Provision for Lender clawbacks
Total Receivable
2018
ADI's
Non ADI's
Provision for Lender clawbacks
Total Receivable
59 Mortgage Choice Annual Report 2019
Standard & Poor's
Credit Rating
AA–
A+
A
A–
BBB+
BBB
BBB–
Not rated
AA–
A+
A
A–
BBB+
BBB
BBB–
Not rated
Standard & Poor's
Credit Rating
AA–
A+
A
A–
BBB+
BBB
BBB–
Not rated
AA–
A+
A
A–
BBB+
BBB
BBB–
Not rated
Cash
$’000
1,927
Trade and
Franchisee
Receivables
$’000
7,789
1,504
1,330
158
120
1,162
—
205
Contract
Assets
$’000
237,058
25,561
41,185
4,734
3,082
33,875
—
5,609
1,927
12,269
351,104
54
213
—
—
7
—
125
7,917
8,317
(3,220)
17,366
Trade and
Franchisee
Receivables
$’000
8,654
1,172
1,678
0
236
1,723
—
156
—
13,431
—
—
—
—
2,910
9,023
25,364
376,468
Contract
Assets
$’000
243,407
21,458
46,171
—
2,839
31,432
—
5,347
—
1,927
Cash
$’000
3,353
3,353
13,619
350,654
60
307
—
—
1
—
128
8,218
8,714
(4,198)
18,135
—
—
—
—
—
—
2,666
7,593
10,259
360,913
—
3,353
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 2 Financial risk management continued
III) Liquidity risk and fair value estimation
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The Group manages liquidity risk by
continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. Surplus funds
are generally only invested in instruments that are tradable in highly liquid markets.
The tables below analyse the Group’s financial assets into relevant maturity groupings based on the expected future cashflows.
No financial assets are past due or impaired.
Less than
6 months
$’000
6 – 12
months
$’000
Between
1 and 2 years
$’000
Between
2 and 5 years
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
Amount
$’000
At 30 June 2019
Non—derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non—interest bearing
Cash and cash equivalents
Trade receivable
Franchisee and other
receivables
Contract assets
—
1,113
—
1,909
—
2,356
—
—
0
—
—
0
1,925
1,263
2
11,015
263
50,291
64,759
—
—
0
45,816
46,929
—
131
—
—
0
1,925
6,771
2
11,015
263
1,925
6,088
2
11,015
263
78,886
151,613
116,137
442,742
376,468
80,795
153,969
116,268
462,719
395,761
The fair value of the contract assets is $385,436,000. The fair value of all other assets is the same as their carrying amount. The fair value
of the contract assets would be classified as Level 3 in the fair value hierarchy. 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 2.91% for residential
trailing commissions and 4.8% for insurance products. There has been no change to the valuation technique during the year.
At 30 June 2018
Non—derivatives
Interest bearing
Cash and cash equivalents
Franchisee receivables
Non—interest bearing
Cash and cash equivalents
Trade receivable
Franchisee and other
receivables
Future trailing commissions
receivable
Less than
6 months
$’000
6 – 12
months
$’000
Between
1 and 2 years
$’000
Between
2 and 5 years
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
Amount
$’000
3,351
1,190
2
11,751
308
—
1,119
—
1,970
—
3,238
—
—
25
—
—
10
—
—
11
—
419
—
—
0
3,351
7,936
2
11,751
354
3,351
6,238
2
11,751
354
48,078
43,938
76,009
148,241
114,368
430,634
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 tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the expected future cashflows.
60
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 2 Financial risk management continued
Contractual maturities
Between
of financial liabilities
1 and 2 years
at 30 June 2019
$’000
Less than
6 months
$’000
6 – 12
months
$’000
Between
2 and 5 years
$’000
Over
5 years
$’000
Total
cash flows
$’000
Carrying
Amount
$’000
Non—derivatives
Interest bearing
External borrowing
Trade payables
Non—interest bearing
Trade payables
Licence fees and other payables
1,500
279
10,796
—
Future trailing commissions payable
36,168
48,743
1,000
—
—
—
33,002
34,002
—
—
—
—
—
—
—
—
—
—
—
—
2,500
279
2,500
279
10,796
10,796
—
—
56,923
109,470
83,928
319,491
272,363
56,923
109,470
83,928
333,066
285,938
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 $279,350,000. The fair value of all other liabilities is the same as their carrying amount.
External borrowings
During the year, the Group obtained a new loan facility to the amount of $4,500,000. As at 30 June 2019, the outstanding amount is
$2,500,000. The loan bears interest at variable market rates and is repayable in April 2020. In accordance with the terms of the Group’s
corporate debt facilities, the Group is required to comply with certain covenants. During the period and as at 30 June 2019, the Group
was compliant with these covenants.
The loan facility is secured against the assets of the Group.
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
Future trailing commissions payable
33,625
47,026
13,401
—
—
—
31,609
31,609
—
—
—
—
—
—
13,401
13,401
—
—
54,747
107,011
83,202
310,194
260,521
54,747
107,011
83,202
323,595
273,922
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.
IV) Prepayment risk
Prepayment risk has been assessed through the sensitivity analysis of run-off rates, refer to Note 3.
61 Mortgage Choice Annual Report 2019
Contractual maturities
of financial liabilities
at 30 June 2018
Non—derivatives
Non—interest bearing
Trade payables
Licence fees and other payables
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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.
The contract assets 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
2019
2018
4.0 years
4.0 years
4.9%
72%
5.4%
72%
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 $5.0 million (made up of decreases in current assets of $6.6 million, non-current assets of $19.0 million,
current liabilities of $4.7 million, non-current liabilities of $13.8 million and deferred tax liabilities of $2.1 million) if run-off rates
increase by 10%; or
– an increase in net assets of $5.6 million (made up of a decreases in current assets of $4.3 million and current liabilities of $3.1 million,
increases in non-current assets of $33.2 million, non-current liabilities of $23.9 million and deferred tax liabilities of $2.5 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 FY 2018 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 $2.67 million positive
adjustment after tax to the Group’s profit and loss for FY 2019 (2018 – $8.67 million positive adjustment). Changes to the model
assumptions to reflect the new broker remuneration framework resulted in a $28.47 million negative adjustment after tax to the Group’s
profit and loss for FY 2018, refer Note 4 (c) (ii). The impact is detailed in the table below:
Increase/(decrease) in receivables
Increase/(decrease) in payables
Net adjustment before tax
Tax effect
Adjustment after tax
Change in model assumptions to reflect the new broker remuneration framework
Total after tax adjustment
2019
$’000
13,644
9,835
3,809
1,143
2,666
—
2,666
2018
$’000
28,045
15,659
12,386
3,716
8,670
(28,468)
(19,798)
62
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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 two reportable product segments, Mortgage Choice franchised mortgage broking (MOC) and Mortgage
Choice Financial Planning (MCFP). MCFP includes revenue from wealth products, including investment advice as well as all risk insurance
products written across the Group. Operating expenses presented in MCFP represent the expenses solely attributable to that business
segment. Help Me Choose health fund and mortgage comparison website (HMC) ceased operations in 2015 and continued to receive
trailing commissions until August 2018. The Group operates only in Australia.
b) Information provided to the Chief Executive Officer
Information provided to the Chief Executive Officer for the year ended 30 June 2019 is as follows:
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
177,355
166,818
10,537
49,492
49,352
2,143
29,157
6,209
13,724
14,028
47,798
47,464
2,143
27,287
6,247
13,812
14,007
1,774
1,888
—
1,870
(38)
(88)
21
—
—
—
—
—
—
—
—
Total
$’000
MOC
$’000
MCFP
$’000
HMC
$’000
217,808
206,357
11,322
40,677
68,422
1,587
35,110
1,609
4,238
23,382
38,289
65,807
1,587
33,389
1,415
3,786
22,750
2,259
2,259
—
1,721
155
362
383
129
129
356
—
—
39
90
249
Product Segments
2019
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
OPEX (excl SBP 1)
Income tax expense
NPAT (IFRS)
NPAT (cash)
1 Share based remuneration
2018
Revenue
Gross Profit (IFRS)
Gross profit (cash)
Depreciation and amortisation
OPEX (excl SBP 1)
Income tax expense
NPAT (IFRS)
NPAT (cash)
1 Share based remuneration
63 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 4 Segment information continued
Cash versus IFRS
Origination commission
Trailing commission
Origination commission paid
Trailing commission paid 2
IFRS
Cash 1
2019
$’000
57,858
100,305
158,163
44,380
71,321
2018
$’000
70,015
124,745
194,760
48,839
73,048
115,701
121,887
% change
(17%)
(20%)
(19%)
(9%)
(2%)
(5%)
2019
$’000
57,858
99,827
2018
$’000
70,015
98,459
157,685
168,474
44,380
71,129
48,839
59,911
115,509
108,750
% change
(17%)
1%
(6%)
(9%)
19%
6%
Net core commission
42,462
72,873
(42%)
42,176
59,724
(29%)
Diversified products net revenue
Financial Planning net revenue
Other income
Gross profit
Operating expenses
Share based remuneration
Net profit before tax
Balance sheet adjustment –
NPV Future trail payable 3
1,239
1,756
4,035
49,492
29,157
402
19,933
1,752
2,227
4,493
(29%)
(21%)
(10%)
81,345
(39%)
35,110
(279)
(17%)
(244%)
46,514
(57%)
(40,668)
1,266
1,875
4,035
49,352
29,157
—
20,195
1,752
2,227
4,720
68,423
35,110
—
(28%)
(16%)
(15%)
(28%)
(17%)
33,313
(39%)
Net profit after tax
13,724
4,238
224%
14,028
23,382
(40%)
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 Trailing commission income and trailing commission paid include discount unwind as itemised in the consolidated income statement
3 The NPV of future trail payable was adjusted at 30 June 2018 to reflect the change in the broker remuneration structure.
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
IFRS
Cash
2019
$’000
2018
$’000
% change
2019
$’000
2018
$’000
% change
4,511
7,265
(38%)
4,642
7,265
(36%)
3,272
5,513
(41%)
3,376
5,513
(39%)
1,239
1,752
(29%)
1,266
1,752
(28%)
Financial Planning revenue
10,646
11,290
(6%)
11,245
11,290
(0%)
Financial Planning
commissions paid
Financial Planning net revenue
Franchise Income
Interest
Help Me Choose commissions
Other income
Other income
8,890
1,756
1,054
600
2,381
4,035
9,063
2,227
921
577
129
2,866
4,493
(2%)
(21%)
14%
4%
(100%)
(17%)
(10%)
9,370
1,875
1,054
600
2,381
4,035
9,063
2,227
921
577
356
2,866
4,720
3%
(16%)
14%
4%
(100%)
(17%)
(15%)
64
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 4 Segment information continued
Diversified life insurance products are reallocated to Financial Planning for segment reporting. The following table shows the
reconciliation from the Consolidated Income Statement to this statement.
Consolidated Income statement
Revenue
Diversified products commission
Insurance trailing commission excluding discount unwind
Insurance trailing commission discount unwind
Financial Planning income
Direct costs
Diversified products commission
Insurance trailing commission excluding discount unwind
Insurance trailing commission discount unwind
Financial Planning commission
c)
Other information
Total
Diversified
Products
Financial
Planning
4,677
2,480
913
7,087
3,400
2,049
770
5,944
4,511
166
2,480
913
7,087
4,511
10,646
3,272
3,272
128
2,049
770
5,944
8,891
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. Under IFRS, the expected value method is used to the estimate the future
trailing cash flows to be received over the life of a loan and is recognised at the time a loan settles. The Chief Executive Officer considers
both this and the cash NPAT when measuring the Group’s performance.
ii) Net profit after tax
The cash net profit after tax (as shown above) reconciles to the IFRS profit after tax as follows:
Cash Net profit after tax
NPV future trails on new loans originated, net of payout
Less net cash from trail previously recognised under IFRS
NPV future trails on new insurance policies, net of payout
Less net cash trail from insurance policies previously recognised under IFRS
Plus adjustments to loan book assumptions
Gain/(loss) on prepayment/(establishment) of trail liability
Plus reversal of amortisation of trail liability 1
NPV future trails adjustment 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
1 Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
65 Mortgage Choice Annual Report 2019
2019
$’000
14,028
11,012
2018
$’000
23,382
20,996
(16,211)
(20,445)
238
(338)
2,666
2,040
691
—
—
(402)
13,724
—
—
8,680
(183)
156
20
(179)
279
32,706
(28,468)
4,238
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 4 Segment information continued
iii) Gross profit and net core commissions
The cash gross profit and net core commissions reconcile to their IFRS equivalents as follows:
Gross Profit
Net Core Commissons
Cash
NPV future trails on new loans originated, net of payout
Less net cash from trail previously recognised under IFRS
NPV future trails on new insurance policies, net of payout
Less net cash trail from insurance policies previously
recognised under IFRS
Plus adjustments to loan book assumptions
Gain/(loss) on prepayment/(establishment) of trail liability
Plus reversal of amortisation of trail liability 1
NPV future trails on Help Me Choose policies written
Less net cash from trail previously recognised under IFRS
IFRS before adjustment to NPV Trail Payable
Less Balance Sheet adjustment to NPV Trail payable
IFRS
2019
$’000
49,352
15,731
(23,158)
338
(483)
3,809
2,915
988
—
—
49,492
—
49,492
2018
$’000
68,423
29,995
(29,206)
—
—
12,400
(261)
221
29
(256)
81,345
(40,668)
40,677
1 Under cash profit, the prepayment of trail liability is spread over the estimated life of the trail book portfolio.
iv) Timing of revenue recognition
Performance obligations met at a point in time
MOC
Origination commission
Trailing commission
Diversified products commissions
Franchise Income
Other income
MCFP
Financial planning revenue
Other income
Total Point in time revenue
Performance obligations met over time
MCFP
Financial planning revenue
Other income
Total Point over time revenue
2019
$’000
42,176
15,731
(23,158)
—
—
3,809
2,915
988
—
—
42,461
—
42,461
2018
$’000
59,724
29,995
(29,206)
—
—
12,400
(261)
221
—
—
72,873
(40,668)
32,205
2019
$’000
2018
$’000
57,858
100,305
4,511
1,054
2,368
70,015
124,745
6,976
921
2,834
166,096
205,491
7,571
16
7,587
8,367
14
8,381
173,684
213,872
3,075
(4)
3,071
2,923
18
2,941
66
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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 – point in time
Sponsorship and other income – over time
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)
b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Income tax calculated @ 30% (2018 – 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.
67 Mortgage Choice Annual Report 2019
2019
$’000
2018
$’000
155,796
196,450
600
18,578
2,385
(4)
577
17,915
2,848
18
177,355
217,808
2019
$’000
4,958
1,255
(4)
6,209
6,209
6,209
(2,880)
4,135
1,255
2019
$’000
19,933
5,980
233
-
6,213
(4)
6,209
2018
$’000
8,601
(6,986)
(6)
1,609
1,609
1,609
(15,678)
8,692
(6,986)
2018
$’000
5,847
1,754
166
(305)
1,615
(6)
1,609
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 7 Trade and other receivables
2019
Trade receivables 1
Contract assets
Net present value of future
trailing commissions receivable
Franchisee receivables
Other receivables
Prepayments
Current
$’000
Non-current
$’000
11,016
98,519
—
1,897
233
604
—
277,949
—
4,220
—
—
Total
$’000
11,016
376,468
—
6,117
233
604
2018
Current
$’000
Non-current
$’000
11,751
—
—
—
Total
$’000
11,751
—
89,640
271,273
360,913
1,972
97
578
4,412
—
—
6,384
97
578
112,269
282,169
394,438
104,038
275,685
379,723
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.
b) Impaired trade receivables
As at 30 June 2019 current trade receivables were not impaired (2018 – nil).
c) Risk exposure
Information about the Group’s exposure to credit risk and interest rate risk is provided in Note 2.
d) Fair values
The carrying amounts of trade and other receivables at year end is a reasonable approximation of their fair values with the exception of
the net present value of contract assets (future trailing commissions receivable) which are accounted for at amortised cost. The fair values
of the net present value of contract assets are presented in Note 2.
68
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 8 Non-Current Assets – Property, plant and equipment
Plant and
Equipment
$’000
Leasehold
Improvements
$’000
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
Year ended 30 June 2019
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2019
Cost
Accumulated depreciation
Net book amount
419
164
(41)
(196)
346
1,977
(1,631)
346
346
151
—
(186)
311
2,033
(1,722)
311
239
204
—
(103)
340
1,444
(1,104)
340
340
199
(41)
(92)
406
1,517
(1,111)
406
Total
$’000
658
368
(41)
(299)
686
3,421
(2,735)
686
686
350
(41)
(278)
717
3,550
(2,833)
717
Note 9 Non-current assets – Deferred tax assets
The balance comprises temporary differences attributable to:
Net present value of future trailing commissions payable
Employee benefits
Depreciation and amortisation
Accrued expenses
Total deferred tax assets
Set off of deferred tax assets pursuant to set off provisions (Note 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
2019
$’000
2018
$’000
81,709
78,156
485
(11)
320
82,503
(82,503)
—
24,881
57,622
82,503
750
74
643
79,623
(79,623)
—
20,454
59,169
79,623
69 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 9 Non-current assets – Deferred tax assets continued
Movements
At 30 June 2017
Charged/(credited) to the income statement
At 30 June 2018
Charged/(credited) to the income statement
At 30 June 2019
NPV of
future trailing
commissions
payable
$’000
62,276
15,880
78,156
3,553
81,709
Employee
benefits
$’000
Depreciation
and
amortisation
$’000
Accrued
expenses
$’000
843
(93)
750
(265)
485
142
(68)
74
(85)
(11)
684
(41)
643
(323)
320
Other
$’000
—
—
—
—
—
Note 10 Non-current assets – intangible assets
Year ended 30 June 2018
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2018
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2019
Opening net book amount
Additions
Amortisation charge
Disposals
Closing net book amount
At 30 June 2019
Cost
Accumulated amortisation
Net book amount
Total
$’000
63,945
15,678
79,623
2,880
82,503
Computer
Software
$’000
6,081
3,769
(1,288)
—
8,562
19,859
(11,297)
8,562
8,562
3,406
(1,836)
—
10,132
23,265
(13,133)
10,132
70
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 11 Current liabilities – Trade and other payables
Trade payables a
Net present value of future trailing commissions payable
Deferred revenue b
Other payables
2019
$’000
9,469
70,967
347
1,260
82,043
2018
$’000
10,052
63,810
156
3,193
77,211
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 Sargon CT Pty Limited.
The first charge is over a specified percentage of the Company’s trailing commission income. The purpose of this charge is to be the first
source of funds available to eligible franchisees for the payment of trailing commissions in the event that administration or liquidation
occurs. The charge will crystallise and can be enforced by eligible franchisees only in the event of liquidation or administration of
Mortgage Choice Limited.
As at 30 June 2019, 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 $5,597,900 (2018 – $4,691,001). This is included as part of the
balance of trade payables at 30 June 2019 and would be subject to charge until disbursed to the eligible franchisees. The amount subject
to the charge would vary dependent on trailing commission due to be received by Mortgage Choice Limited from month to month.
The second charge is a floating charge over all of the assets of Mortgage Choice Limited. It is limited in the powers it allows the security
trustee to exercise prior to liquidation. Its primary purpose is to ensure that the loan book security structure need not be subject to the
moratorium arising if an administrator were to be appointed to Mortgage Choice Limited. Only after liquidation does this charge confer
comprehensive mortgagee powers on the security trustee.
b) Deferred revenue
Mortgage Choice Financial Planning charges ongoing service fees annually. This reflects the value of performance obligations not yet
performed as at 30 June 2019.
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
2019
2018
Current
$’000
Non-current
$’000
58
784
497
1,339
439
—
335
774
Total
$’000
497
784
832
Current
$’000
Non-current
$’000
68
731
459
420
—
271
691
Total
$’000
488
731
730
1,949
2,113
1,258
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.
71 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 13 Non-current liabilities – Trade and other payables
Net present value of future trailing commissions payable
Note 14 Non-current liabilities – Deferred tax liabilities
The balance comprises temporary differences attributable to:
Expected value of contract assets
Intangibles
Prepayments and other receivables
Set off of deferred tax assets pursuant to set off provisions (Note 9)
Net deferred tax liabilities
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
2019
$’000
201,396
201,396
2018
$’000
196,711
196,711
2019
$’000
2018
$’000
112,940
108,274
1,660
71
2,131
131
114,671
110,536
(82,503)
(79,623)
32,168
30,035
84,636
30,913
27,437
83,099
114,671
110,536
Movements – Consolidated
At 30 June 2017
Charged to the income statement
At 30 June 2018
Charged to the income statement
At 30 June 2019
Expected value
of contract assets
$’000
Intangibles
$’000
Prepayments
and other
receivables
$’000
100,456
7,818
108,274
4,666
112,940
1,346
785
2,131
(471)
1,660
42
89
131
(60)
71
Total
$’000
101,844
8,692
110,536
4,135
114,671
72
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 15 Contributed equity
Share capital
Ordinary shares – fully paid
2019
shares
’000
2018
shares
’000
2019
$’000
2018
$’000
124,149
123,964
8,097
7,764
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll
each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
Total contributed equity as at 30 June 2019:
Details
Total ordinary shares on issue
Treasury shares a)
Total ordinary shares held as contributed equity
Number of shares
124,997,440
(848,334)
124,149,106
a) Treasury shares
Treasury shares are shares in Mortgage Choice Limited that are held by the Mortgage Choice Performance Share Plan Trust for the
purpose of issuing shares under the Mortgage Choice Performance Share Plan (PSP) (see Note 27 for further information).
Date
30 June 2017
Details
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
14 September 2018
Shares issued under the Share Rights Plan to employees
14 September 2018
Shares issued under the Performance Share Plan to employees
5 April 2019
Shares issued under the Share Rights Plan to employees
30 June 2019
Balance
Movements in ordinary share capital:
Date
30 June 2017
Details
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
14 September 2018
Shares issued under the Share Rights Plan to employees
14 September 2018
Treasury shares issued to the Mortgage Choice Employee Incentive Trust
5 April 2019
Shares issued under the Share Rights Plan to employees
30 June 2019
Balance
Number of shares
1,202,873
(64,550)
(76,527)
(66,677)
38,706
1,033,825
(14,901)
(122,522)
(48,068)
848,334
$’000
7,277
132
208
147
—
—
7,764
30
246
57
8,097
Number of shares
123,755,861
64,550
76,527
66,677
38,706
(38,706)
123,963,615
14,901
122,522
48,068
124,149,106
Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in Note 27.
73 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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
2019
$’000
1,379
1,309
402
(332)
1,379
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.
b) Retained profits
Balance 1 July
Adjustment for adoption of AASB15
Net profit for the year
Dividends
Balance 30 June
Note 17 Dividends
a) Ordinary shares
2019
$’000
76,579
1,705
13,724
(15,000)
77,008
2018
$’000
1,309
2,075
(279)
(487)
1,309
2018
$’000
94,836
—
4,238
(22,495)
76,579
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
Final dividend declared out of profits of the Company for the year ended 30 June 2018
of 9.0 cents per fully paid share paid on 10 October 2018:
– 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 2018
of 3.0 cents per fully paid share paid 15 April 2019:
– Fully franked based on tax paid @ 30%
– 3.0 cents per share
2019
$’000
2018
$’000
—
11,246
—
11,249
11,250
—
3,750
15,000
—
22,495
74
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 17 Dividends continued
b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended the payment of
a final dividend of 3.0 cents per fully paid ordinary share, (2018 – 9.0 cents) fully franked based on tax
paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 15 October
2019 out of retained profits at 30 June 2019, but not recognised as a liability at year end, is
2019
$’000
2018
$’000
3,750
11,250
c) Franked dividend
The franked portions of the final dividends recommended after 30 June 2019 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 2019.
Franking credits available for subsequent financial years to the equity holders of the parent entity
based on a tax rate of 30% (2018 – 30%)
2019
$’000
2018
$’000
1,416
2,078
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 $1,607,000 (2018: $4,821,000).
Note 18 Key management personnel disclosures
Key management personnel compensation
Short term employee benefits
Post employment benefits
Long-term benefits
Termination benefits
Share based payments
Balance 30 June
2019
$
2018
$
2,230,742
2,628,373
157,587
30,174
—
158,666
73,693
568,528
295,539
(353,398)
2,714,042
3,075,862
Detailed remuneration disclosures are provided in the Directors’ report on pages 18 – 35 of the remuneration report.
75 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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:
2019
a) Audit services
– Deloitte Touche Tohmatsu Australian firm:
– Audit and review of financial reports
Total remuneration for audit services
b) Non-audit services
Non audit-related services
Deloitte Touche Tohmatsu Australian firm:
– Actuarial services
– Taxation services
– Financial modelling services
Total remuneration for non-audit services
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 Australian firm:
– Actuarial services
– Taxation services
– Financial modelling services
Total remuneration for non-audit services
$
224,000
224,000
30,000
48,850
19,645
98,495
$
213,230
213,230
75,000
18,344
137,400
230,744
Note 20 Contingencies
Contingent liabilities
The Group had contingent liabilities at 30 June 2019 in respect of:
a) Guarantees
Guarantees given in respect of premises leases $842,423 (2018: $853,111)
b) 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 2019 and 30 June 2018, 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.
76
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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
Note 22 Related party transactions
I) Parent entity
The ultimate parent entity within the Group is Mortgage Choice Limited.
II) Subsidiaries
Interests in subsidiaries are set out in Note 23.
2019
$’000
2018
$’000
1,078
3,675
—
4,753
1,212
4,841
—
6,053
III) Key management personnel
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.
IV) Loans to/from related parties
The Group has formed trusts to administer the Group’s employee share scheme. These are funded by the parent entity. These trusts
are consolidated, as the substance of the relationship is that the trust is controlled by the Group.
No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in
respect of bad or doubtful debts due from related parties.
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 1b:
Name of entity
MC Loan Book Security Pty Limited
Help Me Choose Pty Limited
Mortgage Choice Financial Planning Pty Limited
Country of
Incorporation
Class of
Shares
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Equity holding *
2019
%
100
100
100
2018
%
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.
77 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 24 Events occurring after the balance sheet date
Dividend payment
Subsequent to year end, a final ordinary dividend of $3,750,000 (3.0 cents per fully paid share) was declared out of profits of the
Company for the year ended 30 June 2019 on 21 August 2019 to be paid on 15 October 2019.
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
Interest paid
Reversal of make good provision
Net loss (gain) on sales of non-current assets
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
2019
$’000
13,724
2,114
253
(1,528)
402
(600)
56
40
—
663
25
(3,082)
758
621
524
164
14,134
2018
$’000
4,238
1,587
(26,060)
52,934
(279)
(577)
—
—
4
270
(109)
(1,234)
(195)
(1,559)
(6,986)
193
22,227
78
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
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
Consolidated
2019
Cents
11.0
10.9
2019
$’000
2018
Cents
3.4
3.4
2018
$’000
13,724
4,238
2019
Number
2018
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
124,997,440
124,988,956
Adjustments for calculation of diluted earnings per share:
– Share rights
402,440
213,989
Weighted average number of ordinary shares and potential ordinary shares used as the denominator
in calculating diluted earnings per share
125,399,880
125,202,945
Information concerning the classification of securities
a) Performance Share Plan
Shares issued to employees under the Mortgage Choice Performance Share Plan are considered to be ordinary shares and have been
included in the determination of basic earnings per share. Details relating to the shares are set out in the Remuneration report.
b) Share Rights Plan
Share rights granted to 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
a) Performance Share Plan (PSP)
The PSP permits eligible employees as identified by the Board to be granted allocated unvested shares from the outset of the applicable
performance period, with the shares to be held on trust for the participants by a share plan trustee. The shares granted to those
employees are subject to the achievement of performance and service requirements as specified by the Board. The PSP is designed to
provide the medium-term to long-term incentive component of remuneration for executives and other designated employees.
Participation in the PSP is offered on an annual basis. Eligible employees are granted shares to a value determined by reference to
the Company’s reward policy and market practice with regard to share based incentive arrangements provided by peer organisations.
The right to receive vested shares will lapse if the performance and service criteria are not met.
Shares will be acquired for participants following their acceptance of an offer made under the Plan. The shares will be acquired by the
plan trustee and held on trust for participants until they are withdrawn from the Plan (after they have vested or are deemed to be
vested) or are forfeited, in circumstances outlined below. Shares will be acquired only at times permitted under the Company’s share
trading policy. Shares may be acquired by on-market or off-market purchases, by subscribing for new shares 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.
79 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 27 Share-based payments continued
A Notice of Withdrawal may be lodged by a participant following the earlier of:
– a date ten years from grant date;
– the participant ceasing to be an employee of the Company;
– a ‘capital event’ (generally, a successful takeover offer or scheme of arrangement relating to the Company) occurring; or
– the date upon which the Board gives its written consent to the lodgement of a Notice of Withdrawal by the participant.
While shares remain subject to the PSP rules, participants will, in general, enjoy the rights attached to those shares (such as voting
or dividend rights etc). If a participant resigns from his or her employment with the Company, or otherwise ceases employment in
circumstances not involving “special circumstances”, the participant will be required to forfeit any unvested shares held under the Plan on
the participant’s behalf, unless the Board otherwise determines. Vested shares will be eligible for withdrawal in accordance with the usual
procedure.
If a participant ceases to be employed by the Company or retires from office as a result of special circumstances (including death,
disability, retirement, redundancy, corporate restructure, or any other circumstances determined by the Board), the Board may in its
discretion determine that all or a portion of the participant’s unvested shares are to be treated as vested shares, notwithstanding the fact
that the vesting conditions applicable to the shares have not been met because the applicable performance period has not expired.
If the Board determines that a participant has acted fraudulently or dishonestly, has committed an act of unlawful harassment or
discrimination, is in serious breach of any duty to Mortgage Choice, or, in the Board’s reasonable opinion, has brought Mortgage Choice
into serious disrepute, any shares to which the participant may have become entitled at the end of the performance period, and any
shares held by the participant under the PSP are forfeited by the participant.
The assessed fair value at grant date of performance shares granted to individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables 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.
b) Share Rights Plan (SRP)
The 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.
80
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 27 Share-based payments continued
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.
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
Number
Number
Number
Number
Number
Number
Balance
at start of
the year
Granted
during
the year
Vested
during
the year
Expired
during
the year
Forfeited
during
the year
Balance at
end of
the year
2019
17-September-2015
14-September-2018
17-September-2015
14-September-2018
25-October-2016
14-September-2019
25-October-2016
14-September-2019
$2.01
$1.19
$2.28
$1.30
Total
137,523
137,523
146,044
146,044
567,134
— (137,523)
—
—
—
—
—
—
—
—
—
—
— (137,523)
—
—
—
—
146,044
146,044
— (137,523)
— (137,523)
292,088
Weighted average exercise price
$1.70
$0.00
$2.01
$0.00
$1.19
$1.79
2018
22-September-2014
14-September-2017
22-September-2014
14-September-2017
17-September-2015
14-September-2018
17-September-2015
14-September-2018
25-October-2016
14-September-2019
25-October-2016
14-September-2019
Total
$2.72
$1.68
$2.01
$1.19
$2.28
$1.30
76,527
62,610
255,254
255,254
254,431
254,431
1,158,507
—
—
—
—
—
—
—
(76,527)
—
—
—
—
—
—
—
—
(62,610)
— (117,731)
— (117,731)
— (108,387)
— (108,387)
—
—
137,523
137,523
146,044
146,044
(76,527)
— (514,846)
567,134
Weighted average exercise price
$1.76
$0.00
$2.72
—
$1.69
$1.70
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 0.21 years
(2018 – 0.72 years).
81 Mortgage Choice Annual Report 2019
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 27 Share-based payments continued
Set out below are summaries of shares conditionally issued under the Share Rights Plan:
Offer Date
Vesting date
Value
Number
Number
Number
Number
Number
Number
Balance
at start of
the year
Granted
during
the year
Vested
during
the year
Expired
during
the year
Forfeited
during
the year
Balance at
end of
the year
2019
06-October-2017
14-September-2020
06-October-2017
14-September-2020
03-April-2018 1
03-April-2018 1
03-April-2018
03-April-2018
03-April-2019
03-April-2020
14-September-2019
14-September-2020
28-November-2018
14-September-2021
28-November-2018
14-September-2021
Total
$1.78
$1.40
$1.26
$1.26
$1.50
$1.50
$1.23
$0.81
171,068
114,044
—
—
—
—
—
—
—
—
45,000
45,000
10,675
10,674
406,978
271,318
—
—
(45,000)
—
—
—
—
—
285,112
789,645
(45,000)
Weighted average exercise price
$1.63
$1.10
$1.26
1) For accounting purposes, the grant date for these share rights was 5 November 2018.
2018
07-April-2015
15-September-2017
25-August-2016
14-September-2017
25-August-2016
14-September-2018
06-October-2017
14-September-2020
06-October-2017
14-September-2020
$2.60
$2.21
$2.21
$1.78
$1.40
56,560
59,772
59,772
—
—
—
—
—
305,816
203,876
(56,560)
(59,772)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
171,068
114,044
—
45,000
10,675
10,674
406,978
271,318
— 1,029,757
—
$1.24
—
—
(59,772)
—
—
—
— (134,748)
—
(89,832)
171,068
114,044
Total
176,104
509,692
(116,332)
— (284,352)
285,112
Weighted average exercise price
$2.33
$1.63
$2.40
—
$1.75
$1.63
The weighted average remaining contractual life of performance shares outstanding at the end of the period was 1.84 years
(2018 – 2.21 years).
CEO Share rights offered 3rd April 2018
The CEO’s share rights offered on 3rd April 2018 relate to a special one-off grant of 90,000 and the deferred portion of the CEO’s
STI for FY2018 as per her contract, details of which are set out in the Remuneration Report. The share rights were granted on
5th November 2018 and 7th September 2018 respectively. The accounting grant date for these share rights is 3 April 2018.
c) Expenses arising from share-based payment transactions
Total expenses arising from share based payment transactions recognised during the period as part of employee benefit expense were
as follows:
Shares issued under PSP
2019
$’000
402
402
2018
$’000
(279)
(279)
82
Notes to Consolidated Financial Statements
For the year ended 30 June 2019
Note 28 Parent entity financial information
a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Share-based payments reserve
Retained profits
Profit or loss for the year
Total comprehensive income
2019
$’000
2018
$’000
110,046
105,831
391,745
390,764
85,168
79,459
309,885
307,774
8,097
1,379
72,384
81,860
13,366
13,366
7,764
1,309
73,917
82,990
3,842
3,842
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
$842,423 (2018 – $853,111). 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 2019 or 30 June 2018.
83 Mortgage Choice Annual Report 2019
Directors’ declaration
For the year ended 30 June 2019
In the Directors’ opinion:
a) the financial statements and notes set out on pages 38 – 83 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.
This declaration is made in accordance with a resolution of the Directors.
Vicki Allen
Chairman
Sydney
21 August 2019
84
Independent audit report
to members of Mortgage Choice Limited
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
2019, 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 2019 and
of its 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 Asia Pacific Limited and the Deloitte Network.
85 Mortgage Choice Annual Report 2019
Independent audit report
to members of Mortgage Choice Limited
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:
As at 30 June 2019, the Group has
recognised a contract asset trailing
commissions receivable of $376 million
as disclosed in Note 7 representing the
trailing
expected value of
commissions
Trailing
commissions payable of $272 million
were also recognised and disclosed in
Note 11 and 13 representing the net
trailing
present value of
commissions payable by the Group.
receivable.
future
future
The trailing commission receivable,
which is a contract asset, is initially
recognised at its transaction price using
the expected value approach. A
significant financing component is also
involved in determining this variable
consideration. As such, the contract
asset
is subsequently adjusted by
recalculating the net present value of
estimated future cash flows at the
original
rate.
Subsequent to initial recognition, the
expected value of this contract asset is
re-estimated based on circumstances
present at each reporting date.
effective
interest
The trailing commission payable is
recognised at fair value on initial
recognition and at amortised cost
subsequent to initial recognition of the
trailing commissions receivable and
payables.
Both the expected value recognition of
the transaction price and the fair value
of the trail commission payable at
significant
require
recognition
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
management have
to
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,
Recalculating the expected
percentage to be paid to franchisees
based on the loan book data and
remuneration structure
communicated;
Engaging internal experts to
independently develop a model, using
the loan data inputs and assumptions
applied by management, which was
used 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.
Assessing the application of AASB 9
Financial Assets (AASB 9) and AASB
15 Revenue from Contracts with
Customers (AASB 15) by
management to the trailing
commission asset, including impact
on transition to the new standards,
86
Independent audit report
to members of Mortgage Choice Limited
classification as a contract asset
under AASB 15, and the application of
the impairment provisions of AASB 9
to the amounts recognised.
We also considered the appropriateness of the
Group’s disclosures in Note 3 the financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises
the information included in the Group’s annual report for the year ended 30 June 2019,
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.
87 Mortgage Choice Annual Report 2019
Independent audit report
to members of Mortgage Choice Limited
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the financial report,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report,
including the disclosures, and whether the financial report represents the
underlying transactions and events in a manner that achieves fair presentation.
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.
88
Independent audit report
to members of Mortgage Choice Limited
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 14 to 34 of the Directors’
Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Mortgage Choice Limited, for the year ended
30 June 2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Heather Baister
Partner
Chartered Accountants
Sydney, 21 August 2019
89 Mortgage Choice Annual Report 2019
Shareholder Information
For the year ended 30 June 2019
The shareholder information set out below was applicable as at 31 July 2019.
A) Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Class of equity security
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
There were 285 holders of less than a marketable parcel of ordinary shares.
B) Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
Finconnect (Australia) Pty Ltd
HSBC Custody Nominees (Australia) Limited
Ochoa Pty Ltd
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Ochoa Pty Ltd
Continue reading text version or see original annual report in PDF format above