Cash Converters International Ltd Annual Report 2015

Plain-text annual report

2015 A N N U A L R E P O R T m O c . s R E T R E v N O c h s A c . w w w d E T i m i L L A N O i T A N R E T N i s R E T R E v N O c h s A c c O R P O R A T E d i R E c T O R y d i r e c t o r s Stuart Grimshaw Chairman Peter Cumins Managing Director Reginald Webb Non-Executive Director Lachlan Given Non-Executive Director Kevin Dundo Non-Executive Director c o m pa n y s e c r e ta r y Ralph Groom r e g i s t e r e d o f f i c e Level 18, Citibank House 37 St George’s Terrace Perth Western Australia 6000 w e b s i t e www.cashconverters.com s h a r e r e g i s t r a r s In Australia: Computershare Investor Services Pty Ltd Level 11 172 St George’s Terrace Perth Western Australia 6000 In United Kingdom: Computershare Investor Services PLC PO Box 82 The Pavilions Bridgewater Road Bristol BS 99 7NH a u d i t o r s Deloitte Touche Tohmatsu Level 14, Woodside Plaza 240 St George’s Terrace Perth Western Australia 6000 s o l i c i t o r s Cooke & Co 50 Eora Creek Terrace Dianella Perth Western Australia 6059 s t o c k e x c h a n g e Australian Stock Exchange Exchange Plaza 2 The Esplanade Perth Western Australia 6000 l e a d m a n a g e r a n d i n i t i a l s u b s c r i b e r f o r n o t e i s s u e FIIG Securities Level 8, Emirates House 167 Eagle Street Brisbane Queensland 4000 t r u s t e e f o r n o t e s i s s u e Perpetual Corporate Trust Limited Level 12, Angel Place 123 Pitt Street Sydney New South Wales 2000 c O N T E N T s 0 2 0 4 1 2 1 3 1 4 1 4 1 5 1 7 1 8 2 5 2 6 2 7 2 8 2 9 8 6 9 1 1 1 4 1 1 5 1 1 6 1 1 8 review of the year chairman & managing director’s review group structure historical performance corporate objectives core business directors’ profiles financial report contents operating and financial review consolidated statement of profit or loss and comprehensive income consolidated statement of financial position consolidated statement of changes in equity consolidated statement of cash flows notes to the consolidated financial statements directors’ report remuneration report (audited) directors’ declaration auditor’s independence independent audit report to the members shareholder information 1. • • • • • • • • • • • • • • Normalised group EBITDA earnings up 12.2% to $62.7 million (2014:$55.9 million) The normalised Australian divisional EBITDA of $71.3 million up 26.4% on the previous year (2014:$56.5 million) The normalised UK divisional EBITDA was a loss of $9.0 million against a loss of $1.1 million for the previous corresponding period Revenue growth of 13.0% to $374.9 million (2014: $331.7 million) Strong online loans growth continues in Australia with personal loans written up 53.2% to $74.6 million (2014:$48.7 million) and cash advances up 57.7% to $11.2 million (2014: $7.1 million) The Australian corporate store network produced an EBITDA of $18.8 million which was up 14.6% on the previous corresponding period (2014: $16.4 million) The UK corporate store network ended 2015 with an EBITDA loss of £1.5 million (2014: £0.4 million loss) Installment personal loan book in Australia ended with a slight fall to $107.4 million as at 30 June 2015 from $109.2 million at June 2014 but after it peaked at a record high of $115.7 million at December 2014 The UK personal loan book ended the year at £9.3 million (2014: £15.7 million) following the legislation change in the UK in January 2015 Financial services – administration, produced an EBITDA of $12.5 million which was up 20.3% on last year’s result of $10.4 million Financial services – personal loans, ended the year higher by 18.5% on the corresponding period with an EBITDA of $48.5 million (2014: $40.9 million) Franchise operations, slightly lower at $6.0 million (2014: $6.6 million) down 10.1% Corporate store network in the UK now 59 stores Corporate store network expands to 71 stores in Australia R E v i E w O f T h E y E A R 2. g R O U P E b i T d A f i N A N c i A L s E R v i c E s E b i T d A s n o i l l i M 70 60 50 40 30 20 10 0 70 60 50 40 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013! 2014! 2015! s T O R E O P E R A T i O N s E b i T d A L O A N b O O k A U s T R A L i A 16 14 12 10 8 6 4 2 0 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 P E R s O N A L L O A N P R i N c i P A L A d v A N c E d A U s T R A L i A c A s h A d v A N c E P R i N c i P A L A d v A N c E d A U s T R A L i A 200 180 160 140 120 100 80 60 40 20 0 300 250 200 150 100 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 All graphs are in $ millions 3. c h A i R m A N A N d m A N A g i N g d i R E c T O R ’ s R E P O R T Cash Converters International Limited is pleased to report growth in revenue of 13.0% on the previous corresponding period to $374.9 million. The normalised EBITDA profit for the period was $62.7 million, up 12.2% on the previous period. The statutory EBITDA profit for the period was $9.3 million. During the year, the termination of the Kentsleigh/Cliffview agency agreement was finalised. As previously disclosed, this termination, although earnings accretive and cash flow positive in future periods has resulted in a charge to profit and loss during the period of $29.6 million, reflecting the termination payment. Pursuant to accounting standard requirements, this charge could not be capitalised. However, it is deductible for tax purposes. Also, the settlement of the NSW Class Action claim has resulted in a provision for $23.0 million being charged to the profit and loss during the period. f U L L y E A R R E s U L T s s U m m A R y f i N A N c i A L R E s U LT s s U m m A R y (s tat u t o ry r e p o r t i n g b a s i s ) i n a $ Revenue EBITDA Depreciation, amortisation & impairment* EBIT Income tax Finance costs Net profit / (loss) after tax 3 0 j U N E 2 0 1 5 3 0 j U N E 2 0 1 4 vA R i A N c E % 374,892,639 9,323,021 (16,625,373) (7,302,352) (5,109,292) (9,072,074) (21,483,718) 331,668,907 51,601,406 (7,923,711) 43,677,695 (10,908,176) (8,577,184) 24,192,335 +13.0 -81.9 +109.8 -116.7 -53.2 +5.8 -188.8 *This includes an Impairment Charge for the UK of $7,587,315 for 2015 (2014: Nil) g E O g R A P h i c A L s P L i T ( s tat u t o ry e b i t d a) Australia UK International 3 0 j U N E 2 0 1 5 3 0 j U N E 2 0 1 4 vA R i A N c E % 15,787,580 (6,893,076) 428,517 53,505,822 (2,413,001) 508,585 -70.5 -185.7 -15.7 4. f U L L y E A R R E s U L T s s U m m A R y ( c O N T i N U E d ) N O R m A L i s E d E b i T d A 3 0 j U N E 2 0 1 5 3 0 j U N E 2 0 1 4 vA R i A N c E % EBITDA statutory Stamp duty on store acquisitions Ausgroup provision GST adjustment Kentsleigh agency termination payment Termination fees – bank facility (GLA) N.S.W Class action settlement provision Class action legal fees Redundancy costs CCUK EBITDA normalised d i v i s i O N A L E b i T d A ( n o r m a l i s e d b a s i s) Franchise operations Store operations Financial services - administration Financial services - personal loans Green Light Auto (before minority interest) Minority interest - Green Light Auto Total before head office costs Corporate head office costs Total Divisional EBITDA g E O g R A P h i c A L s P L i T ( n o r m a l i s e d e b i t d a) Australia UK International 9,323,021 388,663 (2,927,229) - 29,628,270 700,000 23,000,000 1,844,903 787,751 62,745,379 51,601,406 1,820,093 1,358,333 1,135,883 - - - - - -81.9 -78.6 -315.5 - - - - - - 55,915,715 +12.2 3 0 j U N E 2 0 1 5 3 0 j U N E 2 0 1 4 vA R i A N c E % 5,965,054 15,831,313 12,518,594 48,544,232 (1,987,167) 201,372 81,073,398 (18,328,019) 62,745,379 6,633,516 15,615,352 10,410,310 40,971,153 (4,038,694) 3,060,046 72,651,683 (16,735,968) 55,915,715 -10.1 +1.4 +20.3 +18.5 +50.8 -93.4 +11.6 -9.5 +12.2 3 0 j U N E 2 0 1 5 3 0 j U N E 2 0 1 4 vA R i A N c E % 71,349,416 (9,032,554) 428,517 56,461,798 (1,051,668) 508,585 +26.4 -756.4 -15.7 EBITDA = Earnings before interest, taxes, depreciation, amortisation and impairment. The above table provides a normalised EBITDA with adjustments to the respective periods in order to better reflect the underlying performance of the Cash Converters business. 5. h i g h L i g h T s • • • • • • • • • Revenue growth of 13.0% to $374.9 million. The major drivers for revenue growth over the year included an increase in personal loan interest of $14.6 million and establishment fees of $7.8 million, and an increase in corporate store revenue of $18.3 million The normalised Australian divisional EBITDA of $71.3 million was up 26.4% The normalised Australian personal loan division EBITDA of $54.3 million was up 40.3% The Australian personal loan book stood at $107.4 million as at 30 June 2015, down slightly on the previous year (2014: $109.2 million) after it peaked at a record $115.7 million at the half year The growth of the online personal loan business in Australia continues to be very strong with the value of loans written increasing 53.2% to $74.6 million (2014: $48.7 million) The value of online cash advance in Australia has also been strong with the value of loans written increasing by 57.7% to $11.2 million. (2014: $7.1 million) The Australian cash advance product produced an EBITDA result of $11.5 million, up 19.8% on last year’s result of $9.6 million The Australian corporate store network EBITDA was $18.8 million, representing a 14.6% increase on the corresponding period. (2014: $16.4 million) A cost cutting and restructure has been completed to more effectively manage the UK business. There have been a number of senior management changes made and staff redundancies, in addition the Company has appointment a very experienced and successful Cash Converters multi-store owner and operator to manage the corporate store network. d i v i d E N d f i N A N c i A L s E R v i c E s O P E R A T i O N s a u s t r a l i a Notwithstanding that the Company has a strong underlying profit and the cash resources to pay a dividend consistent with its past dividend policy, the Company is unable to do so due to the application of the covenants under its banking facility. The Company is in the process of replacing the current bank securitisation facility – and although an alternative provider has yet to be confirmed, the Company is confident of establishing a new facility in the short term. The Australian personal loan book stood at $107.4 million as at 30 June 2015, down slightly on the previous year (2014: $109.2 million) after it peaked at a record $115.7 million at the half year. Our online lending platform is performing strongly, with 55,902 (2014:43,728) loans made totalling $74.6 million, up 53.2% on the previous period. Online personal loans represent 34.6% of the total principal lent during the period. As a consequence, no final dividend has been declared. The Australian personal loan book produced an EBITDA of $54.3 million (2014:$38.7 million) up 40.3% on the previous period. The bad debt percentage of net principal written off to principal advanced for the Australian business increased slightly to 7.0% (2014: 6.6%), still within historical levels. 6. A U s T R A L i A N P E R s O N A L L O A N s - P R i N c i P A L A d v A N c E d 25 20 25 15 20 25 10 15 20 5 10 15 0 5 10 0 5 Last Year This year A U s T R A L i A N O N L i N E P E R s O N A L L O A N s - P R i N c i P A L A d v A N c E d Last Year This year 0 8.0 7.0 8 6.0 7 5.0 6 8 4.0 5 7 3.0 4 6 2.0 3 5 1.0 2 4 0.0 1 3 0 2 1 0 Last Year This year Last Yr This Yr Last Yr This Yr The EBITDA for the Australian cash advance products increased by 19.8% to $11.5 million (2014: $9.6 million). 25.0 20.0 25 15.0 20 25 10.0 15 20 5.0 10 15 0.0 5 10 0 5 0 A U s T R A L i A N c A s h A d v A N c E - P R i N c i P A L A d v A N c E d Last Yr This Yr Last Year This Year Last Year This Year Above graphs are in $ millions Last Year This Year 7. f i N A N c i A L s E R v i c E s O P E R A T i O N s ( c o n t i n u e d ) A U s T R A L i A N O N L i N E c A s h A d v A N c E - P R i N c i P A L A d v A N c E d 1400 1200 1000 800 600 400 200 0 c a s h a d v a n c e s p e r s o n a l l o a n s Last Yr This yr Above graph is in $ thousands • • • Total principal loaned increased by 4.5% to $249.5 million (2014:$238.8 million) Average loan amount as at 30 June 2015 $411 (2014: $413) Total customer numbers increased by 11.6% to 597,891 (2014:535,738) • • • Total number of loans approved increased by 13.8% to 177,255 (2014:155,820) Total number of active customers increased by 9.6% to 136,866 (2014:124,853) Loan book slightly down to $107.4 million (2014:$109.2 million) u n i t e d k i n g d o m Following the introduction of the Consumer Credit (Cost Cap) 2014 in the United Kingdom in January 2015, there was a drop in personal and cash advance loans, impacting the profitability of the UK operations. As a result of this legislation and other economic factors, an impairment charge of £3.8 million ($7.6 million) has been recognised in relation to the UK operations. A review of the UK business has taken place and following this a cost cutting programme has been completed to ensure that the current cost structure better matches the size of the UK business today. A restructure has also been completed to more effectively manage the UK business. There have been a number of senior management changes made and staff redundancies. The appointment of a very experienced and successful Cash Converters multi-store owner and operator has been made to manage the corporate store network. The UK personal loan book decreased by 40.8% from £15.7 million at 30 June 2014 to £9.3 million at 30 June 2015. The main driver of this decrease is due to the fall in loan outgoings following the new legislation that came into effect in the UK on 2 January 2015. This was due to the fact that loans written prior to 2 January 2015 could not be refinanced and were required to be paid in full. This transition is now complete and lending volumes returned to normal in June 2015. The online lending platform has also been affected by the new legislation, with 3,874 (2014:4,531) loans made totalling £2.6 million (2014:£3.1 million) down 16.1% on the previous period . The UK personal loan book produced an EBITDA loss of £2.8 million 8. (2014:£654K profit). The provision for doubtful debt decreased to £1.9 million (2014:£3.5 million) as the loan book has decreased. The bad debt percentage of net principal written off to principal advanced for the UK business increased from 16.6% to 20.3% during the period. The UK cash advance business produced an EBITDA profit of £554K (2014:£430K) up 28.8% on the previous period. c a s h a d v a n c e • • • Total principal loaned decreased 2.4% to £34 million (2014:£34.8 million) Average loan amount as at 30 June 2015 £147 (2014: £136) Total customer numbers increased by 15.8% to 179,534 (2014:154,987) p e r s o n a l l o a n s • • • Total number of loans approved decreased by 21.7% to 21,353 (2014:27,288) Total number of active customers decreased by 23.5% to 14,040 (2014:18,345) Loan book decreased by 40.8% to £9.3 million w E b s h O P The Cash Converters online presence stretches the Cash Converters brand and presents the business to a new audience of potential customers at a low delivery cost. Frequently new customers will visit stores and purchase products after their first contact with the brand commenced with their online search. The Company receives a commission based on an agreed percentage of sales for providing the ‘Webshop’ online service to its franchisees. The Webshop provides a platform for the store network to display inventory items in an online shop format. Online product sales have grown by 49.2% in the UK operations and by 22.4% in the Australian operations in the past 12 months. Some key online statistics: U k A U s T R A L i A Registered Users Unique Visitors 244,167 84,715 2,182,023 3,695,833 Total Page Views 43,846,277 30,846,818 Retail Sales £ 3,488,270 $ 4,714,496 c O R P O R A T E s T O R E s a u s t r a l i a The corporate store network in Australia produced an EBITDA of $18.8 million (2014: $16.4 million) up 14.6% on the previous period. The strong EBITDA performance has been enhanced by the acquisition of seven stores in New South Wales and Victoria in February 2015. The Corporate Stores experienced strong growth, on a like for like basis, in regard to pawn broking interest and cash advance commissions, which were up 9.8% and 11.6% respectively on the previous corresponding period, and retail sales which were up 2.3% (excluding scrap gold sales) also contributed strongly to the EBITDA growth. CCUK, with effect from 1 July 2015, has contracted the services of the Cox Group to manage the corporate store network. The Cox Group is a multi-store franchise business and has the relevant experience to significantly improve the financial performance of the UK stores – the initial agreement is for three years. This arrangement brings together the expertise of a proven multi-store franchise operator with the capital and infrastructure support of the Company. As at 30 June 2015 there are 59 (2014: 58) corporate stores trading in the UK. g R E E N L i g h T A U T O ( T R A d i N g A s c A R b O O d L E ) The Carboodle brand was established by Green Light Auto Group Pty Ltd in 2010 (“GLA”). GLA is a licensed motor vehicle dealer providing customers who do not have access to main stream credit with a reliable and well maintained car (retail and commercial). GLA provides late model vehicles to its customers via a two, three or four year lease term including most running costs (insurance, maintenance, registration, roadside assistance) for a weekly payment. At 30 June 2015, 798 active leases were in place with forward contracted lease payments of $25.4 million. Total revenue for the 2015 financial year was $8.5 million. The EBITDA loss of $1,987,167 was an improvement of 50.8% on the previous year (2014: $4,038,694). During the year, GLA entered into a referral and broker agreement with Aussie Car Loans (ACL) which will allow some ACL customers to be referred to GLA and allow GLA to have access to ACL’s panel of lenders. GLA has also entered into an agreement with FleetPartners for the provision of high quality fully maintained, end of lease vehicles, for release to GLA’s customers. As part of this agreement, FleetPartners purchased the current fleet of vehicles owned by GLA, on a sale and leaseback arrangement. GLA will use FleetPartners exclusively for all future vehicle leasing. As a result, the previous finance arrangement which was more expensive, has been terminated. This resulted in finance termination costs of $700,000. With seven ex-franchised stores acquired during the period, the total number of corporate store numbers in Australia as at 30 June 2015 is 71 (2014: 64). During the period, the Company also completed the acquisition of the remaining 20% of the shares that it did not already own in GLA for the consideration of $450,000. The Company now has a solid platform to develop the business. u n i t e d k i n g d o m The UK corporate store network has struggled in tough trading conditions. The EBITDA for the period was a loss of £1.5 million, an increase on the previous corresponding period loss of £413K. 9. q U E E N s L A N d c L A s s A c T i O N On 31 July 2015, the Company was served with a writ lodged with the New South Wales Registry of the Federal Court of Australia by a Mr Sean Lynch commencing a class action proceeding on behalf of borrowers resident in Queensland who took out personal loans from the Company’s subsidiaries during the period from 30 July 2009 to 30 June 2013. The current proceeding relates to the brokerage fee charged to customers between 30 July 2009 to 30 June 2013. The brokerage fee system has not been used since 30 June 2013. The proceeding relates to loans made only in Queensland to Queensland residents by Company subsidiaries based in Queensland, notwithstanding that the action has been commenced in New South Wales. The proceeding will be vigorously defended. A U s T R A L i A N R E g U L A T O R y E N v i R O N m E N T The government have established a review of the small amount credit contract (SACC) laws. The review will run until the end of 2015 and will consult widely with a range of stakeholders. As part of the consultation process the panel will call for submissions from interested parties. Cash Converters will lodge a submission when the consultation process is announced. b A N k i N g f A c i L i T i E s On 5 August 2015 Westpac Banking Corporation informed the Company that Westpac has taken the decision to cease to provide banking and financial products and services to its customers who provide Short Term Credit Contracts (STCCs) or Small Amount Credit Contracts (SACCs) under section 5(1) of the National Consumer Credit Protection Act 2009 (cth). Cash Converters is a licenced provider of financial services under the terms of this Act. Westpac assured the Company that they will implement this decision in accordance with the Company contractual agreements with Westpac, and in a considered and consultative way so as to allow the Company to establish alternative banking arrangements. The Company currently has a securitisation facility with Westpac drawn to $59m which is contracted to March 2016 with an approximate six month run-off period. Westpac also provides transactional banking services to the Company and have agreed to provide these services until the expiry date of the securitisation facility. The Company is confident that all Westpac facilities and services will be replaced in the ordinary course of business, including the securitisation facility for the personal loans. 10. s U m m A R y A N d O U T L O O k The Australian business continued to perform strongly in FY 2015 with normalised, underlying EBITDA up 26.4% to $71.3 million and we expect to see further growth in FY 2016 as we enjoy the full year benefits of the Kentsleigh/Cliffview transaction, the store acquisitions in February 2015 and organic growth. The initial negative impact that UK legislative changes had from 2 January 2015 on lending volumes has eased and volumes have returned to previous levels. We are now starting to see new customer numbers increase as a result of the closure of a significant number of competitors and look forward to growth in 2016. We also expect to see an improvement in the UK result in FY 2016. Managing Director Peter Cumins said “The Company is now enjoying strong underlying profit growth from two profit drivers, the Australian corporate stores and the Australian financial services business. We have now made some very significant changes to our UK business and expect to enjoy the benefit of that turnaround in our group results in 2016.” In closing, we wish to thank the staff, management and franchisees for their contribution during the year. Reginald Webb Chairman Peter Cumins Managing Director 28 August 2015 11. c O R P O R A T E s T R U c T U R E cash converters personal finance pty ltd safrock finance corporation qld pty ltd safrock finance corporation wa pty ltd finance administrators of australia pty ltd 100% owned by ccil incorporated in australia all small proprietary companies cash converters (stores) pty ttd 100% owned by ccil incorporated in australia small proprietary company mon-e pty ltd 100% owned by ccil incorporated in australia small proprietary company c A s h c O N v E R T E R s i N T E R N A T i O N A L L i m i T E d ( c c i L ) parent entity incorporated in australia public company ccuk holdings plc (ccukh) 100% owned by ccil incorporated in the uk overseas entity cash converters pty ltd (ccpl) 100% owned by ccil incorporated in australia large proprietary company ccusa limited (ccusa) 99.29% owned by ccil incorporated in australia small proprietary company cash converters (cash advance) pty ltd (ccca) 100% owned by ccil incorporated in australia small proprietary company ccuk ltd 100% owned by ccukh incorporated in the uk overseas entity cash converters finance corporation limited (ccfcl) 64.33% owned by ccpl incorporated in australia disclosing entity ccusa inc bak properties pty ltd 100% owned by ccusa 100% owned by ccca incorporated in the usa incorporated in australia overseas entity small proprietary company green light auto group pty limited 100% owned by ccil incorporated in australia small proprietary company cash converters (nz) pty ltd 100% owned by ccil incorporated in australia small proprietary company 12. c A s h c O N v E R T E R s i N T E R N A T i O N A L L i m i T E d h i s T O R y The history of Cash Converters dates back to November 1984, when Brian Cumins, the Company’s founder, began operating his first retail outlet in Perth, Western Australia. In 2005 the first corporate stores were opened in the UK which have since grown to 59 stores – Australia commenced corporate stores in 2007 and now have 71 stores. During the next four years the merchandising formula and trading style that has underwritten the Group’s success were developed and tested in the market place. A total of seven stores were open and trading profitably before the franchising of Cash Converters began with the opening of two franchised outlets in Perth in June 1988. In 1990 the Group began to expand into other Australian States and now has over 150 outlets throughout Australia. The success of its Australian operations resulted in Cash Converters seeking to expand into overseas markets. The Company’s carefully planned entry into Europe was launched in 1991 when the first store in the United Kingdom was opened at Gants Hill in Essex. Since then further stores have opened in the UK taking the total to over 220 stores. The Company’s first non-English speaking market, commenced with the opening of its pilot store in Vitrolles, near Marseilles in France in December 1994. In 1998 the 500th store was opened in New South Wales, Australia. A year later the cash advance financial service concept was launched in Australia, which was followed by personal loans in 2003. The successful acquisitions of the Safrock personal loan business and the MON-E cash advance business were finalised in 2006. EZCORP Inc acquired 30% of the Company share capital through a share placement in 2009 which raised $54 million, further share issues have taken their holding to 31.54%. The following year saw the launch of the cash advance and personal loan financial services in the UK. Green Light Auto Group and the ‘Carboodle’ concept was launched in 2010. In 2014 a strategic investment was made in Cash Converters New Zealand to acquire 25% of the company share capital. A joint venture was also formed with EZCORP Inc, for the territories of Mexico and South America in the same year. Since launching the concept in 1984, Cash Converters has grown enormously with representation in 18 countries and over 750 stores worldwide. 13. c O R P O R A T E O b j E c T i v E s The Directors see the following as the principal corporate objectives of the group: • • • • To achieve high profitability, enabling Cash Converters to meet its responsibilities to shareholders and other stakeholders; To offer opportunities for franchisees and employees to succeed both financially and in their careers; To be recognised as a world leader in the retail of second hand goods and the provision of micro- lending products ; and To provide consumers with retail outlets that are distinguished by the quality of retail standards and value of the merchandise on offer. c O R E b U s i N E s s The core business of Cash Converters is the ownership and franchising of retail and financial services stores, which operate as retailers of second hand goods and suppliers of financial products. The Cash Converters business has changed consumer perceptions of its industry by the systematic application of modern retailing practices, professional management techniques and high ethical standards to the management of its stores. As a result, Cash Converters has been able to position its corporate and franchised outlets as alternative retail merchandise and financial services stores and, in the process, created a profitable market for the group. Over 30 years, the Company has developed and refined its franchise offering to the point where it has mature and stable multi- store franchise chains in both Australia and the United Kingdom. The Company also acts as the international master franchisor of the franchising concept. The Company Grants trade mark licences to enable independent entities to develop a matching franchise chain in another country in return for a passive royalty income. This minimises risk to the Company while allowing the brand to flourish overseas. 14. d i R E c T O R s ’ P R O f i L E s s T U A R T g R i m s h A w n o n - e x e c u t i v e c h a i r m a n Mr Grimshaw joined the board on 1 November 2014 and was appointed interim Non-Executive Chairman on 10 September 2015. Mr Grimshaw was recently the Managing Director and Chief Executive Officer of Bank of Queensland Limited (BOQ) since November 2011. During his tenure at BOQ he initiated fundamental changes to BOQ’s culture, operating model and strategic direction and established a strong track record of execution. In addition, a strong capital and provisioning strategy resulted in two credit rating upgrades to A-, and BOQ has been well supported by the equity markets with two global equity offerings successfully raising close to $800 million. In Mr Grimshaw’s time at the bank, BOQ attracted and developed exceptional talent across the top four management levels and a unique culture and brand that is now well recognized by the market. During his 30-year career in financial services, Mr Grimshaw has held a wide variety of other roles across many functions of banking and finance, including eight years at the Commonwealth Bank of Australia (CBA). At CBA, he started as Chief Financial Officer and over time became Group Executive, responsible for core business lines including Institutional and Business Banking as well as Wealth Management (Asset Management and Insurance). Prior to joining CBA, he worked for the National Australia Bank and was the Chief Executive Officer of Great Britain, with responsibility for large UK consumer banks Yorkshire Bank and Clydesdale Bank. Mr Grimshaw is currently the Chief Executive Officer of EZCORP Inc. Mr Grimshaw represented New Zealand at the 1984 Olympics in Field Hockey and has a Bachelor of Commerce and Administration (Victoria University, Wellington, New Zealand) and an MBA (Melbourne University, P E T E R c U m i N s m a n a g i n g d i r e c t o r Mr Cumins is an Australian national. He is the Managing Director of Cash Converters International Limited. He joined the Group in August 1990 as Finance and Administration Manager when the Company had just 23 stores, becoming General Manager in March 1992. He became Group Managing Director in April 1995. Mr Cumins is a qualified accountant, and has overseen the major growth in the number of franchisees in Australia as well as the international development of the Cash Converters franchise system. His experience in the management of large organisations has included senior executive positions in the government health sector, specifically with the Fremantle Hospital Group, where he was Finance and Human Resources Manager. R E g i N A L d w E b b n o n - e x e c u t i v e d i r e c t o r Mr Webb recently advised the Company that he intends to retire from the Board following the completion of the 2016 financial year. Mr Webb has been the Non-Executive Chairman since January 1995 and to assist in the transition of the Chairman role, Mr Stuart Grimshaw was appointed as interim Non-Executive Chairman on 10 September 2015. Mr Webb has been a Non-Executive Director for many years and has made a very significant contribution in helping to guide the Company towards the stable and successful state that it now enjoys. He is a Fellow of the Institute of Chartered Accountants of Australia and was for many years a Partner of PricewaterhouseCoopers (previously Price Waterhouse). In that position he worked in both North America and Europe as well as Australia. He was a partner for 20 years and served on the Policy Board of that firm. He is also a Director of D’Orsogna Limited. 15. d i R E c T O R s ’ P R O f i L E s ( c o n t i n u e d ) L A c h L A N g i v E N k E v i N d U N d O n o n - e x e c u t i v e d i r e c t o r n o n - e x e c u t i v e d i r e c t o r Mr Given joined the board on 22 August 2014. He is the Executive Chairman of EZCORP Inc (a major shareholder in the Company) and also a Director of The Farm Journal Corporation, a 134 year old pre-eminent US agricultural media company; Senetas Corporation Limited (ASX: SEN), the world’s leading developer and manufacturer of certified, defence‐grade encryption solutions; and CANSTAR Pty Ltd, the leading Australian financial services ratings and research firm. Mr Given began his career working in the investment banking and equity capital markets divisions of Merrill Lynch in Hong Kong and Sydney where he specialised in the origination and execution of a variety of M&A, equity and equity-linked and fixed income transactions. Mr Given graduated from the Queensland University of Technology with a Bachelor of Business majoring in Banking and Finance (with distinction). Mr Dundo joined the board on 20 February 2015. Mr Dundo practises as a lawyer and specialises in the commercial and corporate field, with experience in the mining sector, the service industry and the financial services industry. He is a member of the Law Society of Western Australia, Law Council of Australia, Australian Institute of Company Directors and a Fellow of the Australian Society of Certified Practising Accountants. Mr Dundo is currently a Non-Executive Director and Chairman of the Audit Committee of ASX-listed Imdex Limited (ASX:IMD) and Non-Executive Chairman of ASX-listed Red 5 Limited (ASX:RED). 16. C O N T E N T S OPERATING AND FINANCIAL REVIEW CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES 2. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 3. REVENUES AND EXPENSES 4. INCOME TAX 5. REMUNERATION OF AUDITORS 6. CASH AND CASH EQUIVALENTS 7. 8. TRADE AND OTHER RECEIVABLES INVENTORIES 9. OTHER ASSETS 10. PLANT AND EQUIPMENT 11. TRADE AND OTHER PAYABLES 12. BORROWINGS 13. PROVISIONS 14. OTHER INTANGIBLE ASSETS 15. GOODWILL 16. ISSUED CAPITAL 17. RESERVES AND RETAINED EARNINGS 18. FINANCIAL INSTRUMENTS 19. LEASES 20. KEY MANAGEMENT PERSONNEL REMUNERATION 21. SHARE-BASED PAYMENTS 22. RELATED PARTY TRANSACTIONS 23. SUBSIDIARIES 24. NON-CONTROLLING INTERESTS 25. CONTINGENT LIABILITIES 26. EVENTS AFTER THE REPORTING PERIOD 27. EARNINGS PER SHARE 28. DIVIDENDS 29. SEGMENTAL INFORMATION 30. PARENT ENTITY DISCLOSURES 31. INVESTMENT IN ASSOCIATES 32. OTHER FINANCIAL ASSETS 33. BUSINESS COMBINATIONS 34. COMPANY DETAILS DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) DIRECTORS’ DECLARATION AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDITOR’S REPORT SHAREHOLDER INFORMATION 18 25 26 27 28 29 44 45 47 49 50 51 54 54 54 55 55 57 57 59 63 63 64 68 69 69 72 73 76 76 77 77 78 78 82 83 83 83 85 86 91 114 115 116 118 17. annual report 2015 O P E R AT I N G A N D F I N A N C I A L R E V I E W The underlying earnings for the year have been strong, however, the Kentsleigh/Cliffview licence terminations in December 2014 resulted in a significant charge of $29.6 million against earnings. Pursuant to Australian Accounting Standards it was necessary to recognise the full cost of the terminations as an expense during the year ended 30 June 2015. The licence termination costs combined with the class action settlement of $23 million (including legal fees) negatively impacted the year’s results. If the Company’s results are normalised for these items, the Company has achieved earnings before tax, depreciation, amortisation and impairment (EBITDA) of $62,745,379 (2014:$55,915,715), up 12.2% on the prior year. This result has been derived from a 13% growth in revenue, up $43,223,732 to $374,892,639 (2014:$331,668,907). The majority of the revenue increase has been contributed by the personal loan segment (increased by $26,319,070) and the corporate store segment (increased by $18,349,893). Statutory EBITDA is $9,323,021 (2014: $51,601,406); statutory net loss after tax is $21,685,090 (2014: net profit of $21,132,289). These results produced a loss per share of 4.69 cents (2014: 5.67 cents profit). The directors have not declared a final dividend. A summary of consolidated revenues and results by significant segment is set out below: SEGMENT REVENUES (I) SEGMENT RESULTS EBITDA (II) 2015 2014 2015 2014 Franchise operations Store operations 18,951,232 18,452,587 5,965,054 190,322,681 171,972,788 15,006,643* Financial services – administration 14,728,956 14,320,025 8,262,594* Financial services – personal loans 164,324,562 138,005,492 23,996,632* Vehicle leasing 8,731,185 8,740,241 (2,687,167) Intersegment elimination of revenues (25,322,618) (24,018,386) - 6,633,516 15,615,352 10,410,310 39,835,270 (4,038,694) - 371,735,998 327,472,747 50,543,756 68,455,754 3,156,641 4,196,160 (41,422,107)# (19,914,394) 374,892,639 331,668,907 9,121,649 48,541,360 Totals Head office – UK & Australia Totals after head office Depreciation and amortisation Impairment Finance Costs Income tax expense (Loss)/Profit after income tax (9,038,058) (7,587,315) (9,072,074) (7,923,711) - (8,577,184) (5,109,292) (10,908,176) (21,685,090) 21,132,289 201,372 (21,483,718) 3,060,046 24,192,335 Loss attributable to non-controlling interest (Loss)/Profit attributable to members of Cash Converters International Limited (i) (ii) Segment revenue including external interest revenue. EBITDA is Earnings Before Interest, Tax, Depreciation, Amortisation and Impairment (Non IFRS unaudited measure). * Includes the contract termination expense of $824,670 in Store Operations, $4,256,000 in Financial Services – Administration and $24,547,600 in Financial Services – Personal Loans. # Includes the class action settlement expense of $23,000,000. 18. cash converters international A summary of normalised results is presented below: 30 JUNE 2015 30 JUNE 2014 EBITDA including non-controlling interest Add losses attributable to non-controlling interest EBITDA attributable to members of Cash Converters International Limited Stamp duty on store acquisitions Ausgroup provision GST adjustment Kentsleigh agency termination payment Termination fees – bank facility (GLA) N.S.W Class action settlement provision Class action legal fees Redundancy costs CCUK EBITDA normalised Comments on the operations and the results of those operations are set out below: F R A N C H I S E O P E R AT I O N S 9,121,649 201,372 9,323,021 388,663 (2,927,229) - 29,628,270 700,000 23,000,000 1,844,903 787,751 62,745,379 48,541,360 3,060,046 51,601,406 1,820,093 1,358,333 1,135,883 - - - - - 55,915,715 The EBITDA profit of the franchise operations fell during the 2015 financial year to $5,965,054 (2014: $6,633,516). During the financial year an expense of £222,000 ($448,000) was recognised by the UK operations to write off bad debts associated with franchise fees. Also during this year eight ex-franchised stores were acquired by the corporate store operations, one in the UK and seven in Australia. Accordingly, the Australian business contributed a reduced EBITDA of $3,698,348 (2014: $3,867,712). The UK operations’ contribution was an EBITDA of $1,764,501 (2014: $2,299,041). EBITDA from international franchise operations increased to $502,205 (2014: $466,763). The total number of franchised stores globally now stands at 655, with 165 stores in the UK, 81 in Australia and 409 throughout the rest of the world. The Company continues to look for opportunities to expand its franchise network, both in Australia and internationally. With EZCORP Inc. (a major shareholder in Cash Converters International Limited (CCIL)) as a sub-franchisor in the USA and holding the trademark and licensing rights in Canada, we are seeing an increase in brand profile across North America. EZCORP Inc. signed a Joint Venture (JV) agreement with CCIL in March 2014 in relation to Mexico and South America. Four stores have now been opened in Mexico since entering the joint venture. In January 2014 CCIL, through a subsidiary company, acquired a 25% equity interest in all aspects of the New Zealand Cash Converters Master Franchisor, including corporate stores, franchise contracts and financial services. This interest was acquired for $5.5 million which reflects the pro-rata share of the actual investment cost incurred to date by the New Zealand Master Franchisor. Since the acquisition in January 2014 six stores have been opened – five corporate and one franchised – taking the total number to nine corporate and 11 franchised stores as at 30 June 2015. During the 2016 financial year it is planned to open a further six corporate stores and four franchised stores taking the total store number to 30. Site availability for stores in Auckland and Christchurch is tight due to a restricted supply, however, site availability in other locations is reasonable, with supply and demand well balanced. During the year new franchised stores were also opened in France, South Africa and Spain. 19. annual report 2015 C O R P O R AT E S T O R E S O P E R AT I O N S Corporate stores generate their revenue through the operation of retail premises across Australia and the UK, and also through online retail sales via the Cash Converters Webshop and through cash advance online lending. The stores also receive commission from Cash Converters Personal Finance business for personal loans generated in the stores. The stores offer a mixture of ‘buys and loans’ (traditional pawn broking and second hand goods buying), personal finance (in the form of personal loans and cash advance) and the retailing of new and second hand goods. During the year the company acquired seven ex-franchised stores in Australia in February 2015; one store in New South Wales and six stores in Victoria. One store was acquired in the UK during the financial year. These acquisitions took the total number of corporate stores to 130 (UK: 59, Australia: 71). Corporate stores contributed EBITDA of $15,006,643 (2014:$15,615,352) to the group result, down $608,709 on the previous year. The performance of the two regions, Australia and UK are detailed below: A U S T R A L I A The corporate store network in Australia performed strongly with an EBITDA contribution of $18,791,922 (2014:$16,392,434), up 14.6% on the prior year. The strong EBITDA performance has been partly contributed by the acquisition of seven stores in New South Wales and Victoria in February 2015. Strong year on year KPI’s, on a like for like basis, in regard to pawn broking interest and cash advance commissions, which were up 9.8% and 11.6% respectively on the previous corresponding period, and retail sales which were up 2.3% (excluding scrap gold sales) also contributed strongly to the EBITDA growth. With seven ex-franchised stores acquired during the period, the total number of corporate store numbers in Australia as at 30 June 2015 was 71. Revenue from online sales via the Cash Converters Webshop increased by over 20% to $3,910,341 (2014:$3,245,717) as the site as become more widely known as a site for good quality second hand products. With over 45,000 products listed most people find the site interesting and good value for money. U N I T E D K I N G D O M The UK corporate stores continued to face tough trading conditions during the year. EBITDA for the UK corporate stores reported a loss of £1,498,006 ($2,960,609) (2014: loss £412,691($777,082)). Revenues for the UK stores fell by 3.1% to £33,472,888 ($63,121,724) (2014:£34,560,025) along with gross margins which were 6.3% lower at £13,701,001 ($27,634,129) (2014:£14,628,882 ($26,401,159)). Stock losses and stock loss provision for the year were considerably higher this year at £1,644,592 ($3,317,047) compared to £652,519 ($1,177,620) the previous year. The introduction of the Consumer Credit (Cost Cap) 2014 in the United Kingdom in January 2015 resulted in a drop in personal and cash advance loans impacting the Group’s UK operations profitability. As a result of this legislation and other economic factors, an impairment charge of £3,761,791 ($7,587,315) has been recognised in relation to the UK operations. One ex-franchised store was acquired during the period, taking the total number of corporate store numbers in the UK to 59 as at 30 June 2015. W E B S H O P The Cash Converters’ ‘Webshop’ was initially launched in early 2008 and expands Cash Converters online presence. Not only generating revenue in its own right, the Webshop is proving to be an essential ingredient in introducing people to the Cash Converters brand, with many ‘in-store’ experiences being borne from an initial search of the online store. The Webshop was initially only servicing the corporate store network, but has since been expanded to allow the franchise network to utilise the platform and list their items for sale. The company receives a commission based on an agreed percentage of retail sales for the provision of the site and payment services. Each store is responsible for its own item listings and despatch. 20. cash converters international W E B S H O P ( C O N T I N U E D ) Items listed for sale on the site can be purchased through auction or a fixed price ‘buy it now’ option. Online sales have increased 49.2% in the UK and 22.4% in Australia over the last 12 months. Some key online statistics: Registered users Unique visitors Total page views Retail Sales UK AUSTRALIA 244,167 84,715 2,182,023 3,695,833 43,846,277 30,846,818 £3,488,270 $4,714,496 F I N A N C I A L S E R V I C E S O P E R AT I O N S These divisions incorporate the trading results of MON-E Pty Ltd (Australia), Cash Converters Personal Finance Pty Ltd (CCPF)(Australia) and the UK Finance Division. MON-E Pty Ltd is responsible for providing the administration services for the Cash Converters network in Australia to offer small cash advance loans to their customers (average loan size of approximately $411). The cash advance principal loaned is financed by the corporate stores and the individual franchisees for the cash advances provided by their stores. MON-E receives commission from the store network for each cash advance processed through their systems. CCPF provides small, largely unsecured loans through the franchise and corporate store networks in Australia and online. The principal is funded by CCPF who pay a commission to the stores (both corporate and franchise) for the generation of the lead and processing the application in store. The UK Finance Division utilises the software developed in Australia, for both cash advances and personal loans, and is continuing to roll-out the finance products across both the franchise and corporate store networks in the UK. During the period under review the normalised EBITDA for this division was $61,062,826 (2014: $50,245,580), up $10,817,246 (21.5%) on last year. CCPF contributed an EBITDA of $54,254,609 (2014:$38,705,533), MON-E $11,483,175 (2014:$9,645,378) and the UK Finance Division a loss of $4,674,958 (2014: profit $1,894,669). The loss this year has resulted from the poor performance of the loan book and the change in legislation that occurred on 2 January 2015, resulting in a fall in principal advanced. P E R S O N A L L O A N S - A U S T R A L I A The Australian personal loan book has fallen slightly from $109,215,838 at 30 June 2014 to $107,424,295 at 30 June 2015, a drop of 1.6%. During 2015, 55,902 (2014:43,728) online loans were advanced totalling $63,400,900 (2014:$48,713,650), representing an increase in value of 30.2% over the previous year. Online lending now represents 34.6% of the total principal advanced during the year. For Australia, bad debt levels have increased to 7.0% (2014:6.6%) of the net principal written-off to the total principal advanced during the year. The increase has mainly resulted from a higher level of bad debts associated with customers classified under the protected earnings amount (PEA) of the new lending legislation. As a result, of this CCPF have increased the review process for loan applications from PEA customers and are improving company collection procedures to significantly reduce bad debts originating from this customer class. The Christmas period is one of the busiest periods for the personal loan product and this year was no exception with an amount of $23,008,250 advanced in Australia during December 2014 (December 2013:$18,339,396). This is the highest amount ever lent during a month and represents a 25.5% increase on the previous corresponding period. 21. annual report 2015 P E R S O N A L L O A N S - A U S T R A L I A ( C O N T I N U E D ) Some key operating statistics for the Australian personal finance division: • • • • • Total number of approved loans increased by 13.8% to 177,255 Total number of active customers increased by 9.6% to 136,866 Loan book has fallen slightly to $107,424,295 (2014:$109,215,838) Bad debts as a percentage of principal advanced increased to 7.0% Personal loans EBITDA up 40.3% to $54,254,609 (2014:$38,705,533) P E R S O N A L L O A N S - U N I T E D K I N G D O M The UK personal loan book at 30 June 2015 was £9,285,480 ($19,058,925) (2014:£15,739,299 ($28,456,516)). The reduction has primarily resulted from the static loan outgoings following the new legislation introduced on 2 January 2015. During the year bad debts of £8,715,133 ($16,327,227) (2014:£16,013,550 ($28,338,896)) have been written-off which is significantly lower than the previous year. The EBITDA for the UK personal loan book was a loss of £2,815,508 ($5,710,377) (2014: Profit £654,106 (1,129,737)). This result has been impacted by poor loan volumes resulting from the new legislation. The table below demonstrates the improvement in the ageing profile of the UK loan book arrears from Jan 2013 to June 2015. A g E b y d Ay s j A N U A R y 2 0 1 3 j U N E 2 0 1 3 j U N E 2 0 1 4 j U N E 2 0 1 5 120 90 60 30 5.01% 6.41% 6.58% 5.04% 3.42% 3.33% 3.88% 4.00% 3.80% 3.22% 4.58% 4.03% 1.34% 2.55% 3.89% 4.76% C A S H A D VA N C E - A U S T R A L I A The company derives income from the cash advance product in multiple ways. MON-E Pty Ltd receives a commission from all stores (both franchise and corporate stores) for the provision of the online software platform and administrative services. Secondly, the corporate store network generates interest income from the loans provided to their customers. The company has also embarked on a major initiative to launch the cash advance product online. A fully integrated online platform for the cash advance product went live in December 2012. The online option has proved to be popular with over $11.2 million in principal advanced during the year. The normalised EBITDA for the Australian cash advance business was $11,483,175 (2014:$9,645,378) an increase of 19.1% over 2014. Key performance indicators for Cash Advance – Australia: • • • Total principal advanced up 4.5% to $249,547,610 (2014:$238,836,904) Average loan amount $411 (2014:$413) Total customer numbers increase by 11.6% to 597,891 (2014:535,738) C A S H A D VA N C E - U N I T E D K I N G D O M The cash advance product for CCUK is struggling to gain good growth with EBITDA this year of £554,401 ($1,035,419) (2014: £430,196 ($764,931) representing an increase of 28.9% on the previous period. In July 2014 the Financial Conduct Authority (FCA) published its paper on the proposed rate cap in the UK. Following consultation the FCA published their final paper in November 2014, with the introduction of the rate cap on 2 January 2015. 22. cash converters international C A S H A D VA N C E - U N I T E D K I N G D O M ( C O N T I N U E D ) Prior to this, the Office of Fair Trading (OFT) had completed its own in depth review of the leading 50 ‘payday lenders’ who make up 90% of the market in the UK, of which Cash Converters UK is one. Each company was issued with a report of the OFT’s findings and given 12 weeks to respond with proof that they had addressed all areas of non-compliance identified during the review. As a result of the review: • • 19 of the 50 lenders informed the OFT that they are leaving the payday market. Four of these have surrendered their licenses; One business failed to provide an audit report by the OFT deadline. The business has informed the OFT that it is no longer lending. Following the assumption of regulatory responsibility by the FCA on the 1 April 2014 further companies have announced their intention to restrict the level of services they currently offer under the high-cost short-term credit industry in the UK. Key Performance Indicators for the UK Cash Advance product are: • • • Total principal advanced down by 2.4% to £33,960,004 (2014:£34,791,421) Average loan amount up from £136 to £147 Total customer numbers increase by 15.8% to 179,534 (2014:154,987) C O R P O R AT E O F F I C E C O S T S These costs represent the corporate office costs for both Australia and the UK and are shown separately because it is difficult to allocate the costs to any specific division/segment and to calculate an arbitrary split of the costs would not be appropriate in obtaining an accurate contribution from each of the divisions. The 2015 financial year saw an overall increase in these costs. The Australian corporate office incurred legal fees of $1,844,903 in relation to the New South Wales Class Action which was finalised in June 2015. The UK corporate office recorded costs associated with a number of redundancy payments which were paid out in the period March to June 2015 totalling £390,575 ($787,767). During the period the Ausgroup provision (accrued in previous years) was partly reversed leading to a credit to profit and loss of $2,927,229 (2014: a charge of $1,358,333). The reversal has resulted from Ausgroup ending the contract in October 2014 and the fall in principal advanced as a result of the new legislation and the corresponding fall in commission payable to Ausgroup. Corporate income on commercial loans to various entities dropped by approximately $800,000 during the year. F I N A N C I N G A N D I N V E S T M E N T A C T I V I T I E S B A N K I N G S E R V I C E S In August 2015 Westpac Banking Corporation informed the Company that Westpac has taken the decision to cease to provide banking and financial products and services to its customers who provide Short Term Credit Contracts (STCCs) or Small Amount Credit Contracts (SACCs) under section 5(1) of the National Consumer Credit Protection Act 2009 (cth). Cash Converters is a licenced provider of financial services under the terms of this Act. Westpac assured the Company that they will implement this decision in accordance with the Company contractual agreements with Westpac, and in a considered and consultative way so as to allow the Company to establish alternative banking arrangements. The Company currently has a securitisation facility with Westpac drawn to $58.9 million which is contracted to March 2016 with an approximate six month run-off period. Westpac also provides transactional banking services to the Company and have agreed to provide these services until March 2017 (the expiry date of the securitisation facility). The Company is confident that all Westpac facilities and services will be replaced in the ordinary course of business, including the securitisation facility for the personal loans. 23. annual report 2015 c a r b o o d l e The Carboodle brand was established by Green Light Auto Group Pty Ltd (GLA) in 2010. Designed as a total motoring solution, Carboodle provides customers who don’t have access to main stream credit (retail and commercial) with a reliable, late model and well maintained vehicle. The leasing arrangement packages all running cost of the vehicle (with the exception of fuel) into one easy payment, and runs for 24 to 48 months. Packaged running costs can include: • • • • • • Annual registration Comprehensive insurance Extended warranty Scheduled servicing Tyres Roadside assistance GLA retains ownership of the vehicle and at the end of the lease term, the customer hands back the car and may initiate a new lease on a new vehicle if they wish. Carboodle focusses on providing popular models of both passenger and commercial vehicles to retail customers as well as tradesmen and small businesses. GLA has an exclusive license with the Company that allows it to use all Australian Cash Converters stores as its agent to promote the Carboodle product. Carboodle pays a royalty to the company and a commission to the stores for each lead converted to a lease. Carboodle showrooms have been established in Perth, Melbourne, and Brisbane. At 30 June 2015, 798 active leases were in place with forward contracted lease payments of $25,389,462. Total revenue for the 2015 financial year was $8,461,345. During the review period, GLA entered into a referral and broker agreement with Aussie Car Loans (ACL) which will allow some ACL customers to be referred to GLA and allow GLA to have access to ACL’s panel of lenders. GLA has also entered into an agreement with FleetPartners for the provision of high quality fully maintained, end of lease vehicles, for release to GLA’s customers. As part of this agreement, FleetPartners purchased the current fleet of vehicles owned by GLA on a sale and leaseback arrangement. GLA will use FleetPartners exclusively for all future vehicle leasing and as a result, the previous arrangement which was more expensive, has been terminated. This resulted in finance termination costs of $700,000. During the period, the Company also completed the acquisition of the remaining 20% of the shares that it did not already own in GLA for the consideration of $450,000. The Company now has a solid platform to develop the business. O U T L O O K The Australian business continued to perform strongly in FY 2015 with normalised, underlying EBITDA up 26.4% to $71.3 million and we expect to see further growth in FY 2016 as we enjoy the full year benefits of the Kentsleigh/Cliffview transaction, the store acquisitions in February 2015 and organic growth. The initial negative impact that UK legislative changes had from 2 January 2015 on lending volumes has eased and volumes have returned to previous levels. We are now starting to see new customer numbers increase as a result of the closure of a significant number of competitors and look forward to growth in 2016. We also expect to see an improvement in the UK result in FY 2016. The Company is now enjoying strong underlying profit growth from two profit drivers, the Australian corporate stores and the Australian financial services business. Significant changes have now been made to the UK business and the benefit of that turnaround will start to come through in the group results for 2016. 24. cash converters international C O N S O L I D AT E D S TAT E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 5 Franchise fees Financial services interest revenue Sale of goods Other revenues Revenue Cost of Sales Gross Profit Administrative expenses Advertising expenses Occupancy expenses Contract termination expense Settlement expense Impairment of non-current assets Other expenses Finance costs Share of net profit /(loss) of equity accounted investment (Loss) / Profit before income tax NOTES 2015 $ 2014 $ 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.10 15.5 3.8 3.9 31 10,648,740 10,814,182 237,541,768 202,932,785 120,948,283 112,218,737 5,753,848 5,703,203 374,892,639 331,668,907 (138,457,324) (118,868,721) 236,435,315 212,800,186 (90,541,061) (80,545,397) (7,408,635) (7,691,909) (21,031,121) (19,520,946) (29,628,270) (23,000,000) (7,587,315) - - - (64,816,320) (64,382,820) (9,072,074) (8,577,184) 73,683 (41,465) (16,575,798) 32,040,465 Income tax expense 4 (5,109,292) (10,908,176) (Loss) / Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year Total comprehensive income for the year (Loss) / Profit attributable to: Owners of the company Non-controlling interest Total comprehensive income attributable to: Owners of the company Non-controlling interest (Loss) / Earnings per share Basic (cents per share) Diluted (cents per share) (21,685,090) 21,132,289 7,633,797 7,633,797 (14,051,293) 5,692,747 5,692,747 26,825,036 (21,483,718) 24,192,335 (201,372) (21,685,090) (3,060,046) 21,132,289 (13,849,921) 29,885,082 (201,372) (14,051,293) (3,060,046) 26,825,036 27 27 (4.69) (4.69) 5.67 5.56 The accompanying notes form an integral part of the consolidated statement of profit or loss and other comprehensive income 25. annual report 2015 C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N A S AT 3 0 J U N E 2 0 1 5 Current assets Cash and cash equivalents Trade receivables Personal loan receivables Inventories Other assets Current tax receivable Total current assets Non-current assets Trade and other receivables Plant and equipment Deferred tax assets Goodwill Other intangible assets Investments in associates Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax payables Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Equity attributable to owners of the company Non-controlling interests Total equity NOTES 2015 $ 2014 $ 6 7 7 8 9 7 10 4 15 14 31 11 12 13 12 13 16 17 17 24 52,378,665 28,120,417 26,843,072 29,442,823 119,861,673 123,677,192 27,683,578 11,936,995 3,600,310 25,561,710 10,578,199 - 243,581,838 216,102,996 18,985,690 25,357,910 10,875,338 18,914,434 22,586,763 13,543,414 111,408,026 110,726,057 24,706,855 21,899,866 6,287,609 197,621,428 441,203,066 6,213,926 193,884,460 409,987,456 26,449,716 60,705,129 - 25,672,716 112,827,561 26,794,208 59,942,763 9,737,589 4,638,888 101,113,448 66,436,795 64,019,148 240,082 148,539 66,676,877 179,504,438 64,167,687 165,281,135 261,698,628 244,706,321 205,399,340 156,679,067 (2,080,407) 58,378,646 (6,503,189) 98,025,142 261,697,579 248,201,020 1,049 (3,494,699) 261,698,628 244,706,321 The accompanying notes form an integral part of the consolidated statement of financial position 26. cash converters international C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 5 NON-CON- FOREIGN TROLLING CURRENCY INTEREST SHARE- TRANS- ACQUI- BASED ATTRIBUT- ABLE TO OWNERS NON- CON- ISSUED LATION SITION PAYMENT RETAINED OF THE TROLLING CAPITAL RESERVE RESERVE RESERVE EARNINGS PARENT INTEREST TOTAL $ $ $ $ $ $ $ $ Balance as at 1 July 2013 151,708,656 (2,629,872) Profit for the year Exchange differences arising on translation of foreign operations Total comprehensive income for the year Non-controlling interest arising from contractual arrangement Issue of shares (DRP) Share-based payments Shares issued on exercise of perfor- mance rights Payment of dividends - - - - 4,602,017 - 368,394 - Acquisition of non-controlling interests - - 5,692,747 5,692,747 - - - - - - - - - - - - - - - (11,662,250) 1,715,775 90,835,176 241,629,735 1,049 241,630,784 - - - - - 748,805 (368,394) - - 24,192,335 24,192,335 (3,060,046) 21,132,289 - 5,692,747 - 5,692,747 24,192,335 29,885,082 (3,060,046) 26,825,036 - (4,602,017) - - - - 748,805 - (12,400,352) (12,400,352) (12,097,952) (12,097,952) - - - - - 748,805 - (12,400,352) - (11,662,250) 11,662,250 - Balance at 30 June 2014 Loss for the year Exchange differences arising on translation of foreign operations Total comprehensive income for the year Issue of shares Issue of shares (DRP) Share issue costs (net of tax) Share-based payments Shares issued on exercise of performance rights Payment of dividends Acquisition of non-controlling interests 156,679,067 3,062,875 (11,662,250) 2,096,186 98,025,142 248,201,020 (3,494,699) 244,706,321 - - - - 7,633,797 7,633,797 45,030,000 4,515,708 (1,192,206) - 366,771 - - - - - - - - - - - - - - - - - - (4,147,120) - - - - - - 1,302,876 (366,771) - - (21,483,718) (21,483,718) (201,372) (21,685,090) - 7,633,797 - 7,633,797 (21,483,718) (13,849,921) (201,372) (14,051,293) - 45,030,000 (4,515,708) - - - - (1,192,206) 1,302,876 - (13,647,070) (13,647,070) - - - - - - 45,030,000 - (1,192,206) 1,302,876 - (13,647,070) - (4,147,120) 3,697,120 (450,000) Balance at 30 June 2015 205,399,340 10,696,672 (15,809,370) 3,032,291 58,378,646 261,697,579 1,049 261,698,628 The accompanying notes form an integral part of the consolidated statement of changes in equity 27. annual report 2015 C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 5 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Payment for contract termination Interest received Interest received from personal loans Net increase in personal loans Interest and costs of finance paid Income tax paid Net cash flows provided by operating activities Cash flows from investing activities Net cash paid for acquisitions of controlled entities Acquisition of investment Acquisition of intangible asset Proceeds from sale of plant and equipment Purchase of plant and equipment Amounts advanced to third parties Instalment credit loans repaid by franchisees Net cash flows used in investing activities Cash flows from financing activities NOTES 2015 $ 2014 $ 242,343,005 202,319,838 (256,073,351) (233,614,563) (30,053,870) 566,316 - 597,450 98,199,057 87,713,601 (18,007,344) (30,753,427) (9,072,074) (8,577,184) (15,065,927) (13,344,332) 12,835,812 4,341,383 (13,458,891) (10,654,215) - (2,602,088) - (5,491,059) (2,159,211) 76,273 (7,979,308) (4,191,059) - (15,000,000) 254,710 394,270 (23,785,577) (37,025,001) 6 33 14 10 Dividends paid – members of parent entity 28 (13,647,070) (12,400,351) Proceeds from borrowings Repayment of borrowings Borrowing Costs Capital element of finance lease and hire purchase payments Payment for change in ownership of a controlled entity Proceeds from issue of shares Share issue costs Net cash flows provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on the balance of cash held in in foreign currencies 24,558,206 76,252,631 (21,470,484) (26,323,211) - (364,501) (450,000) 45,030,000 (1,703,152) 31,952,999 21,003,234 26,843,072 4,532,359 (1,265,170) (487,196) - - - 35,776,703 3,093,085 20,729,330 3,020,657 Cash and cash equivalents at the end of the year 6 52,378,665 26,843,072 The accompanying notes form an integral part of the consolidated statement of cash flows statement 28. cash converters international N O T E S T O T H E F I N A N C I A L S TAT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 5 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. 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 current reporting period as stated in note 1.22. The adoption of these amendments has not resulted in any significant changes to the Group’s accounting policies nor any significant effect on the measurement or disclosure of the amounts reported for the current or prior periods. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: 1 . 1 . S TAT E M E N T O F C O M P L I A N C E The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report comprises the consolidated financial report of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with the Australian Accounting Standards ensures that the financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 22 September 2015. 1 . 2 . B A S I S O F P R E PA R AT I O N The consolidated financial statements have been prepared on the basis of historical cost, except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 2 or value in use in AASB 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. 29. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 3 . B A S I S O F C O N S O L I D AT I O N 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. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • • • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable AASBs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. 30. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 4 . B U S I N E S S C O M B I N AT I O N S Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the consolidated entity in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (refer below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not remeasured at subsequent reporting dates and its subsequent settlement is amended for within equity. Where a business combination is achieved in stages, the consolidated entity’s previously held interests in the acquired entity are re- measured to fair value at the acquisition date (i.e. the date the consolidated entity attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3(2008) are recognised at their fair value at the acquisition date, except that: • • • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively; liabilities or equity instruments related to the replacement by the consolidated entity of an acquiree’s share-based payment awards are measured in accordance with AASB 2 Share-based Payment; and assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the consolidated entity reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the consolidated entity obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. 1 . 5 . G O O D W I L L Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the consolidated entity’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 31. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 6 . I N V E S T M E N T S I N A S S O C I AT E S A N D J O I N T V E N T U R E S An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with AASB 5. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. 1 . 7 . R E V E N U E R E C O G N I T I O N 1 . 7 . 1 . F R A N C H I S E S A L E S / R E N E W A L S Fees in respect of the initial sale of a franchise licence and fees from the renewal of a franchise licence are recognised on an accruals basis. Income is recognised in full upon the sale’s completion or upon the renewal of the licence as all material services and/or conditions relating to the sale or renewal have been fully performed or satisfied by the economic entity . 1 . 7 . 2 . C O N T I N U I N G F R A N C H I S E F E E S / L E V I E S Continuing franchise fees/levies in respect of particular services, are recognised as income when they become due and receivable and the costs in relation to the income are recognised as expenses when incurred. 1 . 7 . 3 . I N S TA L M E N T C R E D I T L O A N I N T E R E S T Interest received from franchisees in respect of instalment credit loans is recognised as income when earned. The effective interest rate method has been used to allocate fixed interest to accounting periods. 1 . 7 . 4 . P E R S O N A L L O A N / V E H I C L E L E A S E I N T E R E S T Interest revenue in relation to personal loans and vehicles leases is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset net carrying amount. 32. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 7 . 5 . L O A N E S TA B L I S H M E N T F E E R E V E N U E Establishment fees are deferred and recognised over the life of the loans at the effective interest rate applicable so as to recognise revenue at a constant rate to the underlying principal over the expected life of the loan. 1 . 7 . 6 . O T H E R V E H I C L E R E V E N U E Charges relating to the vehicle leases such as vehicle maintenance, warranty, registration and insurance, are recognised over the life of the lease. 1 . 7 . 7 . O T H E R C AT E G O R I E S O F R E V E N U E Other categories of revenue, such as retail wholesale sales, corporate store revenue, cheque cashing commission and financial services commission, are recognised when the consolidated entity has transferred the risks and rewards of the goods to the buyer or when the services are provided. Bank interest and rent are recognised as earned on an accruals basis. 1 . 8 . L E A S I N G Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1 . 8 . 1 . C O N S O L I D AT E D E N T I T Y A S L E S S O R Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. 1 . 8 . 2 . C O N S O L I D AT E D E N T I T Y A S L E S S E E Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 1 . 9 . F O R E I G N C U R R E N C Y 1 . 9 . 1 . F O R E I G N C U R R E N C Y T R A N S A C T I O N S All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. 33. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 9 . 1 . F O R E I G N C U R R E N C Y T R A N S A C T I O N S ( C O N T I N U E D ) Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur. These form part of the net investment in a foreign operation; being initially recognised in the foreign currency translation reserve and reclassified from equity to profit or loss on disposal of the net investment. 1 . 9 . 2 . F O R E I G N O P E R AT I O N S On consolidation, the assets and liabilities of the consolidated entity’s overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to A-IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. 1 . 1 0 . B O R R O W I N G S Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 1 . 11 . E M P L O Y E E B E N E F I T S A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. 1 . 1 2 . S H A R E - B A S E D PAY M E N T S The consolidated entity provides benefits to executives of the consolidated entity in the form of share-based payment transactions, whereby key management personnel render services in exchange for options (equity-based transactions). The current plan to provide these benefits is the Executive Performance Rights Plan. The cost of the equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using an appropriate valuation methodology. The cost of equity-based transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (vesting date). 34. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) At each subsequent reporting date until vesting, the cumulative charge to the profit or loss is the product of: • • • The grant date fair value of the award. The current best estimate of the number of the awards that will vest, taking into account such factors as the likelihood of non- market performance conditions being met. The expired portion of the vesting period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. 1 . 1 3 . TA X AT I O N 1 . 1 3 . 1 . C U R R E N T TA X Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). 1 . 1 3 . 2 . D E F E R R E D TA X Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore a deferred tax liability is not recognised in relation to the temporary differences arising from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis. 35. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 1 3 . 3 . C U R R E N T A N D D E F E R R E D TA X F O R T H E P E R I O D Current and deferred tax is recognised as an expense or income in the statement of comprehensive income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. 1 . 1 3 . 4 . TA X C O N S O L I D AT I O N The company and its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law. Cash Converters International Limited is the head entity in the tax- consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. 1 . 1 4 . P L A N T A N D E Q U I P M E N T Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost or other re-valued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation: Leasehold improvements Plant and equipment Equipment under finance lease Fixtures & fittings 1 . 1 5 . I N TA N G I B L E A S S E T S 1 . 1 5 . 1 . T R A D E N A M E S 8 years 5 years 5 years 8 years Trade names are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight line basis over the asset’s estimated useful lives of 100 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. 1 . 1 5 . 2 . C U S T O M E R R E L AT I O N S H I P S Customer relationships are recorded at fair value at acquisition date less accumulated amortisation and impairment. Customer relationships are recognised when franchise operations are acquired by the consolidated entity as required under AASB 3 Business Combinations and AASB 138 Intangible Assets and are amortised over 5 years; being the historic average customer life. 36. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 1 5 . 3 . R E A C Q U I R E D R I G H T S Reacquired rights are recorded at fair value at acquisition date less accumulated amortisation and impairment. Reacquired rights are recognised when franchise operations are acquired by the consolidated entity as required under AASB 3 Business Combinations and AASB 138 Intangible Assets, and are amortised over the remaining life of the right concerned or the useful economic life of the asset where the reacquired right is indefinite. 1 . 1 5 . 4 . I N TA N G I B L E A S S E T S A C Q U I R E D I N A B U S I N E S S C O M B I N AT I O N All potential intangible assets including software and reacquired rights, acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. 1 . 1 5 . 5 . S O F T W A R E Software development expenditure incurred is recognised when it is possible that future economic benefits that are attributable to the asset will flow to the entity. Following initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised on a straight line basis over the estimated useful life of 10 years; which is based on historic experience. 1 . 1 6 . I M PA I R M E N T O F O T H E R TA N G I B L E A N D I N TA N G I B L E A S S E T S At each reporting date, the consolidated entity 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). Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell 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 (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. 1 . 1 7 . I N V E N T O R I E S Inventories are valued at the lower of cost and net realisable value. Costs, including purchase cost on a first in first out basis are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. 37. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 1 8 . P R O V I S I O N S Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. 1 . 1 9 . F I N A N C I A L I N S T R U M E N T S Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 1 . 1 9 . 1 . F I N A N C I A L A S S E T S Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs. Subsequent to initial recognition, investments in subsidiaries are measured at cost in the company’s separate accounts. Other financial assets are classified as ‘loans and receivables’. e f f e c t i v e i n t e r e s t m e t h o d The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period. l o a n s a n d r e c e i v a b l e s Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial. i m pa i r m e n t o f f i n a n c i a l a s s e t s Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. 38. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) i m pa i r m e n t o f f i n a n c i a l a s s e t s ( c o n t i n u e d ) The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and personal loans where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. d e r e c o g n i t i o n o f f i n a n c i a l a s s e t s The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. 1 . 1 9 . 2 . F I N A N C I A L L I A B I L I T I E S A N D E Q U I T Y I N S T R U M E N T S c l a s s i f i c at i o n a s d e b t a n d e q u i t y i n s t r u m e n t s Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. e q u i t y i n s t r u m e n t s An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognised at the proceeds received, net of direct issue costs. i n t e r e s t a n d d i v i d e n d s Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. f i n a n c i a l g u a r a n t e e c o n t r a c t l i a b i l i t i e s A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. 39. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) f i n a n c i a l g u a r a n t e e c o n t r a c t l i a b i l i t i e s ( c o n t i n u e d ) Financial guarantee contract issued by a group entity are initially measured at their fair values and are subsequently measured at the higher of: • • the amount of the obligation under the contract, as determined in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’; and the amount initially recognised less, where appropriate, cumulative amortisation recognised. o t h e r f i n a n c i a l l i a b i l i t i e s Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. d e r e c o g n i t i o n o f f i n a n c i a l l i a b i l i t i e s The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. 1 . 2 0 . G O O D S A N D S E R V I C E S TA X Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. ii. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a net basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. 1 . 2 1 . C O M PA R AT I V E F I N A N C I A L I N F O R M AT I O N Certain comparative information within the statement of financial position has been reclassified to allow comparability with current period presentation. 40. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 2 2 . A M E N D M E N T S T O A A S B S A N D T H E N E W I N T E R P R E TAT I O N T H AT A R E M A N D AT O R I LY E F F E C T I V E F O R T H E C U R R E N T Y E A R In the current year, the Group has applied a number of amendments to AASBs and a new Interpretation issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective for an accounting period that begins on or after 1 July 2014, and are therefore relevant for the current year end. AASB 2012-3 ‘Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities’ The amendments to AASB 132 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’. The amendments have been applied retrospectively. As the Group does not have any financial assets and financial liabilities that qualify for offset, the application of the amendments does not have any material impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements. AASB 2013-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures forNon-Financial Assets’ The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part A: Annual Improvements 2010–2012 and 2011–2013 Cycles) Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 ‘Fair Value Measurements’. The application of these amendments does not have any material impact on the disclosures in the Group’s consolidated financial statements. All impairment testing completed by the Group uses Value in Use models. Annual Improvements 2010-2012 has made number of amendments to various AASBs, which are summarised below. • The amendments to AASB 2 (i) change the definitions of ‘vesting condition’ and ‘market condition’; and (ii) add definitions for ‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The amendments to AASB 2 are effective for share based payment transactions for which the grant date is on or after 1 July 2014. • The amendments to AASB 3 clarify that contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of AASB 9 or AASB 139 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognised in profit and loss. The amendments to AASB 3 are effective for business combinations for which the acquisition date is on or after 1 July 2014. • The amendments to AASB 8 (i) require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have ‘similar economic characteristics’; and (ii) clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. • The amendments to the basis for conclusions of AASB 13 clarify that the issue of AASB 13 and consequential amendments to AASB 139 and AASB 9 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial. 41. annual report 2015 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 2 2 . A M E N D M E N T S T O A A S B S A N D T H E N E W I N T E R P R E TAT I O N T H AT A R E M A N D AT O R I LY E F F E C T I V E F O R T H E C U R R E N T Y E A R ( C O N T I N U E D) AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part A: Annual Improvements 2010–2012 and 2011–2013 Cycles) • Amendments to AASB 116 and AASB 138 remove perceived inconsistencies in the accounting for accumulated depreciation/amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses. • Amendments to AASB 124 clarify that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required The Annual Improvements 2011-2013 has made number of amendments to various AASBs, which are summarised below. • Amendments to AASB 3 clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself. • Amendments to AASB 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, AASB 139 or AASB 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within AASB 132. AASB 1031 ‘Materiality’, AASB 2013-9 ‘Amendments to Australian Accounting Standards’ – Conceptual Framework, Materiality and Financial Instruments’ (Part B: Materiality), AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part C: Materiality) The revised AASB 1031 is an interim standard that cross-references to other Standards and the ‘Framework for the Preparation and Presentation of Financial Statements’ (issued December 2013) that contain guidance on materiality. The AASB is progressively removing references to AASB 1031 in all Standards and Interpretations. Once all of these references have been removed, AASB 1031 will be withdrawn. The adoption of AASB 1031, AASB 2013-9 (Part B) and AASB 2014-1 (Part C) does not have any material impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. 1 . 2 3 . S T R A N D A R D S A N D I N T E R P R E TAT I O N S I N I S S U E N O T Y E T A D O P T E D At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. STANDARD/INTERPRETATION BEGINNING ON OR AFTER FINANCIAL YEAR ENDING EFFECTIVE FOR ANNUAL EXPECTED TO BE REPORTING PERIODS INITIALLY APPLIED IN THE AASB 9 ‘Financial Instruments’, and the relevant amending standards* 1 January 2018 30 June 2019 AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’ AASB 2014-3 ‘Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations’ AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation’ AASB 2014-9 ‘Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements’ AASB 2014-10 ‘Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’ 1 January 2017 30 June 2018 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 42. cash converters international 1 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T I N U E D ) 1 . 2 3 . S T R A N D A R D S A N D I N T E R P R E TAT I O N S I N I S S U E N O T Y E T A D O P T E D ( C O N T I N U E D) STANDARD/INTERPRETATION BEGINNING ON OR AFTER FINANCIAL YEAR ENDING EFFECTIVE FOR ANNUAL EXPECTED TO BE REPORTING PERIODS INITIALLY APPLIED IN THE AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’ AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’ AASB 2015-3 ‘Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’ AASB 2015-4 ‘Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent’ 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 July 2015 30 June 2016 1 July 2015 30 June 2016 AASB 2015-5 ‘Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception’ 1 January 2016 30 June 2017 At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were in issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued. STANDARD/INTERPRETATION BEGINNING ON OR AFTER FINANCIAL YEAR ENDING EFFECTIVE FOR ANNUAL EXPECTED TO BE REPORTING PERIODS INITIALLY APPLIED IN THE At the date of publication, there have been no IASB Standards or IFRIC Interpretations that are issued but not yet effective. • The AASB has issued the following versions of AASB 9 and the relevant amending standards; • AASB 9 ‘Financial Instruments’ (December 2009), AASB 2009-11 ‘Amendments to Australian Accounting Standards arising from AASB 9’, AASB 2012-6 ‘Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures’ • AASB 9 ‘Financial Instruments’ (December 2010), AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’, AASB 2012-6 ‘Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosure’. • In December 2013 the AASB issued AASB 2013-9 ‘Amendment to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments’, Part C – Financial Instruments. This amending standard has amended the mandatory effective date of AASB 9 to 1 January 2017. For annual reporting periods beginning before 1 January 2017, an entity may early adopt either AASB 9 (December 2009) or AASB 9 (December 2010) and the relevant amending standards. 43. annual report 2015 2 . C R I T I C A L A C C O U N T I N G J U D G M E N T S A N D K E Y S O U R C E S O F E S T I M AT I O N U N C E R TA I N T Y 2 . 1 . K E Y S O U R C E O F E S T I M AT I O N U N C E R TA I N T Y The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: 2 . 1 . 1 . I M PA I R M E N T O F G O O D W I L L Determining whether goodwill is impaired requires an estimation of recoverable value of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the reporting date was $111,408,026 (2014: $110,726,057) refer to note 15. 2 . 1 . 2 . U S E F U L L I V E S O F O T H E R I N TA N G I B L E The consolidated entity reviews the estimated useful lives of other intangible assets at the end of each annual reporting period. The estimation of the remaining useful lives of the other intangible assets requires the entity to make significant estimates based on both past performance and expectations of future performance. The carrying amount of other intangible assets at the balance sheet date was $24,706,855 (2014: $21,899,866) refer to note 14. 2 . 1 . 3 . I M PA I R M E N T O F F I N A N C I A L A S S E T S ( I N C L U D I N G P E R S O N A L L O A N R E C E I VA B L E S ) The impairment of personal loans requires the consolidated entity to assess impairment regularly. The credit provisions raised (specific and collective) represent management’s best estimate of the losses incurred in the loan portfolio at reporting date based on their experienced judgment. The collective provision is estimated on the basis of historical loss experience for assets with similar credit characteristics. The historical loss experience is adjusted based on current observable data and events. The use of such judgments and reasonable estimates is considered appropriate. 2 . 1 . 4 . D E F E R R E D TA X A S S E T S A net deferred tax asset of $10,875,338 has been recognised in the consolidated statement of financial position. This includes $1,240,475 of carried forward tax losses in relation to the Group’s UK operations. This tax benefit is expected to be realised over the next 3-5 years when future taxable profits are expected to be generated to utilise the carried forward tax losses. In making this assessment, a forward looking estimation of taxable profit was made, based on management’s best estimate of future UK performance as at 30 June 2015. Further details associated with the assumptions underpinning the UK operations’ future performance is included in note 15.5.2 Future changes to the legislative environment in the UK may have a positive or negative impact on the performance of the Company’s UK operations, and therefore impact in a positive or negative manner, the period over which such losses could be utilised. The losses generated in Australia during the year are largely associated with the licence termination payment and NSW class action settlement, which are non-recurring in nature. Excluding these items the Australian tax group is profitable and is expected to continue to be so, therefore supporting the recognition of net deferred tax assets in Australia. 44. cash converters international 2 . C R I T I C A L A C C O U N T I N G J U D G M E N T S A N D K E Y S O U R C E S O F E S T I M AT I O N U N C E R TA I N T Y ( C O N T I N U E D ) 2 . 1 . 5 . P R O V I S I O N F O R C L A S S A C T I O N S E T T L E M E N T As disclosed in note 13, as at 30 June 2015 the Group has recognised a provision associated with the settlement of the NSW Class Action claim. As announced on 18 June 2015, the settlement provides for Cash Converters to pay $20 million into a fund for distribution to members of the Class. Class members comprise borrowers in New South Wales who took loans from Cash Converters subsidiaries and franchisees during the period 1 July 2010 to 30 June 2013. Cash Converters will also pay legal costs capped at $3 million which have been accrued for separately to the settlement provision. Any part of the distribution fund which remains after efforts to contact and pay class members have been exhausted and after payment of the fund administrators costs, will be repaid to Cash Converters. The Company has recognised a provision for the full settlement, being its best estimate of the ultimate expense to the Company 3 . R E V E N U E S A N D E X P E N S E S 3 . 1 . F R A N C H I S E F E E S Weekly franchise fees Initial fees Advertising levies Training levies Computer levies 3 . 1 . F I N A N C I A L S E R V I C E S I N T E R E S T R E V E N U E Instalment credit loan interest Personal loan interest Loan establishment fees Licence fees Pawn broking fees Cheque cashing commission Financial services commission Vehicle lease interest 3 . 1 . S A L E S O F G O O D S Retail sales Retail wholesales Vehicle trade sales 2015 $ 2014 $ 7,605,676 7,803,908 43,798 486,600 389,314 2,123,352 10,648,740 80,434 486,750 391,890 2,051,200 10,814,182 1,247,301 616,258 122,678,837 108,057,901 40,413,335 32,595,291 14,791 27,916,988 1,162,026 40,759,987 3,348,503 12,678 23,452,903 1,201,069 33,300,838 3,695,847 237,541,768 202,932,785 119,209,051 110,489,531 845,486 893,746 919,609 809,597 120,948,283 112,218,737 45. annual report 2015 3 . R E V E N U E S A N D E X P E N S E S ( C O N T I N U E D ) 3 . 4 . O T H E R R E V E N U E Bank Interest Other vehicle revenue (note 1.7.6) Other 3 . 5 . C O S T S O F S A L E S Sale of goods Personal loan bad debts Cash advance bad debts Franchise fees bad debts Recovery of bad debts Vehicles maintenance and bad debts 3 . 6 . A D M I N I S T R AT I O N E X P E N S E S Employee benefits Share based payments Superannuation expense Motor vehicle/travel costs 3 . 7 . O C C U PA N C Y E X P E N S E S Rent Outgoings Other 3 . 8 . O T H E R E X P E N S E S Legal fees Area agent fees/commission Professional and registry costs Auditing and accounting services Bank charges Loss on disposal of assets 2015 $ 2014 $ 566,316 4,443,405 744,127 5,753,848 72,656,963 60,926,392 3,823,311 61,563 (4,803,478) 5,792,573 597,450 4,193,879 911,874 5,703,203 65,438,152 48,148,982 3,031,721 91,852 (4,218,968) 6,376,982 138,457,324 118,868,721 82,410,732 73,473,603 1,302,876 4,575,941 2,251,512 748,805 3,881,252 2,441,737 90,541,061 80,545,397 13,145,687 12,236,494 6,451,050 1,434,384 5,756,829 1,527,623 21,031,121 19,520,946 3,126,668 23,306,253 4,143,656 782,131 5,106,160 1,373 1,928,184 28,849,586 4,141,354 942,978 4,701,359 484,418 Other expenses from ordinary activities 19,312,021 15,411,230 Depreciation Amortisation 3 . 9 . F I N A N C E C O S T S Interest Finance lease charge 46. 5,587,353 3,450,705 5,217,044 2,706,667 64,816,320 64,382,820 9,012,439 59,635 9,072,074 8,514,455 62,729 8,577,184 cash converters international 3 . R E V E N U E S A N D E X P E N S E S ( C O N T I N U E D ) 3 . 1 0 . C O N T R A C T T E R M I N AT I O N E X P E N S E During the period the Group settled on contracts to effect the termination of agency agreements (“Licenses”) with development agents Kentsleigh Pty Ltd and Cliffview Pty Ltd (“Development Agents”). These Licenses have been in place for approximately ten years and provided for the Development Agents to develop and promote the cash advance (Cliffview) and personal loan lending products (“Kentsleigh”) across the Cash Converters Australian store network, as well as complete other services such as compliance audits, marketing and training in relation to these products. Cash consideration of $30,800,000 was paid to the Development Agents, $29,628,270 is recorded as Contract Termination expenses in the statement of profit and loss and other comprehensive income given that it relates to a payment to terminate the underlying contract, with any future services completed internally in future periods as far as required. $746,130 relates to the acquisition of agency agreements held between Kentsleigh and four franchisees. These agreements will continue to generate income for the group as commission continues to be paid by the franchisees on a monthly basis. The consideration for these agreements is recorded as an intangible asset in the statement of financial position. As the agreements have no expiry date and the group has no reasonable basis to assume the commissions will cease to be paid, it has been determined the intangible asset has an indefinite life. 4 . I N C O M E TA X 4.1 Consolidated income statement The major components of income tax expense for the years ended 30 June 2015 and 2014 are: Tax expense comprises: Current tax expense 2015 $ 2014 $ 2,410,755 17,865,206 Adjustments in respect of current income tax of previous year (441,146) - Deferred tax expense relating to the origination and reversal of temporary differences Total income tax expense reported in income statement 3,139,683 5,109,292 (6,957,030) 10,908,176 A reconciliation between tax expense and the product of accounting profit multiplied by Australia’s domestic tax rate for the years ended 30 June 2015 and 2014 is as follows: 2015 $ 2014 $ Accounting profit before tax from continuing operations (16,575,798) 32,040,465 At Australia’s statutory income tax rate of 30% (2014: 30%) (4,972,739) 9,612,141 Adjustments in respect to current income tax of previous years Income tax rate differential Impairment of goodwill Non-deductible expenses for tax purposes Tax effect of share based payment expense Impairment of tax losses Other Income tax expense reported in the consolidated income statement 756,643 1,634,953 1,593,337 393,319 262,876 5,358,315 82,588 5,109,292 - 559,079 - 765,518 (28,562) - - 10,908,176 47. annual report 2015 4 . I N C O M E TA X ( C O N T I N U E D ) 4 . 2 . D E F E R R E D TA X D E F E R R E D TA X R E L AT E S T O T H E F O L L O W I N G : Deferred Tax Assets Allowance for doubtful debts Accruals Provision for employee entitlements Other provisions Other Carried Forward Losses (note 4.5) Deferred Tax Liabilities Fixed assets Intangible assets 2015 $ 7,710,385 222,512 1,765,326 868,548 3,459,699 1,240,475 2014 $ 7,635,785 86,765 1,429,335 849,498 2,425,506 3,863,832 15,266,945 16,290,721 (3,243,071) (1,148,536) (4,391,607) (629,636) (2,117,671) (2,747,307) Net deferred tax assets 10,875,338 13,543,414 4 . 3 . R E C O N C I L I AT I O N O F D E F E R R E D TA X A S S E T S N E T Opening balance as of 1 July Tax (expense)/benefit during the period recognised in profit or loss Other Closing balance as at 30 June 2015 $ 13,543,414 (2,595,991) (72,085)(i) 2014 $ 5,627,598 6,957,030 958,786(ii) 10,875,338 13,543,414 (i) Refers to an adjustment to the net deferred tax asset for future tax rate reduction (ii) Relates to the tax effect impact of the adjustments to deferred establishment fees and the acquisition of Green Light Auto. 4 . 4 . U N R E C O G N I S E D D E F E R R E D TA X B A L A N C E S Tax losses - revenue 4 . 5 . C A R RY F O R W A R D TA X L O S S E S 2015 $ 5,989,351 5,989,351 2014 $ 166,511 166,511 Carry forward tax losses of $1,240,475 hav e been recognised in relation to the Group’s UK operations, which are currently loss making. Refer to note 15 for more information on the UK operations and background to current period losses. The carry forward losses have an indefinite availability period subject to satisfaction of the same ownership and continuity of business tests. These losses are considered recoverable because based on management’s latest forecasts it has been determined that it is more likely than not that the Group will utilise these losses through future profitable operations, within the next 3 - 5 years (refer note 2.1.4 for further information). 48. cash converters international 4 . I N C O M E TA X ( C O N T I N U E D ) 4 . 6 TA X C O N S O L I D AT I O N 4 . 6 . 1 . R E L E VA N C E O F TA X C O N S O L I D AT I O N T O T H E C O N S O L I D AT E D E N T I T Y The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Cash Converters International Limited. The members of the tax-consolidated group are identified in note 23. 4.6.2. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, Cash Converters International Limited and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognized in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. 5 . R E M U N E R AT I O N O F A U D I T O R S Auditor of the parent entity Audit or review of the financial report Taxation services Other non-audit services* Related practice of the parent entity auditor Audit Taxation services * Relates to accounting assistance for employee share trust and securitisation facilities The auditor of Cash Converters International Limited is Deloitte Touche Tohmatsu 2015 $ 402,750 46,725 20,373 110,932 201,351 782,131 2014 $ 445,200 137,078 24,300 91,200 245,200 942,978 49. annual report 2015 6 . C A S H A N D C A S H E Q U I VA L E N T S 6 . 1 . C A S H AT B A N K A N D O N H A N D On hand In bank * 2015 $ 3,609,478 48,769,187 52,378,665 2014 $ 3,004,903 23,838,169 26,843,072 * Cash In bank of $48,769,187 (2014 $23,838,169) includes restricted cash of $11,256,938 (2014 $5,183,191) that is held in accounts controlled by the CCPF Warehouse Trust No.1 that was established to operate the company’s Securitisation facility with Westpac bank. The facility prescribes that cash deposited in this account can only be used to fund new principal loan advances. Surplus funds at the end of the period are redistributed in keeping with the terms of the Securitisation facility. For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash and cash equivalents 2015 $ 52,378,665 52,378,665 2014 $ 26,843,072 26,843,072 6 . 2 . R E C O N C I L I AT I O N O F P R O F I T F O R T H E Y E A R T O N E T C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S (Loss) / Profit after tax Non-cash adjustment to reconcile profit after tax to net cash flows: Amortisation Depreciation Impairment of non-current assets Share based payment transaction expense Bad debts written off Loss on sale of plant and equipment Share of net (profit) / loss of equity accounted investment Change in assets and liabilities: (Increase)/Decrease in inventories (Increase)/Decrease in prepayments 2015 $ 2014 $ (21,685,090) 21,132,289 3,450,705 5,587,353 7,587,315 1,302,876 2,706,667 5,217,044 - 748,805 60,007,787 47,053,587 1,373 (73,683) (871,840) (939,832) 484,418 41,465 (754,324) (1,878,184) (Increase)/Decrease in trade and loan receivables (52,217,205) (75,045,743) Increase/(Decrease) in trade payables and accruals Increase/(Decrease) in employee and other provisions (Increase)/Decrease in income tax payable Increase/(Decrease) in deferred tax Net Cash generated by operating activities 19,517,317 1,125,371 (13,135,658) 3,179,023 12,835,812 6,259,078 812,438 5,222,939 (7,659,096) 4,341,383 50. cash converters international 7 . T R A D E A N D O T H E R R E C E I VA B L E S 7 . 1 . C U R R E N T Trade receivables (i) Allowance for impairment losses Instalment credit loans (ii) Allowance for impairment losses 2015 $ 2014 $ 6,482,075 (2,552,611) 3,929,464 205,021 - 205,021 5,696,476 (2,343,601) 3,352,875 420,906 - 420,906 Total trade receivables (net) 4,134,485 3,773,781 Finance lease receivables (note 7.3) Other receivables (iii) 4,915,480 19,070,452 5,578,912 20,090,130 Total trade and other receivables 28,120,417 29,442,823 Personal short term loans (iv) Allowance for impairment losses Deferred establishment fees (v) Total personal loan receivables (net) Total current 7 . 2 . N O N - C U R R E N T Instalment credit loans (ii) Finance lease receivables (note 7.3) Loan - Cash Converters Holdings LP (New Zealand) (vi) Total non-current 161,517,677 166,944,852 (29,104,301) (12,551,703) (31,135,507) (12,132,153) 119,861,673 123,677,192 147,982,090 153,120,015 53,598 4,152,507 14,779,585 18,985,690 92,423 4,099,530 14,722,481 18,914,434 i. ii. Trade debtors include weekly franchise fees, wholesale sales, pawn broking fees; cash advance fees, default fees and OTC fees. Where the collection of the debtor is doubtful an allowance for impairment losses is recognised. The average credit period on sales is 30 days. No interest is charged for the first 30 days from the date of the invoice. Thereafter, interest is charged at 2% per month on the outstanding balance. The instalment credit loans relate to Cash Converters Pty Ltd and have a maximum maturity of 5 years. Interest rates are fixed at the time of entering into the contract at the rate of 12% or 13% depending on the repayment options agreed with each franchisee. To secure the instalment credit loans, a fixed and floating charge is held over the franchisee’s store. Where collection of the debtor is doubtful and the assessed value of the property is less than the amount outstanding, an allowance for impairment losses is recognised for the shortfall. iii. Other receivables include GST receivable, development agent fees outstanding, sub-master license sales, Mon-E fees, financial commission and the present value of vehicle lease receivables iv. v. The credit period provided in relation to personal short term loans varies from 30 days to 12 months. Interest is charged on these loans at a fixed rate which varies dependent on the state or country of origin. An allowance has been made for estimated unrecoverable amounts arising from loans already issued, which has been determined by reference to past default experience. Before accepting any new customers, the consolidated entity uses an external scoring system to assess the potential customer’s credit quality and define credit limits by customer. There is no concentration of credit risk within the personal loan book. Deferred establishment fees relate to establishment fees charged on personal loans. The full amount of the fee is deferred at the commencement of the loan and is the recognised through the income statement at an effective interest rate over the life of the loan. The balance shown above reflects the amount of the fees still to be recognised at the end of the reporting period. vi. Commercial loan advanced to Cash Converters Holdings LP (New Zealand master franchisee) with a maturity date of 15 September 2018, interest is charged quarterly at a rate of 8% per annum. 51. annual report 2015 7 . T R A D E A N D O T H E R R E C E I VA B L E S ( C O N T I N U E D ) 7 . 3 . V E H I C L E F I N A N C E L E A S E R E C E I VA B L E S Current finance lease receivables (net of provision) Non-current finance lease receivables 7.3.1. Leasing Arrangements 2015 $ 4,915,480 4,152,507 9,067,987 2014 $ 5,578,912 4,099,530 9,678,442 The Group entered into finance lease arrangements for leasing of vehicles with customers. All leases are denominated in Australian dollars. The average term of finance leases entered into is 4 years. 7.3.2. Amounts receivable under finance leases PRESENT VALUE OF MINIMUM MINIMUM LEASE LEASE PAYMENTS PAYMENTS 2015 $ 2014 $ 2015 $ 2014 $ Not later than one year 8,629,484 9,648,100 5,608,220 6,404,913 Later than one year and not later than five years 13,132,189 18,604,522 4,152,507 4,099,530 21,761,673 28,252,622 9,760,727 10,504,443 Less unearned finance income (12,000,946) (17,748,179) - - Present value of minimum lease payments receivable 9,760,727 10,504,443 9,760,727 10,504,443 Allowance for uncollectible lease payments (692,740) (826,001) (692,740) (826,001) 9,067,987 9,678,442 9,067,987 9,678,442 Unguaranteed residual values of assets leased under finance leases at the end of the reporting period are estimated at $2,436,913 (30 June 2014: $2,905,350). The residual amounts have been excluded from the above Calculations in the PV amounts – the amounts only relate to the minimum repayments. The interest rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted is approximately 27.6% (30 June 2014: 29.0%) per annum 52. cash converters international 7 . T R A D E A N D O T H E R R E C E I VA B L E S ( C O N T I N U E D ) 7 . 4 . A L L O W A N C E F O R I M PA I R M E N T L O S S E S – P E R S O N A L L O A N R E C E I VA B L E S As at 30 June 2015, personal loan receivables of $29,104,301 (2014: $31,135,507) were impaired and fully provided for. See below for the movements in the provision for impairment of personal loan receivables. Balance at beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectible Balance at end of the year 2015 $ 31,135,507 41,270,137 2014 $ 30,707,355 30,298,620 (43,301,343) (29,870,468) 29,104,301 31,135,507 In determining the recoverability of a personal loan, the consolidated entity considers any change in the credit quality of the receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. As at 30 June 2015, the ageing analysis of personal loan receivables is as follows: TOTAL $ 0-30 DAYS $ PDNI $ PDNI $ PDNI $ IMPAIRED $ 31-60 DAYS 61-90 DAYS + 90 DAYS CONSIDERED 2015 2014 161,517,677 126,915,235 3,371,201 1,373,373 753,567 29,104,301 166,944,852 129,747,995 3,562,261 1,693,217 805,872 31,135,507 * PDNI: past due not impaired 7 . 5 . A L L O W A N C E F O R I M PA I R M E N T L O S S E S – T R A D E R E C E I VA B L E S As at 30 June 2015, trade receivables and instalment credit loans of $2,552,611 (2014: $2,343,601) were impaired and fully provided for. See below the movements in the provision for impairment of trade receivables. Balance at beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectible Balance at end of the year 2015 $ 2,343,601 209,010 - 2,552,611 2014 $ 2,763,030 180,012 (599,441) 2,343,601 As at 30 June 2015, the ageing analysis of trade receivables is as follows: 31-60 DAYS 61-90 DAYS + 90 DAYS CONSIDERED TOTAL $ 0-30 DAYS $ 6,740,694 3,564,464 6,209,805 3,346,797 PDNI $ - 2,036 PDNI $ - 4,042 PDNI $ 623,619 513,329 IMPAIRED $ 2,552,611 2,343,601 2015 2014 * PDNI: past due not impaired CI: considered impaired 53. annual report 2015 8 . I N V E N T O R I E S New and pre-owned goods at cost New and used motor vehicles at cost 9 . O T H E R A S S E T S Prepayments 1 0 . P L A N T A N D E Q U I P M E N T 2015 $ 26,343,262 1,340,316 27,683,578 2014 $ 23,357,104 2,204,606 25,561,710 2015 $ 2014 $ 11,936,995 10,578,199 LEASEHOLD LEASEHOLDS EQUIPMENT IMPROVE- UNDER MENTS IMPROVE- PLANT AND FINANCE UNDER FI- MENTS AT COST $ EQUIPMENT LEASE AT NANCE LEASE AT COST $ COST $ AT COST $ TOTAL $ Cost Balance as at 1 July 2013 10,000,830 24,610,795 18,970 1,049,277 35,679,872 Acquisition through business combinations 220,917 652,996 Additions Disposals 1,017,295 3,173,764 (245,239) (662,538) - - - - - - 873,913 4,191,059 (907,777) Net foreign currency exchange differences Balance as at 30 June 2014 257,760 11,251,563 1,317,885 29,092,902 - 18,970 - 1,049,277 1,575,645 41,412,712 Acquisition through business combinations - - Additions Disposals 1,605,851 6,373,457 (9,588) (1,058,293) - - - - - - Net foreign currency exchange differences Balance as at 30 June 2015 371,535 13,219,361 1,923,749 36,331,815 - 18,970 - 1,049,277 - 7,979,308 (1,067,881) 2,295,284 50,619,423 Depreciation and impairment Balance as at 1 July 2013 Acquisition through business combinations Disposals Depreciation expense Net foreign currency exchange differences Balance as at 30 June 2014 Acquisition through business combinations Disposals Depreciation expense Impairment (note 15.5.1) Net foreign currency exchange differences Balance as at 30 June 2015 2,491,061 10,064,658 18,970 570,311 13,145,000 20,688 (83,775) 1,311,712 81,409 3,821,095 - 150,655 (300,385) 3,774,149 595,313 14,284,390 - (9,588) (1,056,921) 1,520,475 3,937,056 162,288 176,062 5,670,332 268,394 1,307,976 18,740,895 - - - - 18,970 - - - - - - 131,183 - 701,494 - - 171,343 (384,160) 5,217,044 676,722 18,825,949 - (1,066,509) 129,822 5,587,353 - 430,682 - 18,970 - 831,316 1,484,038 25,261,513 Net book value As at 30 June 2014 As at 30 June 2015 54. 7,430,468 14,808,512 7,549,029 17,590,920 - - 347,783 217,961 22,586,763 25,357,910 cash converters international 11 . T R A D E A N D O T H E R PAYA B L E S Current Trade payables Accruals 2015 $ 6,592,330 19,857,386 26,449,716 2014 $ 6,482,322 20,311,886 26,794,208 The consolidated entity has financial risk management policies in place to ensure that all payables are paid within the allowed credit period in order to avoid the payment of interest on outstanding accounts. 1 2 . B O R R O W I N G S 1 2 . 1 . C U R R E N T Loans (i) Loans - Vehicle Finance (ii) Securitisation/Warehousing Facilities (iii) Hire purchase and lease liabilities (note 19) (iv) 12.2. Non-current Loans (i) Loans - Vehicle Finance (ii) Bond (v) Hire purchase and lease liabilities (note 19) (iv) 2015 $ 2014 $ - 2,869,873 57,731,221 104,035 60,705,129 - - 59,613,840 328,923 59,942,763 - 5,000,000 7,129,205 59,198,726 108,864 66,436,795 - 58,945,692 73,456 64,019,148 i, ii. The bank overdraft and the loans payable (which includes term loans and a variable rate bill facility) are secured by a fixed and floating charge over the total assets of the entity and a cross guarantee from the parent entity. There have been no breaches of loan covenants during the current or prior period. Loans –Vehicle Finance represents a vehicle leasing facility with FleetPartners for the provision of high quality fully maintained vehicles for the use of Green Light Auto’s customers. The underlying financing from FleetPartners is repayable in line with the contractual repayments from the customer and is therefore repayable over the underlying vehicle lease term. iii. The Securitisation/warehousing facilities represents two amounts: 1) A Class A note liability relating to notes issued by the CCPF Warehouse Trust No.1, a consolidated subsidiary established as part of the borrowing arrangement with Westpac Banking Corporation. The notes fund eligible personal loan receivables originated by CCPF which generally have a maturity of less than twelve months and are secured on those receivables. Collections received in relation to these receivables are used to repay the notes on a monthly basis as they are received and additional Class A notes may be issued under the terms of the funding arrangement. The notes have been presented as a current liability because the trust does not have the unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The note subscriber is obligated to subscribe for additional notes up to 26 March 2016, if required, up to a prescribed facility limit. Therefore in the ordinary course of business the consolidated entity currently expects to draw additional notes in accordance with the funding arrangement through to 26 March 2016. All amounts outstanding under the funding arrangement must be repaid in full on or before 26 March 2017. Refer to note 26 for further information on the future availability of the Westpac Securitisation facility and the provision of transaction banking services. 2) As at 30 June 2014, the balance included a senior note liability relating to GLA Receivable Trust No.1, a consolidated subsidiary established in conjunction with Fortress Finance securitisation facility. The notes funded eligible leases originated by Green Light Auto Group Pty Ltd (GLA). This facility was terminated during the current year. 55. annual report 2015 1 2 . B O R R O W I N G S ( C O N T I N U E D ) iv. Hire purchase and lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. v. Represents a September 2013 issue of $60 million of senior unsecured 7.95% notes due in September 2018 with FIIG Securities Limited. The borrowing costs have been capitalised and offset against the liability. 1 2 . 3 . F I N A N C I N G A R R A N G E M E N T S Unrestricted access was available at balance date to the following lines of credit: 1 2 . 3 . 1 . T O TA L FA C I L I T I E S Bank overdrafts Variable rate bill facility Securitisation Facilities (i) Bond Term loans 12.3.2. U S E D AT B A L A N C E D AT E Bank overdrafts Variable rate bill facility Securitisation Facilities (i) Bond Term loans 12.3.3. U N - U S E D AT B A L A N C E D AT E Bank overdrafts Variable rate bill facility Securitisation Facilities Bond Term loans 2015 $ 2014 $ 504,708 - 70,000,000 60,000,000 10,000,000 480,799 - 80,000,000 60,000,000 10,000,000 140,504,708 150,480,799 - - 57,923,291 60,000,000 - - - 59,990,583 60,000,000 5,000,000 117,923,291 124,990,583 504,708 - 480,799 - 12,076,709 20,009,417 - 10,000,000 22,581,417 - 5,000,000 25,490,216 The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Interest rates are variable and are currently between two and two and three quarter percentage points above the bank base rate. (i) Refer to note 18 for further information in relation to financial instruments; and refer to note 26 for further information on the future availability of the Westpac Securitisation facility. 1 2 . 4 . L O A N C O V E N A N T S A N D R E V I E W E V E N T S The consolidated entity has borrowing facilities with Westpac Banking Corporation in Australia. All facilities are subject to various loan covenants and review events. Refer to note 26 for further information on the future availability of the Westpac Securitisation facility. 56. cash converters international 1 3 . P R O V I S I O N S 1 3 . 1 . C U R R E N T Employee benefits Fringe benefits tax Class action settlement (i) 1 3 . 2 . N O N - C U R R E N T Employee benefits 2015 $ 2014 $ 5,644,339 28,377 20,000,000 25,672,716 4,600,899 37,989 - 4,638,888 240,082 240,082 148,539 148,539 (i) The provision for Class Action Settlement relates to the settlement of the NSW Class Action claim. As announced on 18 June 2015, the settlement provides for Cash Converters to pay $20 million into a fund for distribution to members of the Class. Class members comprise borrowers in New South Wales who took loans from Cash Converters subsidiaries and franchisees during the period 1 July 2010 to 30 June 2013. Cash Converters will also pay legal costs capped at $3 million which have been accrued for separately to the settlement provision. Any part of the distribution fund which remains after efforts to contact and pay class members have been exhausted and after payment of the fund administrators costs, will be repaid to Cash Converters. 1 4 . O T H E R I N TA N G I B L E A S S E T S 14.1. Allocation of other intangible assets to cash-generating units Other intangible assets are allocated to their respective cash-generating unit and tested for impairment annually. Refer to note 15 for details of impairment testing. The recoverable value of other intangible assets is assessed using the same assumptions and methods as the goodwill for the related cash generating units. The carrying amount of reacquired rights, and trade names / customer relationships allocated to cash generating units that are significant individually or in aggregate is as follows: Franchise operations (Australia) Franchise operations (UK) Financial services – administration (MON-E) Financial services – personal loans (CCPF) Corporate stores (Australia) Corporate stores (UK) Vehicle leasing 2015 $ 6,747,862 1,700,000 746,130 5,393,612 4,826,343 5,281,036 11,872 2014 $ 6,747,862 1,700,000 - 5,393,612 4,289,137 3,751,583 17,672 24,706,855 21,899,866 57. annual report 2015 1 4 . O T H E R I N TA N G I B L E A S S E T S ( C O N T I N U E D ) 14.2. Categories of other intangible assets COST REAC- QUIRED RIGHTS (I) $ TRADE NAMES / CUSTOMER RELATION- SHIP (II) $ SOFT- WARE $ SOFT- WARE UNDER FINANCE LEASE $ TOTAL $ Balance as at 1 July 2013 8,445,703 15,350,835 7,892,461 446,588 32,135,587 Acquisition through business combinations* Additions Disposals Adjustments** Net foreign currency exchange differences - - - (106,000) 82,205 - - - 71,000 2,174 2,159,211 - - - 5,058 - - - - - 2,174 2,159,211 - (35,000) 87,263 Balance as at 30 June 2014 8,421,908 15,421,835 10,058,904 446,588 34,349,235 Acquisition through business combinations* Additions Disposals Adjustments** 631,839 746,130 - 174,210 - - - 1,855,958 (13,232) 1,438,000 1,340,000 - 7,507 - - - - - 806,049 2,602,088 (13,232) 2,778,000 129,508 Net foreign currency exchange differences 122,001 - Balance as at 30 June 2015 11,359,878 16,936,045 11,909,137 446,588 40,651,648 Amortisation Balance as at 1 July 2013 2,265,551 4,714,101 2,442,813 290,048 9,712,513 Amortisation charge Disposals Net foreign currency exchange differences 1,048,400 684,744 910,315 63,208 2,706,667 - 25,079 - - - 5,110 - - - 30,189 Balance as at 30 June 2014 3,339,030 5,398,845 3,358,238 353,256 12,449,369 Acquisition through business combinations* - - - - - Amortisation charge Disposals Net foreign currency exchange differences 1,207,512 1,107,429 1,095,764 40,000 3,450,705 - 50,444 - - (13,232) 7,507 - - (13,232) 57,951 Balance as at 30 June 2015 4,596,986 6,506,274 4,448,277 393,256 15,944,793 Net book value At 30 June 2014 At 30 June 2015 * refer to note 33.1 5,082,878 10,022,990 6,700,666 93,332 21,899,866 6,762,892 10,429,771 7,460,860 53,332 24,706,855 ** Adjustments ensuring from the Finalisation of Acquisition Accounting. Refer to note 33.2 for further details. i. ii. The useful economic life of reacquired rights is assessed on an individual asset basis in accordance with AASB 3 Business Combinations and AASB 138 Intangible Assets, where the useful economic life is equal to the remaining life of each stores franchise agreement with the consolidated entity, in place at the acquisition date. The useful economic life of reacquired rights is assessed on an individual asset basis, but is not more 100 years from the date of acquisition. The directors review the economic useful life annually. The useful economic life of customer relationships is assessed on an individual asset basis, and is currently amortised over five years from the date of acquisition; being the historic average customer life. The directors review the economic useful life annually. 58. cash converters international 1 4 . O T H E R I N TA N G I B L E A S S E T S ( C O N T I N U E D ) iii. Trade names are stated at cost to the consolidated entity and relates to amounts recognised either through the buy-back of overseas sub-master license rights, or through direct acquisition of regional sub-master rights in Australia by Cash Converters Pty Ltd. The depreciable amount of all trade names is amortised on a straight-line basis over their economic useful life, where material. The economic useful life of the trade names has been assessed on an individual asset basis but not more than 100 years from the date of acquisition. The directors review the economic useful life annually. 1 5 . G O O D W I L L 1 5 . 1 . G R O S S C A R RY I N G A M O U N T 2015 $ 2014 $ Balance at beginning of financial year 110,726,057 98,771,899 Additional amounts recognised from business combinations occurring during the year (refer Note 33) Disposal * Adjustments arising on the finalisation of acquisition accounting** Foreign exchange movement Balance at the end of the financial year 8,792,395 10,581,976 - (2,665,410) 1,711,618 (37,039) 236,764 1,172,457 118,564,660 110,726,057 * Disposals relate to Goodwill associated with the sale and closure of UK corporate stores ** Refer to note 33.2 1 5 . 2 . A C C U M U L AT E D I M PA I R M E N T L O S S E S Balance at the beginning of the financial year Impairment losses for the year Balance at end of financial year 1 5 . 3 . N E T C A R RY I N G A M O U N T At the beginning of the financial year At the end of the financial year - 7,156,633 7,156,633 - - - 110,726,058 111,408,026 98,771,899 110,726,057 1 5 . 4 . A L L O C AT I O N O F G O O D W I L L T O C A S H - G E N E R AT I N G U N I T S Goodwill has been allocated for impairment testing purposes to the following cash-generating units or groups of cash- generating units: • • • • Financial services - administration (MON-E) Financial services – personal loans (CCPF) Corporate stores (Australia) Corporate stores (UK) 59. annual report 2015 1 5 . G O O D W I L L ( C O N T I N U E D ) The carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows: Financial services – administration (MON-E) Financial services – personal loans (CCPF) Corporate Stores (Australia) Corporate Stores (UK) Goodwill arising on Australian store acquisitions: 2015 $ 17,292,967 73,268,103 16,447,493 4,399,463 2014 $ 17,292,967 69,816,469 13,955,912 9,660,709 111,408,026 110,726,057 The goodwill recognised as a result of the acquisition of Australian franchise stores is allocated between Corporate Stores (Australia) and Financial services – personal loans (CCPF). The goodwill acquired prior to 1 July 2014 has been reallocated to reflect the cash-generating units which were expected to benefit from the synergies of the business combination at the time of acquisition based on the EBITDA contribution that the acquired store was expected to generate for the respective cash generating units at the time of acquisition. The effect of the reallocation would not have resulted in an impairment in any of the cash-generating units / operating segments in any prior periods. 1 5 . 5 . A L L O C AT I O N O F G O O D W I L L T O C A S H - G E N E R AT I N G U N I T S In this section we first discuss impairment losses recognised during the current or prior period, and then the details of the impairment testing methodology and key assumptions applied for all major cash generating units / operating segments. 1 5 . 5 . 1 . I M PA I R M E N T L O S S E S R E C O G N I S E D Year ended 30 June 2015 Impairment testing of non-current assets, including those with indefinite useful lives, using value in use calculations, for the year ended 30 June 2015 identified goodwill balances of $7,156,634 and property, plant and equipment of $430,681 that were not considered recoverable. These balances related to specific stores within the UK Corporate Stores network. Following the introduction of the Consumer Credit (Cost Cap) 2014 in the United Kingdom in January 2015, there has been a drop in personal and cash advance loan volumes, impacting the overall profitability of the UK operations. As a result of this legislation, further compounded by continued challenging trading conditions for certain stores, the impairment charges noted above were recognised. Year ended 30 June 2014 No impairment losses related to non-current assets were recognised during the year ended 30 June 2014. 1 5 . 5 . 2 . I M PA I R M E N T T E S T I N G COMMENTARY ON IMPAIRMENT TESTING APPROACH APPLICABLE TO ALL CGU’S: Impairment modelling for each cash generating unit (CGU) has been prepared separately. Working capital requirements are factored into the modelling based on historic requirements for each CGU, and vary in line with revenue growth. Capital investment, required to run the business (i.e. replacement and non-expansionary capital expenditure), has been included based on detailed estimates for the next financial year and incremental growth in subsequent years consistent with increasing revenues. The recoverable value of all non-current assets, including goodwill, property, plant and equipment (note 10) and other intangible assets (note 14) is assessed using the impairment testing as outlined in this note. IMPACT OF REGULATIONS Both the Financial Services – Administration (Mon-E) and Personal Loans (CCPF) businesses operate in a regulated industry. 60. cash converters international 1 5 . G O O D W I L L ( C O N T I N U E D ) Any future changes to applicable legislation may have a significant impact on the consolidated entity’s operations, and returns generated, in a positive or negative manner. The impairment testing for these businesses is based on management’s expectation of performance taking into account applicable legislative requirements at the date of the impairment testing, being 30 June 2015. Any material changes to legislation impacting these businesses in future periods may have a significant positive, or negative impact on future performance. FINANCIAL SERVICES – ADMINISTRATION (MON-E) The recoverable value of MON-E is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by management covering a five-year period, and a pre-tax discount rate of 13.2% per annum (2014: 14.7% per annum). Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a 2.5% growth rate (2014: 2.5%). Revenue is forecast to increase due to increasing loan volumes, with growth rates not in excess of historical performance. Forecast EBITDA margins are assumed to be stable, and in line with the long run average achieved. Refer above for discussion on the regulated nature of the industry in which this business operates. FINANCIAL SERVICES – PERSONAL LOANS (CCPF) The recoverable amount for Cash Converters Personal Finance is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by management covering a five-year period, and a pre- tax discount rate of 13.3% per annum (2014: 13.1% per annum). Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a 2.5% growth rate (2014: 2.5%). Revenue is forecast to increase due to increasing loan volumes, with growth rates not in excess of historical performance. Forecast bad debt rates are comparable to long run average rates experienced, and forecast EBITDA margins are assumed to be stable, and in line with the long run average achieved. Refer above for discussion on the regulated nature of the industry in which this business operates. CORPORATE STORES (AUSTRALIA) The recoverable amount for Australian corporate stores is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by management covering a five-year period, and a pre-tax discount rate of 13.7% per annum for Australia (2014: 17.6% per annum). Cash flows beyond the one-year period have been extrapolated using a steady 3% per annum growth rate based on performance levels for the last 3 months of the first year forecast. These growth rates have also been compared to forecast growth rates from external sources, and do not exceed them. Forecast EBITDA margins are assumed to be stable, and in line with historical average achieved. Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a 2.5% growth rate (2014: 2.5%). CORPORATE STORES (UK) The recoverable amount for corporate stores is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by management covering a five-year period, and a pre-tax discount rate of 15.5% per annum (2014: 14.0% per annum). Cash flows beyond the one-year period have been extrapolated using a steady 3% per annum growth rate based on performance levels for the last 3 months of the first year forecast. These growth rates have also been compared to forecast growth rates from external sources, and do not exceed them. Forecast EBITDA margins are assumed to be stable, and in line with historical average achieved. Cash flows beyond the five year period are estimated using a terminal value calculated under standard valuation principles incorporating a 2.0% growth rate (2014: 2.5%). As disclosed above, impairment testing of the UK Corporate Store operations resulted in impairment losses of $7,587,315, split between Goodwill of A$7,199,449, and property, plant and equipment of $387,816. Further sensitivity disclosures related to this impairment testing has been included below. 61. annual report 2015 1 5 . G O O D W I L L ( C O N T I N U E D ) EVENTS AFTER THE REPORTING PERIOD- IMPACT ON IMPAIRMENT TESTING Management note the subsequent events disclosed in note 26, relating to the provision of banking facilities and the Queensland Class Action and the resulting subsequent decline in the market capitalisation of the Company below the net asset value. Both of these events arose subsequent to year end, and were not in existence at the impairment testing date, and therefore were not factored into the impairment testing undertaken as at 30 June 2015 and subsequent assessment of the decline in market capitalisation trigger event. Management does however believe that neither development will have a material impact on the recoverability of assets associated with either the Financial Services – Administration (Mon-E) or Personal Loans (CCPF) businesses. Further information on both of these subsequent events is disclosed in note 26. To support this fact, management has decided to include sensitivity disclosures in relation to both the Mon-e and CCPF businesses below, even though the impairment testing completed as at 30 June 2015 resulted in significant headroom, such that these disclosures are not required under AASB 136 Impairment of Assets. IMPAIRMENT SENSITIVITY DISCLOSURES As noted above, based on the impairment testing completed, for all cash generating units other than the UK Corporate Store operations, management believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. The impact of changes to key assumptions for the recoverable amount of the UK Corporate Store operations are summarised below, along with disclosures for CCPF and Mon-e as noted above. CGU MON-E CCPF Carrying value (pre-impairment) Impairment expense (i) Carrying value (post-impairment) Discount rate (post tax) Average annual compound revenue growth rate from FY17 to FY20 Impact of -1% change in compound growth rate on headroom ($’000) Impact of +1% change in discount rate on headroom 18,338,672 - 18,338,672 13.2% 98,507,610 - 98,507,610 13.3% CORPORATE STORES (UK) 26,173,936 7,587,315 18,586,621 15.5% 3% 8% 3% Refer below Refer below Refer below Refer below (452,988) (1,110,418) (i) Impairment expense includes goodwill impairment of $7,156,633 and property, plant & equipment of $430,682. In relation to CCPF, the implication of the key assumptions for the recoverable amount are: 1. 2. Discount rate - Management has considered the possibility that the discount rate used could increase. The recoverable amount of CCPF would only be impacted if the pre-tax discount rate was 37.2% or more. Forecast EBITDA for CCPF would need to be 57% lower than used in the value in use model, over the five year forecast period, to result in a recoverable amount lower than the carrying amount of CCPF. In relation to Mon-e, the implication of the key assumptions for the recoverable amount are: 1. 2. Discount rate - Management has considered the possibility that the discount rate used could increase. The recoverable amount of Mon-e would only be impacted if the pre-tax discount rate was 26% or more. Forecast EBITDA for Mon-e would need to be 41.4% lower than used in the value in use model, over the five year forecast period, to result in a recoverable amount lower than the carrying amount of Mon-e. 62. cash converters international 1 6 . I S S U E D C A P I TA L 1 6 . 1 . F U L LY PA I D O R D I N A RY S H A R E S ( N U M B E R ) Balance at beginning of financial year Shares issued during the year Balance at end of financial year 2015 2014 NO. SHARES NO. SHARES 428,886,124 423,861,025 52,362,135 5,025,099 481,248,259 428,886,124 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Changes to the Corporations Act abolished the authorised capital and per value concept in relation to the share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value. 1 6 . 2 . F U L LY PA I D O R D I N A RY S H A R E S ( VA L U E ) Balance at the beginning of the year New shares issued (net of issue costs) Balance at the end of the financial year There are no securities stapled to the Cash Converters International Limited shares. 2015 $ 2014 $ 156,679,067 151,708,656 48,720,273 4,970,411 205,399,340 156,679,067 1 7 . R E S E R V E S A N D R E TA I N E D E A R N I N G S 1 7 . 1 . R E S E R V E S Foreign currency translation reserve Share-based payment reserve Non-controlling interest acquisition reserve Balance at the end of the financial year 1 7 . 1 . 1 . F O R E I G N C U R R E N C Y T R A N S L AT I O N R E S E R V E Balance at the beginning of the financial year Translation of foreign operations Balance at the end of the financial year 2015 $ 10,696,672 3,032,291 2014 $ 3,062,875 2,096,186 (15,809,370) (11,662,250) (2,080,407) (6,503,189) 2015 $ 3,062,875 7,633,797 10,696,672 2014 $ (2,629,872) 5,692,747 3,062,875 Exchange differences relating to the translation from the functional currencies of the Group’s foreign controlled entities into Australian Dollars are brought to account by entries made directly to the foreign currency translation reserve. 63. annual report 2015 1 7 . R E S E R V E S A N D R E TA I N E D E A R N I N G S ( C O N T I N U E D ) 1 7 . 1 . 2 . S H A R E - B A S E D PAY M E N T R E S E R V E Balance at the beginning of the financial year Arising from share-based payment Shares issued on exercise of performance rights Balance at the end of the financial year 2015 $ 2,096,186 1,302,876 (366,771) 3,032,291 2014 $ 1,715,775 748,805 (368,394) 2,096,186 The share-based payment reserve arises due to the grant of share-based payments by the Company under the executive performance rights plan. 1 7 . 1 . 3 . N O N - C O N T R O L L I N G I N T E R E S T R E S E R V E Balance at the beginning of the financial year Arising from acquisition of non-controlling interest Balance at the end of the financial year 2015 $ (11,662,250) (4,147,120) (15,809,370) 2014 $ - (11,662,250) (11,662,250) The non-controlling interest acquisition reserve records the acquisition of non-controlling interest in Green Light Auto Group Pty Ltd 1 7 . 2 . R E TA I N E D E A R N I N G S Balance at the beginning of the financial year Net profit attributable to members of the parent entity Issue of shares (Dividend Reinvestment Plan) Dividends provided for or paid Balance at the end of the financial year 1 8 . F I N A N C I A L I N S T R U M E N T S 1 8 . 1 C A P I TA L R I S K M A N A G E M E N T 2015 $ 2014 $ 98,025,142 (21,483,718) 90,835,176 24,192,335 (4,515,708) (4,602,017) (13,647,070) (12,400,352) 58,378,646 98,025,142 The consolidated entity manages its capital to maximise the return to stakeholders through the optimisation of the debt and equity balance whilst ensuring that the consolidated entity is able to continue as a going concern. The consolidated entity’s overall strategy remains unchanged from prior year. The capital structure of the consolidated entity consists of debt, which includes the borrowings disclosed in note 12, cash and cash equivalents and equity attributable to holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 16 and 17 respectively. The consolidated entity operates globally, primarily through subsidiary companies established in the markets in which the consolidated entity trades. None of the consolidated entity’s operations are subject to externally imposed capital requirements. The consolidated entity’s policy is to borrow both centrally and locally, using a variety of borrowing facilities, to meet anticipated funding requirements. 64. cash converters international 1 8 . F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D ) 1 8 . 2 . C AT E G O R I E S O F F I N A N C I A L I N S T R U M E N T S 1 8 . 2 . 1 . F I N A N C I A L A S S E T S Cash and cash equivalents Trade and other receivables Personal loans receivable 1 8 . 2 . 2 . F I N A N C I A L L I A B I L I T I E S Trade and other payables Borrowings 2015 $ 2014 $ 52,378,665 47,106,107 26,843,072 48,357,257 119,861,673 123,677,192 26,449,716 26,794,208 127,141,924 123,961,911 The consolidated entity has no material financial assets or liabilities that are held at fair value. 1 8 . 3 . F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S The consolidated entity’s treasury function provides services to the business, co-ordinates access to domestic and international financial markets, and manages the financial risks relating to the operations of the consolidated entity. The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. 1 8 . 3 . 1 . M A R K E T R I S K The consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (refer note 18.3.2) and interest rates (refer note 18.3.3). There has been no change to the consolidated entity’s exposure to market risks or the manner in which it manages and measures the risk from the previous period. 1 8 . 3 . 2 . F O R E I G N C U R R E N C Y R I S K M A N A G E M E N T The consolidated entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are relatively small and spot rates are normally used. There are no foreign currency denominated monetary assets or monetary liabilities in the consolidated entity at the reporting date. 1 8 . 3 . 3 . I N T E R E S T R AT E R I S K M A N A G E M E N T The Company and the consolidated entity are exposed to interest rate risk as entities in the consolidated group borrow funds at variable rates and place funds on deposit at variable rates. Personal loans issues by the consolidated entity are at fixed rates. The risk is managed by the consolidated entity by monitoring interest rates. The Company and the consolidated entity’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. 1 8 . 4 . I N T E R E S T R AT E S E N S I T I V I T Y A N A LY S I S The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease is used because this represents management’s assessment of the possible change in interest rates. At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s net profit would increase/decrease by approximately $288,656 (2015: increase/decrease by approximately $324,953). The Group’s sensitivity to interest rates has decreased during the current period mainly due to repaying variable rate borrowings and increasing its fixed rate finance leases. 65. annual report 2015 1 8 . F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D ) 1 8 . 5 . C R E D I T R I S K M A N A G E M E N T Credit risk refers to the risk that counter-party will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The consolidated entity measures credit risk on a fair value basis. The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, other than its franchisees. The consolidated entity has a policy of obtaining sufficient collateral or other securities from these franchisees. The majority of loans within the financing division relate to loans made by Cash Converters Personal Finance which makes both secured and unsecured personal loans. Credit risk is present in relation to all unsecured loans made which is managed within an agreed corporate policy on customer acceptance and on-going review of recoverability. 1 8 . 6 . L I Q U I D I T Y R I S K M A N A G E M E N T Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the consolidated entity’s short, medium and long-term funding and liquidity management requirements. The consolidated entity manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. Included in note 12 is a listing of additional undrawn facilities that the company/ consolidated entity has at its disposal to further reduce liquidity risk. 1 8 . 7 . L I Q U I D I T Y A N D I N T E R E S T R I S K TA B L E S 1 8 . 7 . 1 . F I N A N C I A L L I A B I L I T I E S The following table detail the consolidated entity’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the consolidated entity can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are at floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the consolidated entity may be required to pay. 2015 Non-interest bearing Finance lease liability - fixed rate Fixed interest rate instruments Variable interest rate instruments (i) 2014 Non-interest bearing Finance lease liability - fixed rate Fixed interest rate instruments Variable interest rate instruments (i) WEIGHTED AV- ERAGE EFFEC- TIVE INTEREST RATE % 0.00 7.50 7.95 5.20 % 0.00 8.50 7.95 6.19 1 YEAR OR LESS $ 1 TO 5 YEARS $ 26,449,716 - 3,196,951 8,866,634 - 75,502,500 59,982,739 - 89,629,406 84,369,134 $ $ 26,794,208 - 356,099 74,844 - 80,272,500 63,756,187 5,579,375 90,906,494 85,926,719 MORE THAN 5 YEARS $ $ - - - - - - - - - - TOTAL $ 26,449,716 12,063,585 75,502,500 59,982,739 173,998,540 $ 26,794,208 430,943 80,272,500 69,335,562 176,833,213 At the year-end it was not probable that the counterparty to the financial guarantee contract will claim under the contract. Consequently, the amount included above is nil. (i) Refer to note 26 for further information on the future availability of the Westpac Securitisation facility. 66. cash converters international 1 8 . F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D ) 18.7.2 Financial assets The following table details the consolidated entity’s expected maturity for its financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the company/consolidated entity anticipates that the cash flow will occur in a different period. WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % 0.00 1.51 1 YEAR OR LESS $ 17,569,267 48,381,137 1 TO 5 YEARS $ - - 2015 Non-interest bearing Variable interest rate instruments Fixed interest rate instruments 120.05 186,991,512 18,800,000 2014 Non-interest bearing Variable interest rate instruments % 0.00 1.83 252,941,916 18,800,000 $ $ 16,815,639 27,334,307 - - Fixed interest rate instruments 126.42 232,133,793 20,107,211 276,283,739 20,107,211 MORE THAN 5 YEARS $ $ - - - - - - - - TOTAL $ 17,569,267 48,381,137 205,791,512 271,741,916 $ 16,815,639 27,334,307 252,241,004 296,390,950 The amounts included above for variable interest rate instruments for both assets and liabilities is subject to change if actual rates differ to from those applied in the above a calculations. 1 8 . 8 . FA I R VA L U E O F F I N A N C I A L I N S T R U M E N T S The fair value of the Group’s financial assets and liabilities are determined on the following basis. 1 8 . 8 . 1 . F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S T H AT A R E M E A S U R E D AT FA I R VA L U E O N A R E C U R R I N G B A S I S Subsequent to initial recognition, at fair value financial instruments are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Levels are defined as follows: • • • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets of liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). At 30 June 2015 and 30 June 2014 the Group has no material financial assets and liabilities that are measured on a recurring basis. 1 8 . 8 . 2 . F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S T H AT A R E N O T M E A S U R E D AT FA I R VA L U E O N A R E C U R R I N G B A S I S ( B U T W H E R E FA I R VA L U E D I S C L O S U R E S A R E R E Q U I R E D ) At 30 June 2015 and 30 June 2014, the carrying amount of financial assets and financial liabilities for the Group is considered to approximate their fair values. The fair value of the monetary financial assets and financial liabilities is based upon market prices where a market price exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. 67. annual report 2015 1 9 . L E A S E S 1 9 . 1 . F I N A N C E L E A S E S Finance leases relate to computer equipment and motor vehicles with lease terms of up to 5 years. The consolidated entity has options to purchase the equipment for a nominal amount at the conclusion of the lease agreements. Finance lease and hire purchase expenditure contracted for at balance sheet date, payable: Within one year Later than one, not later than five years Less future finance charges Included in the financial statement as: Current borrowings (note 12) Non-current borrowings (note 12) 1 9 . 2 . O P E R AT I N G L E A S E S MINIMUM FUTURE PRESENT VALUE OF MINIMUM LEASE PAYMENTS FUTURE LEASE PAYMENTS 2015 $ 2014 $ 2015 $ 2014 $ 115,410 118,383 233,793 (20,895) 212,898 356,099 74,844 430,943 (28,564) 402,379 104,035 108,864 212,899 - 328,923 73,456 402,379 - 212,899 402,379 104,035 108,864 212,899 328,923 73,456 402,379 Operating leases relate to office accommodation and retail premises with lease terms of between 5 to 10 years, with an option to extend for a further 5 years. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased assets at the expiry of the lease period. Non-cancellable operating lease commitments payable: Within one year Later than one, not later than five years Later than five years 2015 $ 2014 $ 13,137,443 10,767,858 35,484,635 30,148,417 11,599,805 9,212,642 60,221,883 50,128,917 Operating lease commitments relate to head office premises in Australia, the regional offices in the UK and around Australia and the corporate stores in the UK and Australia. Cash Converters hold an option to renew on the Australian premises. 1 9 . 3 . C O M M I T M E N T F O R C A P I TA L E X P E N D I T U R E At 30 June 2015 capital expenditure commitments were $1,800,000 (2014: $1,650,000). 68. cash converters international 2 0 . K E Y M A N A G E M E N T P E R S O N N E L R E M U N E R AT I O N Details of directors and other members of key management personnel of Cash Converters International Limited during the year are: • • • • • • • • • • • • • • • S. Grimshaw (Chairman, non-executive director) – appointed 1 November 2014, appointed Chairman 10 September 2015 R. Webb (Non-executive director) – Chairman up to 9 September 2015 W. Love (Non-executive director) – resigned 21 August 2014 J. Beal (Non-executive director) – resigned 21 August 2014 L. Given (non-executive director) – appointed 22 August 2014 D. Carter (non-executive director) – appointed 1 December 2014; deceased 26 January 2015. K. Dundo (non-executive director) – appointed 20 February 2015. P. Cumins (Managing director, executive) M. Cooke (Legal counsel) I. Day (General manager – Australia) – retired 31 August 2015 R. Groom (Company secretary / Chief financial officer) G. Fee (Chief Information officer) M. Osborne (Company secretary / Chief financial officer – UK) – resigned 31 July 2014 D. Patrick (Chief executive officer - UK) – resigned 31 March 2015 M. Jenkins (General manager – UK) – appointed 30 April 2015 The aggregate compensation of the key management personnel of the consolidated entity is set out below: Short-term employee benefits Long-term employee benefits Post-employee benefits Share-based payment (i) Total compensation (i) Please refer to note 21 and the remuneration report for further information. 2 1 . S H A R E - B A S E D PAY M E N T S 2015 $ 2014 $ 4,235,013 3,548,303 - 147,801 1,021,050 5,403,864 - 156,247 672,645 4,377,195 2 1 . 1 . T H E E X E C U T I V E P E R F O R M A N C E R I G H T S P L A N The executive performance rights plan, which was approved by shareholders on 30 November 2010, allows the directors of the Company to issue up to 20,000,000 performance rights which will vest into ordinary shares in the Company upon the achievement of certain vesting conditions. As at 30 June 2015, the shareholders had approved the issue of 15,920,500 performance rights under the plan to the managing director and the Company’s senior management team in various tranches with each tranche containing different vesting conditions. Each right entitles the holder to subscribe for one fully paid ordinary share in the Company at the exercise price of $Nil. During the reporting period, a total of 622,500 performance rights were granted in Tranches 10, 11 and 12 to senior executives of the Company. 69. annual report 2015 2 1 . S H A R E - B A S E D PAY M E N T S ( C O N T I N U E D ) The following arrangement were in existence during the current and prior reporting periods:- PERFORMANCE RIGHTS GRANT DATE FAIR EXPIRY DATE OF OPTIONS/ PERFORMANCE TRANCHE GRANT DATE VALUE NO. GRANTED EXERCISE PRICE RIGHTS Managing Director 1 2 Other Executives 1 2 3 4 5 6 7 8 9 10 11 12 30/11/2010 30/11/2010 19/09/2011 19/09/2011 19/09/2011 25/09/2012 25/09/2012 25/09/2012 25/09/2013 25/09/2013 25/09/2013 25/09/2014 25/09/2014 25/09/2014 $0.57 $0.43 $0.42 $0.39 $0.31 $0.75 $0.71 $0.68 $1.21 $1.15 $1.09 $1.06 $1.01 $0.96 4,000,000 6,000,000 1,600,000 400,000 1,800,000 283,668 283,667 283,665 215,668 215,668 215,664 207,501 207,501 207,498 nil nil nil nil nil nil nil nil nil nil nil nil nil nil 14/10/2012 14/10/2016 22/08/2012 4/10/2013 15/09/2016 4/10/2013 1/07/2014 1/07/2015 1/07/2014 1/07/2015 1/07/2016 1/07/2015 1/07/2016 1/07/2017 2 1 . 2 . FA I R VA L U E O F S H A R E O P T I O N S G R A N T E D I N T H E Y E A R The weighted average fair value of the share options granted during the financial year is $1.01 (2014: $1.15). Options were priced using a binomial option pricing model. Where relevant, the expected life used in the model is based on the earliest vesting date possible for each tranche, based on the vesting conditions. Grant Date share price Exercise Price Expected volatility Option life Dividend Yield Risk-free interest rate TRANCHE 10 TRANCHE 11 TRANCHE 12 $1.10 nil 40% $1.10 nil 40% $1.10 nil 40% 0.8 Years 1.8 Years 2.8 Years 5% 2.56% 5% 2.56% 5% 2.86% 2 1 . 3 . M O V E M E N T I N S H A R E O P T I O N S D U R I N G T H E Y E A R The following table illustrates the number of, and movements in, performance rights during the year. The performance rights were issued free of charge, weighted average exercise price is nil. No shares were exercisable at the end of the current year. Outstanding 1 July Granted during the year Forfeited/Lapsed during the year Exercised during the year Expired during the year Outstanding at end of the year 70. 2015 NUMBER 8,807,665 622,500 (56,666) (376,002) - 2014 NUMBER 9,051,000 647,000 (206,667) (683,668) - 8,997,497 8,807,665 cash converters international 2 1 . S H A R E - B A S E D PAY M E N T S ( C O N T I N U E D ) 2 1 . 3 . 1 . S H A R E O P T I O N S E X E R C I S E D D U R I N G T H E Y E A R Year ended 30 June 2015 PERFORMANCE RIGHTS TRANCHE Other Executives GRANT DATE NO. EXERCISED EXERCISE DATE SHARE PRICE AT EXERCISE DATE 5 7 25/09/2012 25/09/2013 177,001 199,001 376,002 10/09/2014 10/09/2014 $1.12 $1.12 Year ended 30 June 2014 PERFORMANCE RIGHTS TRANCHE Other Executives GRANT DATE NO. EXERCISED EXERCISE DATE SHARE PRICE AT EXERCISE DATE 2 4 19/09/2011 25/09/2012 400,000 283,668 683,668 4/10/2013 4/10/2013 $1.26 $1.26 2 1 . 3 . 2 . E X P E N S E R E C O G N I S E D The cumulative expense recognised for employee services received by the Company is shown in the table below. Balance as at 1 July Expense arising from equity-settled share-based payment transactions Total expenses arising from share-based payment transactions 2 1 . 3 . 3 S H A R E O P T I O N S L A P S E D D U R I N G T H E Y E A R Year ended 30 June 2015 30 JUNE 2015 30 JUNE 2014 $ $ 5,411,340 1,302,876 6,714,216 4,662,535 748,805 5,411,340 PERFORMANCE RIGHTS TRANCHE GRANT DATE NO. LAPSED Other executives 6 25/09/2012 56,666 56,666 Year ended 30 June 2014 PERFORMANCE RIGHTS TRANCHE GRANT DATE NO. LAPSED Other executives 5 6 7 8 9 25/09/2012 25/09/2012 24/09/2013 24/09/2013 24/09/2013 106,667 50,000 16,667 16,667 16,666 206,667 71. annual report 2015 2 1 . S H A R E - B A S E D PAY M E N T S ( C O N T I N U E D ) 2 1 . 3 . 4 . S H A R E O P T I O N S O U T S TA N D I N G AT Y E A R E N D The total number of options outstanding at the year-end were 8,997,497 (2014: 8,807,665) PERFORMANCE RIGHTS TRANCHE GRANT DATE NO. OUTSTANDING EXPIRY DATE OF OPTIONS/ PERFORMANCE RIGHTS Managing director 2 Other executives 3 6 8 9 10 11 12 30/11/2010 6,000,000 14/10/2016 19/09/2011 25/09/2012 25/09/2013 25/09/2013 25/09/2014 25/09/2014 25/09/2014 1,800,000 15/09/2016 176,998 199,001 198,998 207,501 207,501 207,498 8,997,497 1/07/2015 1/07/2015 1/07/2016 1/07/2015 1/07/2016 1/07/2017 The weighted average remaining contractual life for the performance rights outstanding as at 30 June 2015 is 1.2 years. (2014: 2.1 years) 2 2 . R E L AT E D PA R T Y T R A N S A C T I O N S The immediate parent and ultimate controlling party of the Group is Cash Converters International Limited. Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. EZCORP Inc.(EZCORP) is a related party of the Company because the Company is an associate due to the substantial holding of the Company’s listed shares by EZCORP. The balances and transactions between the Company and EZCORP relate to the South American and Mexico joint venture as per note 31. Other than share based payments (as disclosed in note 21) and shareholdings of key management personnel (as disclosed in the remuneration report); the parent; its subsidiaries, associates and key management personnel made no related party transactions during the reporting period. 72. cash converters international 2 3 . S U B S I D I A R I E S 2 3 . 1 . C O M P O S I T I O N O F T H E G R O U P The financial statements include the financial statements of the Group and the subsidiaries listed in the following table: NAME OF ENTITY Parent entity Cash Converters International Limited (i) Directly controlled by Cash Converters International Limited Cash Converters Pty Ltd (ii) (iii) Cash Converters UK Holdings PLC Cash Converters USA Limited (note 24) Mon-e Pty Ltd (ii) (iii) Cash Converters Personal Finance Pty Ltd (ii) (iii) Safrock Finance Corporation (QLD) Pty Ltd (ii) (iii) Safrock Finance Corporation (WA) Pty Ltd (ii) (iii) Finance Administrators of Australia Pty Ltd (ii) (iii) Cash Converters (Stores) Pty Ltd (ii) (iii) Cash Converters (Cash Advance) Pty Ltd (ii) (iii) Green Light Auto Group Pty Ltd (iii) (iv) Cash Converters (NZ) Pty Ltd Directly Controlled by Cash Converters Personal Finance Pty Ltd CCPF Warehouse Trust No.1 Directly controlled by Cash Converters (Stores) Pty Ltd BAK Property Pty Ltd Directly controlled by Cash Converters Pty Ltd COUNTRY OF OWNERSHIP INCORPORATION INTEREST 2015 2014 Australia Australia UK Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 99.285% 99.285% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% n/a 100% 100% Cash Converters Finance Corporation Limited Australia 64.33% 57.31% Directly controlled by Green Light Auto Group Pty Ltd GLA Receivables Trust No. 1 Directly controlled by Cash Converters USA Limited Cash Converters USA Inc. Australia USA 100% 100% 100% 100% i. ii. iii. Cash Converters International Limited is the head entity within the tax consolidated group. These companies are members of the tax consolidated group. These wholly owned subsidiaries have entered into a deed of cross guarantee with Cash Converters International Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. iv. Joined the tax consolidation group on in November 2014 73. annual report 2015 2 3 . S U B S I D I A R I E S ( C O N T I N U E D ) 2 3 . 2 . F I N A N C I A L S U P P O R T The company Cash Converters International Limited has entered into a ‘Deed of Cross Guarantee’ under which each company guarantees the debts of the others. By entering into the Deed of Cross Guarantee, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The consolidated statement of profit or loss and other comprehensive income and statement of financial position of the entities party to the cross guarantee are: 2 3 . 2 . 1 . S TAT E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E Franchise fees Financial services interest revenue Sale of goods Other revenues Revenue Cost of sales Gross profit Administrative expenses Advertising expenses Occupancy expenses Other expenses Finance costs Share of net loss of equity accounted investment Profit before income tax Income tax expense (Loss) / Profit for the year Other comprehensive income for the year Total comprehensive income for the year 2015 $ 2014 $ 5,421,950 5,824,052 205,646,625 162,159,254 62,604,893 6,605,371 55,768,890 2,365,881 280,278,839 226,118,077 (80,634,619) (59,474,691) 199,644,220 166,643,386 (74,673,947) (60,811,592) (6,889,192) (5,897,403) (13,115,650) (11,260,972) (94,375,789) (35,233,439) (9,056,134) (7,459,224) 73,683 1,607,191 (5,046,765) (3,439,574) (41,465) 45,939,291 (14,518,745) 31,420,546 - - (3,439,574) 31,420,546 74. cash converters international 2 3 . S U B S I D I A R I E S ( C O N T I N U E D ) 2 3 . 2 . 2 . S TAT E M E N T O F F I N A N C I A L P O S I T I O N Current assets Cash and cash equivalents Trade receivables Personal loans receivable Inventories Other assets Current tax receivable Total current assets Non-current assets Trade and other receivables Plant and equipment Deferred tax assets Goodwill Other intangible assets Investments in associates Other financial assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax payables Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings * Parent entity interest 2015 $ 45,100,663 30,231,344 101,512,744 16,188,446 8,947,418 3,600,310 2014 $ 22,072,012 20,401,278 98,729,828 11,458,200 7,229,068 - 205,580,925 159,890,386 43,744,558 19,219,346 9,491,106 64,829,895 14,084,468 7,640,923 107,554,692 100,968,171 18,614,906 6,287,609 30,250,137 16,348,495 6,213,926 34,250,137 235,162,354 244,336,015 440,743,279 404,226,401 39,420,596 60,691,522 - 5,672,716 15,369,848 54,140,459 7,810,080 4,594,068 105,784,834 81,914,455 66,436,795 240,082 66,676,877 64,007,130 148,539 64,155,669 172,461,711 146,070,124 268,281,568 258,156,277 205,399,340 156,679,067 (12,859,773) 75,742,001 2,013,492 99,463,718 268,281,568 258,156,277 75. annual report 2015 2 3 . S U B S I D I A R I E S ( C O N T I N U E D ) * Retained earnings Retained earnings as at the beginning of the financial year Net (Loss) / profit Issue of shares (DRP) Dividends provided for or paid Retained earnings as at the end of the financial year 2 4 . N O N - C O N T R O L L I N G I N T E R E S T S 2 4 . 1 . N O N - C O N T R O L L I N G I N T E R E S T S I N C O N T R O L L E D E N T I T I E S Balance at beginning of year Non-controlling interest arising from contractual arrangement (Green Light Auto Group Pty Ltd) Acquisition of non-controlling interests (Green Light Auto Group Pty Ltd) Share of loss for the year 2015 $ 99,463,718 (5,558,939) (4,515,708) 2014 $ 85,045,541 31,420,546 (4,602,017) (13,647,070) (12,400,352) 75,742,001 99,463,718 2015 $ 2014 $ (3,494,699) 1,049 - (12,097,952) 3,697,120 11,662,250 (201,372) 1,049 (3,060,046) (3,494,699) 2 4 . 1 . 1 . C A S H C O N V E R T E R S U S A LT D Non-controlling interests hold 83,936 - one cent ordinary units in Cash Converters USA Limited, being 0.715% of the total equity of the company. 2 4 . 1 . 2 . G R E E N L I G H T A U T O G R O U P P T Y LT D As at 30 June 2014, a non-controlling interest of 20 per cent of the total equity of in Green Light Auto Group Pty Ltd existed (800,000 – one dollar ordinary shares). This interest was acquired by the consolidated entity during the current year for consideration of $450,000 in cash. 2 5 . C O N T I N G E N T L I A B I L I T I E S In the course of its normal business the consolidated entity occasionally receives claims and writs for damages and other matters arising from its operations. Where in the opinion of the directors it is deemed appropriate a specific provision is made, otherwise the directors deem such matters are either without merit or of such kind or involved such amounts that would not have a material adverse effect on the operating results or financial position of the economic entity if disposed of unfavourably. The directors are not aware of any material contingent liabilities in existence as at 30 June 2015 requiring disclosure in the financial statements. For events subsequent to 30 June 2015 giving rise to contingent liabilities, refer to note 26. 76. cash converters international 2 6 . E V E N T S A F T E R T H E R E P O R T I N G P E R I O D 2 6 . 1 . Q U E E N S L A N D C L A S S A C T I O N On 31 July 2015 the Company was served with a writ lodged with the New South Wales Registry of the Federal Court of Australia by a Mr Sean Lynch seeking to commence a class action claim on behalf of borrowers resident in Queensland who took out personal loans from the Company’s subsidiaries during the period from 30 July 2009 to 30 June 2013. Since 1 July 2013, the personal loan lending system has been undertaken in accordance with the regulatory regime introduced by the Federal Government, in conjunction with the States. The current proceedings attack the “brokerage fee” charged to customers between 30 July 2009 and 30 June 2013. The brokerage fee system has not been used since 30 June 2013. The proceedings relate to loans made only in Queensland to Queensland residents by Company subsidiaries based in Queensland, notwithstanding that the action has been commenced in New South Wales. The particular aspect being attacked in these proceedings is the charging of a brokerage fee to customers, mainly by franchisees, for the service of introducing customers to the Company’s subsidiaries, which provided the loans. The action will be vigorously defended. 2 6 . 2 . B A N K I N G FA C I L I T I E S On 5 August 2015 Westpac Banking Corporation informed the Company that Westpac has taken the decision to cease to provide banking and financial products and services to its customers who provide Short Term Credit Contracts (STCCs) or Small Amount Credit Contracts (SACCs) under section 5(1) of the National Consumer Credit Protection Act 2009 (cth). Cash Converters is a licenced provider of financial services under the terms of this Act. Westpac assured the Company that they will implement this decision in accordance with the Company contractual agreements with Westpac, and in a considered and consultative way so as to allow the Company to establish alternative banking arrangements. The Company currently has a securitisation facility with Westpac drawn to $57,923,291 which is contracted to March 2016 with an approximate six month run-off period. Westpac also provides transactional banking services to the Company and have agreed to provide these services until the expiry date of the securitisation facility (March 2017). The Company is confident that all Westpac facilities and services will be replaced in the ordinary course of business, including the securitisation facility for the personal loans. 2 7 . E A R N I N G S P E R S H A R E 2015 2014 Earnings used in the calculation of basic earnings per share (net profit) $(21,483,718) $24,192,335 Weighted average ordinary shares outstanding—basic 458,052,281 426,320,267 Dilutive effect of Performance rights (note 21) - 8,543,325 Weighted average ordinary shares outstanding—diluted 458,052,281 434,863,592 Basic (loss) / earnings per common share Diluted (loss) / earnings per common share $(4.69) $(4.69) $5.67 $5.56 The number of potential ordinary shares not included in the above calculation is 9,406,538 (2014: Nil). 77. annual report 2015 2 8 . D I V I D E N D S On the 31 March 2015 the directors of the Company declared an interim fully franked dividend of 2.0 (two) cents per share, in respect of the financial year ended 30 June 2015. The Company Dividend Reinvestment Plan (DRP) applied to this dividend, providing shareholders with the option to reinvest all or part of their eligible dividends at a discount of 2.5% of the price established by the 5 day VWAP up to and including the record date. The total interim dividend paid was $9,577,531. The Company has Australian franking credits available of $57,433,108 on a tax paid basis (2014: $48,293,422). Notwithstanding that the Company has a strong underlying profit and the cash resources to pay a dividend consistent with its past dividend policy, the Company is unable to do so due to the application of the covenants under its banking facility. The Company is in the process of replacing the current bank securitisation facility – and although an alternative provider has yet to be confirmed, the Company is confident of establishing a new facility in the short term (refer note 26.2 for further information). As a consequence, no final dividend has been declared. Recognised amounts Final dividend Prior Year: Franked to 100% at 30% Interim dividend current year: Franked to 100% at 30% Unrecognised amounts 2015 2014 CENTS PER SHARE 2.00 2.00 TOTAL $ 8,585,247 9,577,531 18,162,778 CENTS PER SHARE 2.00 2.00 TOTAL $ 8,477,221 8,525,148 17,002,369 Final dividend: Franked to 100% at 30% - - 2.00 8,577,722 2 9 . S E G M E N TA L I N F O R M AT I O N Information reported to the consolidated entity’s managing director for the purposes of resource assessment and assessment of performance is focused on the nature of the service and category of customer. The consolidated entity’s reportable segments under AASB 8 Operating Segments are therefore as follows: 2 9 . 1 . F R A N C H I S E O P E R AT I O N S This involves the sale of franchises for the retail sale of second had goods and the sale of master licenses for the development of franchises in countries around the world. 2 9 . 2 . S T O R E O P E R AT I O N S This involves the retail sale of second hand goods at corporate owned stores in Australia and the UK. 2 9 . 3 . F I N A N C I A L S E R V I C E S – P E R S O N A L L O A N S This segment includes the Cash Converters Personal Finance personal loans business. 2 9 . 4 . F I N A N C I A L S E R V I C E S – A D M I N I S T R AT I O N This segment includes Mon-E which is responsible for providing the internet platform and administration services for the Cash Converters network in Australia to offer small cash advance loans to their customers. 2 9 . 5 . V E H I C L E L E A S I N G This segment includes Green Light Auto Group Pty Ltd which provides fully maintained vehicles through a lease product to customer for a term of up to four years. Revenue is split between lease interest and additional service income (warranty, insurance and maintenance), also the sale of end of lease vehicle stock. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the consolidated entity’s accounting policies. The following is an analysis of the consolidated entity’s revenue and results by reportable operating segment for the periods under review. 78. cash converters international 2 9 . S E G M E N TA L I N F O R M AT I O N ( C O N T I N U E D ) FINANCIAL FINANCIAL SERVICES - SERVICES - FOR THE YEAR ENDED 30 JUNE 2015 OPERATIONS OPERATIONS TION LOANS LEASING HEAD OFFICE TOTAL FRANCHISE STORE ADMINISTRA- PERSONAL VEHICLE CORPORATE Interest revenue (i) Other revenue Gross revenue 1,602,770 59,600,908 9,061,999 163,927,591 3,348,503 - 237,541,771 17,348,462 130,640,368 5,664,795 - 5,366,709 3,086,836 162,107,170 18,951,232 190,241,276 14,726,794 163,927,591 8,715,212 3,086,836 399,648,941 Less intercompany sales (6,724,478) (11,985,028) (5,664,795) - - (948,317) (25,322,618) Segment revenue External Interest revenue (ii) Total revenue 12,226,754 178,256,248 9,061,999 163,927,591 8,715,212 2,138,519 374,326,323 - 81,405 2,162 396,971 15,973 69,805 566,316 12,226,754 178,337,653 9,064,161 164,324,562 8,731,185 2,208,324 374,892,639 EBITDA (iii) 5,965,054 15,006,643* 8,262,594* 23,996,632* (2,687,167) (41,422,107)# 9,121,649 Depreciation and amortisation (247,279) (6,142,698) (2,894) (861,287) (151,492) (1,632,408) (9,038,058) Impairment EBIT Interest expense Profit/(Loss) before tax Income tax expense Operating loss after tax Loss attributable to non-controlling interest Loss attributable to members of CCIL - (7,587,315) - - - - (7,587,315) 5,717,775 1,276,630 8,259,700 23,135,345 (2,838,659) (43,054,515) (7,503,724) - (11,029) - (3,214,558) (843,634) (5,002,853) (9,072,074) 5,717,775 1,265,601 8,259,700 19,920,787 (3,682,293) (48,057,368) (16,575,798) (5,109,292) (21,685,090) 201,372 (21,483,718) * Includes the contract termination expense of $824,670 in Store Operations, $4,256,000 in Financial Services – Administration and $24,547,600 in Financial Services – Personal Loans. # Includes the class action settlement expense of $23,000,000. FINANCIAL FINANCIAL SERVICES - SERVICES - FOR THE YEAR ENDED 30 JUNE 2014 OPERATIONS OPERATIONS TION LOANS LEASING HEAD OFFICE TOTAL FRANCHISE STORE ADMINISTRA- PERSONAL VEHICLE CORPORATE Interest revenue (i) Other revenue Gross revenue 853,851 50,715,277 9,975,616 137,692,194 3,695,847 - 202,932,785 17,598,736 121,208,375 4,340,267 481 5,013,278 3,995,921 152,157,058 18,452,587 171,923,652 14,315,883 137,692,675 8,709,125 3,995,921 355,089,843 Less intercompany sales (6,189,157) (11,096,393) (4,340,267) - - (2,392,569) (24,018,386) Segment revenue External Interest revenue (ii) Total revenue 12,263,430 160,827,259 9,975,616 137,692,675 8,709,125 1,603,352 331,071,457 - 49,136 4,142 312,817 31,116 200,239 597,450 12,263,430 160,876,395 9,979,758 138,005,492 8,740,241 1,803,591 331,668,907 EBITDA (iii) 6,633,516 15,615,352 10,410,310 39,835,270 (4,038,694) (19,914,394) 48,541,360 Depreciation and amortisation (260,518) (5,234,532) (4,242) (828,594) (179,179) (1,416,646) (7,923,711) EBIT Interest expense Profit/(Loss) before tax Income tax expense Operating profit after tax Loss attributable to non-controlling interest Profit attributable to members of CCIL 6,372,998 10,380,820 10,406,068 39,006,676 (4,217,873) (21,331,040) 40,617,649 - (27,638) - (2,971,665) (1,076,393) (4,501,488) (8,577,184) 6,372,998 10,353,182 10,406,068 36,035,011 (5,294,266) (25,832,528) 32,040,465 (10,908,176) 21,132,289 3,060,046 24,192,335 (i) Interest Revenue comprises of personal loan interest, cash advance fee income, pawn broking interest from customers and commercial loan interest from 3rd parties (ii) External interest revenue is interest received on bank deposits (iii) EBITDA is Earnings before interest, tax, depreciation, amortisation and impairment 79. annual report 2015 2 9 . S E G M E N TA L I N F O R M AT I O N ( C O N T I N U E D ) Segment profit represents the profit earned by each segment without the allocation of central administration costs and directors’ salaries, interest income and expense in relation to corporate facilities, and tax expense. This is the measure reported to the managing director (chief operating decision maker) for the purpose of resource allocation and assessment of segment performance. 2 9 . 6 . C O N S O L I D AT E D E N T I T Y A S S E T S B Y R E P O R TA B L E S E G M E N T Franchise operations Store operations Financial services – administration Financial services - personal loans Vehicle leasing Total of all segments Unallocated assets Total assets 30 JUNE 2015 30 JUNE 2014 $ $ 16,079,365 14,892,843 116,808,665 163,151,426 18,856,029 18,171,602 232,389,279 159,336,472 14,738,476 398,871,814 15,759,263 371,311,606 42,331,252 38,675,850 441,203,066 409,987,456 Unallocated assets include various corporate assets including cash held at a corporate level that has not been allocated to the underlying segments. 2 9 . 7 . C O N S O L I D AT E D E N T I T Y L I A B I L I T I E S B Y R E P O R TA B L E S E G M E N T Franchise operations Store operations Financial services - administration Financial services – personal loans Vehicle leasing Total of all segments Unallocated liabilities Total liabilities 30 JUNE 2015 30 JUNE 2014 $ $ 2,448,768 17,287,960 5,510,500 105,462,805 9,786,525 2,591,445 12,841,108 4,866,524 93,003,169 6,492,422 140,496,558 119,794,668 39,007,880 45,486,467 179,504,438 165,281,135 Unallocated liabilities include consolidated entity borrowings not specifically allocated to the underlying segments. 80. cash converters international 2 9 . S E G M E N TA L I N F O R M AT I O N ( C O N T I N U E D ) 2 9 . 8 . O T H E R S E G M E N T I N F O R M AT I O N Franchise operations Store operations (i) Financial services - administration Financial services - personal loans Vehicle leasing Total of all segments Unallocated Total DEPRECIATION, AMORTISATION ADDITIONS TO NON-CURRENT AND IMPAIRMENT YEAR ENDED ASSETS YEAR ENDED 30 JUNE 2015 30 JUNE 2014 30 JUNE 2015 30 JUNE 2014 $ 1,761,508 13,612,233 238,853 861,287 151,492 16,625,373 - 16,625,373 $ 1,570,934 5,119,065 225,939 828,594 179,179 7,923,711 - 7,923,711 $ 6,198,528 12,563,973 746,130 314,056 184,454 20,007,141 - 20,007,141 $ 3,956,297 10,536,384 - 2,557,323 995,092 18,045,096 - 18,045,096 (i) Depreciation, amortisation and impairment includes impairment of $7,587,315 (2014: nil) 2 9 . 9 . G E O G R A P H I C A L I N F O R M AT I O N The consolidated entity operates in two principal geographical areas – Australia (country of domicile) and the United Kingdom. The consolidated entity’s revenue from continuing operations from external customers and information about its non-current assets by geographical location are detailed below. Australia United Kingdom Rest of world REVENUE FROM EXTERNAL CUSTOMERS YEAR ENDED NON-CURRENT ASSETS* YEAR ENDED 30 JUNE 2015 30 JUNE 2014 30 JUNE 2015 30 JUNE 2014 $ $ $ $ 278,875,390 230,984,335 145,653,727 132,307,425 95,557,092 100,147,536 15,819,065 22,905,261 460,157 537,036 - - 374,892,639 331,668,907 161,472,792 155,212,686 *Non-current assets excluding those relating to deferred tax assets, trade and other receivables and other financial assets. Includes property, plant and equipment; goodwill and other intangible assets. 81. annual report 2015 3 0 . PA R E N T E N T I T Y D I S C L O S U R E S The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 1 for a summary of the significant accounting policies relating to the Group 3 0 . 1 F I N A N C I A L P O S I T I O N Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issues capital Reserves Retained earnings Total equity 3 0 . 2 F I N A N C I A L P E R F O R M A N C E Profit for the year Other comprehensive income Total comprehensive income 30 JUNE 2015 30 JUNE 2014 $ 3,452,819 253,423,027 256,875,846 $ 82 225,843,060 225,843,142 - 60,000,000 60,000,000 7,805,090 65,000,000 72,805,090 196,875,846 153,038,052 192,599,681 148,761,887 - - 4,276,165 4,276,165 196,875,846 153,038,052 - - - - - - 3 0 . 3 G U A R A N T E E S E N T E R E D I N T O B Y PA R E N T E N T I T Y I N R E L AT I O N T O T H E D E B T S O F I T S S U B S I D I A R I E S Cross guarantees have been provided by the parent entity and its controlled entities as listed on note 23. The fair value of the cross guarantee has been assessed as $Nil based on the underlying performance of the entities in the cross guarantee. Guarantee provided under the deed of cross guarantee (i) 2,140,975 2,140,975 (i) Cash Converters International Limited has provided a cross guarantee to HSBC for a BACS facility provided to CCUK. 2015 2014 82. cash converters international 3 1 . I N V E S T M E N T I N A S S O C I AT E S During the period, the Company held an investment in the New Zealand Cash Converters Master Franchisor. The Company holds a 25 per cent equity interest in all aspects of the New Zealand enterprise, including corporate stores, franchise contracts and financial services. Also during the year, the Company was involved in a joint venture with EZCORP Inc. to expand Cash Converters into South America and Mexico. The Company holds 20 per cent equity in the joint venture; in consideration for granting a master license to the joint venture for Latin America and providing information technology services, training and management support to the venture. Balances of the investments in associates and joint ventures are shown below 2015 $ 2014 $ Balance at the beginning of the financial year 6,213,926 - Investment in Cash Converters New Zealand EZCorp JV - Mexico & South America Net profit / (loss) for the year - - 73,683 5,491,059 764,332 (41,465) Balance at the end of the financial year 6,287,609 6,213,926 3 2 . O T H E R F I N A N C I A L A S S E T S Cash Converters International Limited invested in ‘Green Light Auto Group Pty Limited’ in the form of a convertible note, carrying a 10 per cent coupon rate, paid six monthly in arrears and was secured. The convertible note was exercised by Cash Converters International Limited on 23 September 2014. Balance at the beginning of the financial year Conversion of note Balance at the end of the financial year 3 3 . B U S I N E S S C O M B I N AT I O N S 2015 $ - - - 2014 $ 4,000,000 (4,000,000) - 33.1 Business combinations during the current year During the period the Company acquired the trade and assets of eight Cash Converters franchised stores, seven in Australia and one in the United Kingdom. C O R P O R AT E S T O R E S These transactions have been accounted for using the acquisition method of accounting. The net assets acquired in the business combinations, and the goodwill arising, are shown below: 83. annual report 2015 3 3 . B U S I N E S S C O M B I N AT I O N S ( C O N T I N U E D ) Net assets acquired: Cash and cash equivalents Trade and other receivables Intangible assets Inventories Trade and other payables Fair value of net identifiable assets acquired Consideration: Consideration satisfied by cash Goodwill arising on acquisition The cash outflow on acquisition is as follows: Net cash acquired with the stores Cash paid Net consolidated cash outflow FAIR VALUE RECOGNISED ON ACQUISITION $ 94,323 2,959,878 806,049 1,250,027 (349,458) 4,760,819 13,553,214 8,792,395 94,323 (13,553,214) (13,458,891) In accordance with AASB3 ‘Business Combinations’ the acquirer is required to fair value all acquired assets and liabilities, including separately identifiable intangible assets. Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire the stores. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of the stores. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. Included in the net profit for the period is $1,147,180 attributable to the additional business generated by the eight stores from the date of acquisition. 3 3 . 2 . F I N A L I S AT I O N O F P R I O R Y E A R B U S I N E S S C O M B I N AT I O N S During the year, the valuations of the stores acquisition business combinations that took place during the previous financial year, were finalised. As a result of these valuations, the following changes were reflected in the current year financial statements:- Goodwill Reacquired Rights intangible asset Customer Relationships intangible asset Trade & Other Receivables 2015 2014 DEBIT / (CREDIT) DEBIT / (CREDIT) $ (2,665,410) 1,438,000 1,340,000 (112,590) - $ 236,764 (106,000) 71,000 (201,764) - Included in the net profit for the year is additional amortisation of $483,156 (2014: $241,516) in relation to the changes made to the separately identifiable intangibles valuation and their useful life. 84. cash converters international 3 4 . C O M PA N Y D E TA I L S Cash Converters International Limited is a listed public company, incorporated in Australia. Registered office & principal place of business: Level 18, 37 St Georges Terrace, PERTH WA 6000, Telephone: +61 8 9221 9111 85. annual report 2015 D I R E C T O R S ’ R E P O R T The directors of Cash Converters International Limited submit the following report for the year ended 30 June 2015. D I R E C T O R S The following persons held office as directors of the Company during the financial year and until the date of this report (directors were in office for this entire period unless otherwise stated): • • • • • • • • S. Grimshaw (Chairman, non-executive director) – appointed 1 November 2014, appointed Chairman on 10 September 2015 R. Webb (Non-executive director), Chairman until 9 September 2015 W. Love (Non-executive director) – resigned 21 August 2014 J. Beal (Non-executive director) – resigned 21 August 2014 L. Given (non-executive director) – appointed 22 August 2014 D. Carter (non-executive director) – appointed 1 December 2014; deceased 26 January 2015 K. Dundo (non-executive director) – appointed 20 February 2015 P. Cumins (Managing director, executive) P R I N C I PA L A C T I V I T I E S The consolidated entity’s principal activity is that of a franchisor of second hand goods and financial services stores, a provider of secured and unsecured loans and the operator of a growing number of corporate stores, all of which trade under the Cash Converters name. Country franchise licences are also sold to licensees to allow the development of the Cash Converters brand but without the need for support from Cash Converters International Limited. O P E R AT I N G R E S U LT S F O R T H E Y E A R The consolidated entity’s net loss attributable to members of the parent entity for the year ended 30 June 2015 was $21,483,718 (2014: profit of $24,192,335) after a charge for income tax of $5,109,292 (2014: $10,908,176). D I V I D E N D S The directors of the Company paid a fully franked interim dividend of two cents per share on 31 March 2015. In addition, a fully franked dividend of two cents per share declared in relation to the prior year was paid on 16 September 2014. Notwithstanding that the Company has a strong underlying profit and the cash resources to pay a dividend consistent with its past dividend policy, the Company is unable to do so due to the application of the covenants under its banking facility. The Company is in the process of replacing the current bank securitisation facility – and although an alternative provider has yet to be confirmed, the Company is confident of establishing a new facility in the short term. As a consequence, no final dividend has been declared. O P E R AT I N G A N D F I N A N C I A L R E V I E W A review of the consolidated entities’ operations and financial performance has been provided for on pages 18 to 24. S I G N I F I C A N T C H A N G E S I N T H E S TAT E O F A F FA I R S During the financial year there were no significant changes in the state of affairs of the consolidated entity other than referred to elsewhere in the report, the financial statements or notes thereto. 86. cash converters international S I G N I F I C A N T E V E N T S A F T E R T H E B A L A N C E D AT E Banking Facilities On 5 August 2015 Westpac Banking Corporation informed the Company that Westpac has taken the decision to cease to provide banking and financial products and services to its customers who provide Short Term Credit Contracts (STCCs) or Small Amount Credit Contracts (SACCs) under section 5(1) of the National Consumer Credit Protection Act 2009 (cth). Cash Converters is a licenced provider of financial services under the terms of this Act. Westpac assured the Company that they will implement this decision in accordance with the Company contractual agreements with Westpac, and in a considered and consultative way so as to allow the Company to establish alternative banking arrangements. The Company currently has a securitisation facility with Westpac drawn to $57.9 million which is contracted to March 2016 with an approximate six month run-off period. Westpac also provides transactional banking services to the Company and have agreed to provide these services until the expiry date of the securitisation facility (March 2017). The Company is confident that all Westpac facilities and services will be replaced in the ordinary course of business, including the securitisation facility for the personal loans. Queensland Class Action On 31 July 2015 the Company was served with a writ lodged with the New South Wales Registry of the Federal Court of Australia by a Mr Sean Lynch seeking to commence a class action claim on behalf of borrowers resident in Queensland who took out personal loans from the Company’s subsidiaries during the period from 30 July 2009 to 30 June 2013. Since 1 July 2013, the personal loan lending system has been undertaken in accordance with the regulatory regime introduced by the Federal Government, in conjunction with the States. The current proceedings attack the “brokerage fee” charged to customers between 30 July 2009 and 30 June 2013. The brokerage fee system has not been used since 30 June 2013. The proceedings relate to loans made only in Queensland to Queensland residents by Company subsidiaries based in Queensland, notwithstanding that the action has been commenced in New South Wales. The particular aspect being attacked in these proceedings is the charging of a brokerage fee to customers, mainly by franchisees, for the service of introducing customers to the Company’s subsidiaries, which provided the loans. The action will be vigorously defended. Other than the matters noted above, no significant events have happened after the balance date. E N V I R O N M E N TA L R E G U L AT I O N A N D P E R F O R M A N C E The Company has assessed whether there are any particular or significant environmental Regulations, which apply to the Company, and has determined that there are none. 87. annual report 2015 I N F O R M AT I O N O N D I R E C T O R S / C O M PA N Y S E C R E TA RY DIRECTOR/COMPANY THE INTERESTS OF THE DIRECTORS IN THE SHARES AND OPTIONS OF CASH CONVERTERS INTERNATIONAL LIMITED SECRETARY QUALIFICATIONS AND EXPERIENCE POSITION HELD AT THE DATE OF THIS REPORT Peter Cumins Reginald Webb Lachlan Given Stuart Grimshaw Kevin Dundo Ralph Groom NUMBER OF NUMBER OF OPTIONS OVER ORDINARY SHARES ORDINARY SHARES* Managing director 10,253,030 6,000,000 Non-executive director 1,012,500 Nil Non-executive director Nil Nil Non-executive chairman Nil Nil Non-executive director Nil Nil Former General Manager of Cash Converters Pty Ltd. A qualified accountant. Joined the board in 1995. Mr Cumins joined the board of EZCorp Inc. as a non-executive director. FCA. Fellow of the Institute of Chartered Accountants and a former partner of PricewaterhouseCoopers. Mr Webb joined the board in 1997. He is also a director of Dorsogna Limited since 1996. Executive chairman of EZCORP Inc. Holds directorships at The Farm Journal Corporation, a 134 year old pre-eminent US agricultural media company; Senetas Corporation Ltd (ASX:SEN); and CANSTAR Pty Ltd. Graduate of the Queensland University of Technology in Banking and Finance. MBA. Chief Executive Officer of EZCORP Inc. Formerly the Managing Director of the Bank of Queensland; he has held a wide variety of senior executive roles within the financial services industry including the Commonwealth Bank of Australia and National Australia Bank over a 30 year career. LLB,AICD,FCPA. Partner at law firm HopgoodGanim; his practice specialises in the commercial and corporate field, with experience in the mining sector, the mining services industry and the financial services industry. FCPA, FCIS, CGMA. Qualified as a Chartered Management Accountant in the UK before joining the group in 1995. Undertook further studies in Australia to qualify as a CPA and Chartered Secretary. Company secretary / Chief financial officer 19,525 383,333 * Please refer note 21 for further information. The particulars of directors’ interests in shares are as at the date of this directors’ report, or date of resignation if applicable. 88. cash converters international D I R E C T O R S ’ M E E T I N G S The number of meetings of directors and meetings of committees of directors held during the year and the number of meetings attended by each director were as follows: BOARD OF DIRECTORS AUDIT AND RISK REMUNERATION/NOMINATION MEETINGS COMMITTEE MEETINGS COMMITTEE MEETINGS NUMBER NUMBER NUMBER NUMBER HELD ATTENDED NUMBER HELD ATTENDED NUMBER HELD ATTENDED 13 13 11 9 6 0 2 2 13 13 11 9 6 0 2 2 2 2 1 1 0 0 1 1 2 2 1 1 0 0 1 1 3 4 3 1 1 0 1 1 3 4 3 1 1 0 1 1 DIRECTORS P. Cumins R. Webb L. Given S. Grimshaw K. Dundo D. Carter W. Love J. Beal Committee membership As at the date of this report, the company had an audit committee, a remuneration committee and a nomination committee of the board of directors. Members acting on the committees of the board during the year were: AUDIT AND RISK# REMUNERATION# NOMINATION K. Dundo (c) – appointed 28 April 2015 K. Dundo (c) – appointed 18 June 2015 R. Webb (c) R. Webb J. Beal* W. Love* Notes: R. Webb J. Beal* W. Love* K. Dundo – appointed 20 February 15 L. Given – appointed 22 August 14 S. Grimshaw – appointed 1 November 14 P. Cumins J. Beal* W. Love* # S. Grimshaw and L. Given are not committee members but are invited to attend as observers * resigned during the year (c) Designates the chairman of committee I N D E M N I F I C AT I O N A N D I N S U R A N C E O F D I R E C T O R S A N D O F F I C E R S During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary, Ralph Groom, and all executive officers of the company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor. 89. annual report 2015 S H A R E O P T I O N S The 2015 financial year saw the vesting of Tranche 5 and 7 of the senior executives (excluding the managing director) of performance rights granted under the executive performance rights plan (approved by shareholders on 30 November 2010). On vesting, each of 376,002 performance rights in the tranches equated to one ordinary share. During the year additional options were granted under the plan to senior executives. A total of 622,500 options were granted in three tranches. This brings the total number of performance rights still outstanding as at 30 June 2015 to 8,997,497 (2014: 8,807,665). Refer to the remuneration report for further details of the performance rights outstanding. S H A R E S U N D E R O P T I O N O R I S S U E D O N E X E R C I S E O F O P T I O N S Details of unissued shares or interests under option as at the date of this report are: NUMBER OF SHARES UNDER OPTION / EXPIRY DATE OF OPTIONS/ ISSUING ENTITY PERFORMANCE RIGHT CLASS OF SHARE EXERCISE PRICE PERFORMANCE RIGHTS Cash Converters International Ltd Cash Converters International Ltd Cash Converters International Ltd Cash Converters International Ltd Cash Converters International Ltd 583,500 406,499 1,800,000 6,000,000 207,498 Ordinary Ordinary Ordinary Ordinary Ordinary Nil Nil Nil Nil Nil 15 September 2015 15 September 2016 15 September 2016 14 October 2016 15 September 2017 The performance rights noted above are in substance share options with an exercise price of $nil, which vest and are immediately exercised into ordinary shares once certain performance / vesting conditions are met. The holders of these performance rights do not have the right, by virtue of the performance right, to participate in any share issue or interest issue of the Company or of any other body corporate. Shares issued as a result of the exercise of share options or performance rights during or since the end of the financial year are: NUMBER OF SHARES UNDER OPTION / ISSUING ENTITY PERFORMANCE RIGHT CLASS OF SHARE EXERCISE PRICE EXERCISE DATE Cash Converters International Ltd Cash Converters International Ltd 177,001 199,001 Ordinary Ordinary Nil Nil 10 September 2014 10 September 2014 90. cash converters international C A S H C O N V E R T E R S I N T E R N AT I O N A L L I M I T E D R E M U N E R AT I O N R E P O R T ( A U D I T E D ) C O N T E N T S 1 2 3 Letter from the Chair of the Remuneration Committee Persons Covered by this Report Context of and Changes to KMP Remuneration 3.1 Context of FY15 Remuneration Policies and Practices 3.2 Remuneration Matters Identified and Changes Made During FY15 4 Overview of Cash Converters International’s Remuneration Governance Framework & Strategy 4.1 Remuneration Committee Charter 4.2 Securities Trading Policy 4.3 Executive Remuneration Consultant Engagement Policy 4.4 Executive Remuneration Policy 4.5 Non-executive Director Remuneration Policy 4.6 Short Term Incentive (STI) Policy 4.7 Long Term Incentive (LTI) Policy 4.8 Variable Executive Remuneration – Short Term Incentive (STI) 4.9 Variable Executive Remuneration – Long Term Incentive (LTI) – Rights Plan (IRP) 4.10 Securities Holding Policy 4.11 Clawback Policy 5 Performance and Reward Outcomes for FY15 5.1 Company Performance 5.2 Links Between Performance and Reward 5.3 Incentive Outcomes for FY15 5.4 Links Between Company Strategy and Remuneration 6 Remuneration Records for FY15 – Statutory Disclosures 6.1 Remuneration of Directors and Senior Management 6.2 Share-Based Payment Plan 7 Employment Terms for Key Management Personnel 7.1 Service Agreements Changes in KMP Held Equity Other Remuneration Related Matters 8 9 10 External Remuneration Consultant Advice 92 93 94 94 94 95 96 96 96 96 97 98 98 98 99 101 101 101 101 101 102 103 104 104 106 109 109 110 111 112 91. annual report 2015 1 . L E T T E R F R O M T H E C H A I R O F T H E R E M U N E R AT I O N C O M M I T T E E Dear Shareholder, The Remuneration Committee of Cash Converters International Limited has responded to shareholder feedback received following the release of the FY14 Annual Report and at the subsequent AGM (at which a strike was received), by appointing an independent external remuneration consultant to help navigate the internal and external aspects relevant to the Committee’s considerations. The consultants provided advice and recommendations and the Board has considered such and determined changes to remuneration governance and practice where appropriate. The main issues and responses identified are outlined in the following report. It was clear that a significant aspect of shareholders’ concerns was to do with the design of incentives, particularly the linkage of shareholder value creation to the long term incentive (LTI) program. As part of the response to the feedback to the FY14 Remuneration Report, the Remuneration Committee undertook a review of the entire KMP remuneration governance framework, including incentives, disclosure, policies and procedures and benchmarking. These are addressed in further detail below. There have been significant improvements made to the Company’s remuneration governance framework, including the introduction of a number of clearly defined and documented policies and procedures. A new LTI plan has been designed with best-practice in mind and will create a strong link between long term value creation for shareholders and executive reward. However, shareholders are asked to be aware that previous grants of LTI’s, as already approved by shareholders in 2010, cannot be reversed and will have to run their course. Therefore the Board asks shareholders to vote on the Remuneration Report in the context of the practices that will prevail going forward, rather than those that prevailed during the reporting period, or which applied prior to the reporting period and which will continue to be reported on until they expire. The Board recognises that FY15 has been a challenging one for the Company and for shareholders and asks that shareholders cast their vote on the Remuneration Report as a reflection of the new remuneration structures that reflect our response to the feedback and concerns of shareholders. Yours faithfully, Kevin Dundo, Chair of the Remuneration Committee 92. cash converters international 2 . P E R S O N S C O V E R E D B Y T H I S R E P O R T This report covers remuneration arrangements and outcomes for the key management personnel (KMP) of Cash Converters International Limited (Company) being those with the authority to direct, influence and control the activities of the Company. On that basis, the following roles/individuals are addressed in this report: Non-executive Directors • Mr Stuart Grimshaw, non-executive director since 1 November 2014, • • Board Chairman since 1 September 2015, Nomination Committee member, • Mr Reginald Webb, Independent non-executive director since October 1997, • • • • Board Chairman until 31 August 2015, Audit and Risk Committee member, Remuneration Committee member, Nomination Committee member, • Mr Lachlan Given, non-executive director since 22 August 2014, • Nomination Committee member, • Mr Kevin Dundo, Independent non-executive director since 20 February 2015. • • • Chairman Audit and Risk Committee since 28 April 2015, Chairman Remuneration Committee since 18 June 2015, Nomination Committee member, During the period the following persons ceased to be non-executive directors of Cash Converters International Limited: • Mr William Love, non-executive director resigned August 2014, • Mr Joseph Beal, non-executive director resigned August 2014, • Mr David Carter, Independent non-executive director, appointed 1 December 2014, deceased 26 January 2015. Senior Executives • Mr Peter Cumins, Managing Director since April 1995, • Mr Ralph Groom, Chief Financial Officer/Company Secretary, • Mr Ian Day, General Manager, Australia, retired 31 August 2015, • Mr Glen Fee, Chief Information Officer, • Mr Martyn Jenkins, General Manager UK, appointed 13 April 2015, • Mr Michael Cooke, Group Legal Counsel, During the period the following persons ceased to be executive KMP of Cash Converters International Limited: • Mr Mike Osborne, Chief Financial Officer/Company Secretary, UK - resigned July 2014, • Mr David Patrick, Chief Executive Officer, UK - resigned March 2015. 93. annual report 2015 3 . C O N T E X T O F A N D C H A N G E S T O K M P R E M U N E R AT I O N 3 . 1 C O N T E X T O F F Y 1 5 R E M U N E R AT I O N P O L I C I E S A N D P R A C T I C E S The KMP remuneration structures that appear in this report are largely those that prevailed over FY15, as is required by law. These structures were implemented as part of a decision making process undertaken during prior years, such that these decisions and changes took effect from 1 July 2014 and prevailed over the FY15 reporting period. The circumstances that determined appropriate remuneration arrangements being reported on were therefore those that prevailed approximately 18 months prior to this document. In respect to the Managing Director, shareholders approved the establishment of an executive performance rights plan (“EPRP”) at a general meeting held on 30 November 2010 and at the same time, the shareholders passed a resolution authorising and directing the Board to issue to the Managing Director, Mr Peter Cumins, 10,000,000 performance rights in two tranches over a 6 year period. The final tranche of 6,000,000 performing rights, subject to meeting the vesting conditions attaching to those rights as set out in the EPRP, will vest on 30 June 2016. Following receipt of feedback from shareholders, the Board has undertaken a review of the remuneration policies and practices. Changes are commented on in this report to assist in outlining the Company’s shift towards market based best practices, despite the fact that the new practices may not apply until the FY16 period. The following provides important context for the decisions that were made during FY14 to determine remuneration for FY15, as well as relevant context that emerged during FY15: • • • Market capitalisation is one of the factors that influences the appropriateness of remuneration; it is an indication of the size and status of the Company and the field in which the Company is competing for talent, as well as being a primary consideration of many shareholders when they assess the appropriateness of remuneration practices. While the market capitalisation of the Company at the time of the benchmarking was higher than it is as at the writing of this report, it is not so significantly different that the remuneration outcomes determined as part of the benchmarking processes are no longer appropriate. This is partly because the ASX market overall is lower than it was when remuneration decisions were made for FY15, towards the end of FY14, The Board sought and received feedback from shareholders and independent consultants views on their KMP remuneration governance and practices, noted both in the letter from the Chair of the Remuneration Committee above, and in more detail below, While the share price has experienced volatility over the FY15 period, the Company has achieved some significant strategic and development objectives; • Revenue growth of 13.0% to $374.9 million, • Normalised Australian divisional EBITDA of $71.3 million - up 26.4%, • Normalised Australian personal loan division EBITDA of $54.3 million - up 40.3%, • Online personal loan growth in Australia was up 53.2% to $74.6 million of loans written, • Online cash advance loan growth in Australia was up 57.7% to $11.2 million of loans written; • The Australian cash advance product produced an EBITDA result of $11.5 million - up 19.8%, • The Australian corporate store network EBITDA was $18.8 million - up 14.6%. 3 . 2 R E M U N E R AT I O N M AT T E R S I D E N T I F I E D A N D C H A N G E S M A D E D U R I N G F Y 1 5 The company received feedback from a number of sources following the FY14 Annual Report publication and 2014 AGM, at which a strike was received. The key matters identified were as follows: • Disclosure of incentive design and targets was unclear. • The Company has sought to significantly improve its disclosure of incentive design features, as may be observed below, • Improvements to link Company performance and incentive payments. • The Company has reviewed the design of short and long term incentives and introduced new plans (addressed in detail in the relevant sections of this report), 94. cash converters international • The STI plan has been replaced for FY16 and Company EBITDA will be the primary focus (highest weighted KPI), and will therefore link more strongly with external assessments of Company performance (refer to point 4.8 below), • • A gate has been added to the STI plan such that no STI will be payable when Company performance has been unacceptable (less than 90% of budgeted EBITDA), Binary measures (either achieved or not achieved) have been replaced with performance scales where possible and appropriate, • Future grants of LTI will have three year measurement periods and will vest based on the assessment of performance relative to a scale of outcomes (rather than being binary, as in the past)(refer to point 4.9 below), using • • An external measure of Company performance, and An internal measure of Company performance that is expected to link strongly with long term value creation for shareholders, • The Board determined that it was an appropriate time to benchmark the Company’s KMP remuneration practices against the market to determine the extent to which Company practices and market practices were aligned, • The Board approved and appointed an external remuneration consultant to independently benchmark the remuneration of the Senior Executives and to give advice on recommended remuneration quantum and structure, • • It was found that with the exception of the CEO, the remuneration of other disclosed KMP fell within the policy range of market practice for Base Packages (see point 4.4 below), • In the case of the CEO, the remuneration was observed to fall at the high end of the market and the Board determined not to provide a further increase to the Base Package in FY16. It appeared that target incentive opportunities fell within the observable relevant range of market practice, however at the high end for several incumbents, and therefore no increases will be made to target incentive levels until such time as the market data indicates it is necessary to do so for these individuals. New appointments will generally be offered market-based levels of incentives. • • Whilst adjustments to executive remuneration were made early in FY15 based on the decisions made in FY14, these were mainly to maintain the value of the packages offered in FY14 and to ensure appropriate relativities between roles, particularly those roles for which the scope and complexity of responsibilities was changing. Some increases were given to recognise the development of incumbents that were exceeding expectations over a sustained period. Having subsequently compared the packages to the market, the Board has an improved perspective on the arrangements that should apply in FY16. The Board determined that incentive opportunities, to apply from 1 July 2015, would be reduced for those incumbents for whom previous opportunities were out of alignment with the new remuneration policy (see below). The mix of incentives was also adjusted to better align with market practices and shareholder expectations. 4 . O V E R V I E W O F C A S H C O N V E R T E R S I N T E R N AT I O N A L’ S R E M U N E R AT I O N G O V E R N A N C E F R A M E W O R K & S T R AT E G Y The Company seeks input regarding the governance of KMP remuneration from a wide range of sources, including: • • • • • • Remuneration Committee Members, External remuneration consultants (ERCs), Proxy advisors, Shareholders, Other experts and professionals such as tax advisors and lawyers, and Company management to understand roles and issues facing the Company. The following outlines Cash Converters International Limited remuneration governance framework and summarises the related policies, plans and other documents that constitute that framework. 95. annual report 2015 4 . 1 R E M U N E R AT I O N C O M M I T T E E C H A R T E R The role and responsibilities of the Committee are outlined in the Cash Converters International Limited Remuneration Committee Charter (the Charter), available on the Company website. The role of the Remuneration Committee is to ensure that appropriate remuneration policies are in place which are designed to meet the needs of the Company and to enhance corporate and individual performance, ensure alignment of interests between management and shareholders and ensure the reward system attracts and retains executives for key roles. That is, the development, maintenance and application of the Remuneration Governance Framework for the purposes of making recommendations to the Board regarding KMP remuneration matters, as well as advising the Board on procedures that must be undertaken in relation to the governance of remuneration (such as the calculation of grants of incentives, review of performance conditions and receipt of independent advice.). Under the Charter, the Remuneration Committee is to be constituted by at least two members, who must be non-executive directors. If there are three non-executive directors then the committee will be formed by three non-executive directors. In all circumstances the majority of members must be independent directors, unless this is not possible due to the composition of the Board at the time. 4 . 2 S E C U R I T I E S T R A D I N G P O L I C Y The Securities Trading Policy of the Company is available on the Company website. It contains the standard references to insider trading restrictions that are a legal requirement under the Corporations Act, which apply to all persons at all times, as well as conditions associated with good corporate governance. The latter part applies to directors and “Senior Executives” (CEO, direct reports to the CEO and others nominated by the Board). The policy specifies “Trading Windows” during which such individuals may trade in the securities of the Company only if they are not in possession of insider information as defined in the Act. The trading windows are the six week periods following the 24 hours after: • • • • release by the Company of its half yearly results announcement to the ASX Limited (ASX); release by the Company of its yearly results announcement to ASX; release of a disclosure document offering equity Securities in the Company; or another date as declared by the Board in the circumstances that the Board is of the view that the market can reasonably be expected to be fully informed on that date. The policy allows for trading outside the windows by application only in special circumstances such as financial hardship. The policy also restricts directors and Senior Executives from short-term trading or trading when it may bring the Company into disrepute. It also prohibits hedging at any time in relation to equity based remuneration, as well as short term trading at any time. 4 . 3 E X E C U T I V E R E M U N E R AT I O N C O N S U LTA N T E N G A G E M E N T P O L I C Y The Company has adopted an executive remuneration consultant (ERC) engagement policy which is intended to manage the interactions between the Company and ERCs, so as to ensure their independence and that the Remuneration Committee will have clarity regarding the extent of any interactions between management and the ERC. This policy enables the Board to state with confidence whether the advice received has been independent and why that view is held. The Policy states that ERCs are to be approved and engaged by the Board before any advice is received and that such advice may only be provided to a non-executive director. Any interactions between management and the ERC must be approved and overseen by the Remuneration Committee, such as in the case of the collection of factual internal records (e.g. superannuation paid or allowances and benefits.). 4 . 4 E X E C U T I V E R E M U N E R AT I O N P O L I C Y The following outlines the policy that applies to executive KMP (and does not apply to non-executive directors): • Remuneration should be composed of: • • • • Base Package (inclusive of superannuation, allowances, benefits and any applicable fringe benefits tax (FBT) as well as any salary sacrifice arrangements), Short term incentive (STI) which provides a reward for performance against annual objectives, and Long term incentive (LTI) which provides an equity-based reward for performance against indicators of shareholder benefit or value creation, over a three year period, and In total the sum of the elements will constitute a total remuneration package (TRP). Both internal relativities and external market factors should be considered, That total remuneration packages (TRPs, which include base package and incentives) should be structured with reference to market practices and the circumstances of the Company at the time, That the Base Package policy mid-points should be set with reference to P50 (the median or the middle) of the relevant market practice, • • • 96. cash converters international • • • • That TRPs at Target (being the Base Package plus incentive awards intended to be paid for targeted levels of performance) should be set with reference to P75 (the upper quartile, the point at which 75% of the sample lies below) of the relevant market practice so as to create a strong incentive to achieve targeted objectives in both the short and long term, • The Board believes that Senior Executives (other than the CEO) should receive a similar mix of remuneration (Base Package relative to STI and LTI) to ensure that there are similar interests in and focus upon group objectives and therefore TRP’s may depart from role specific P75 market benchmarks to a minor extent to ensure this outcome, Remuneration will be managed within a range so as to allow for the recognition of individual differences such as the calibre of the incumbent and the competency with which they fulfil a role (a range of +/- 20% is specified in line with common market practices), Exceptions will be managed separately such as when particular talent needs to be retained or there are individuals with unique expertise that need to be acquired (“Red circle” exceptions), Termination benefits will generally be limited to the default amount allowed for under the Corporations Act (without shareholder approval). It should be noted that it will take some time for Cash Converters International Limited practices to be fully migrated into alignment with the Remuneration Policy as some previous practices have recently been identified as out of alignment with this policy as noted above and changes need to be made carefully so as to ensure the Company retains key talent. However Base Packages currently fall within the policy range outlined, based on benchmarking undertaken during the reporting period. 4 . 5 N O N - E X E C U T I V E D I R E C T O R R E M U N E R AT I O N P O L I C Y The Non-executive Director Remuneration Policy applies to non-executive directors (NEDs) of the Company in their capacity as directors and as members of committees, and may be summarised as follows: • Remuneration may be composed of: • • • • • Board fees, Committee fees, Superannuation, Other benefits (if appropriate), and Equity (if appropriate at the time, currently not applicable). • • • • • Remuneration will be managed within the aggregate fee limit (AFL) or fee pool approved by shareholders of the Company – currently $490,000 in accordance with shareholder approval on 30 November 2010. Approval will be sought from shareholders to increase this fee limit to $800,000 at the 2015 annual general meeting. The increase in the fee limit is to set an amount for the longer term and to accommodate the Company’s intention to appoint up to 2 additional independent non-executive directors so that the Board of Directors is comprised of a majority of independent directors. Also, the fees payable to Directors, as set out in the Schedule below, are inclusive of the statutory superannuation contributions by the Company. It should be noted that there will be no increase in the non-executive Directors’ fees payable to each Director for FY16, Termination benefits will not be paid to NEDs by the Company, A policy level of Board Fees (being the fees paid for membership of the Board, inclusive of superannuation and exclusive of committee fees) will be set with reference to the P50 (median or middle) of the market of comparable ASX listed companies, Committee fees may be used to recognise additional contributions to the work of the Board by members of committees and the inclusion of these should result in outcomes that, when combined with Board Fees, should cluster around the P50 of the market of comparable ASX listed companies, • In relation to the Board Chair, a higher positioning in the market, such as P75, is appropriate for the Company, Any NED remuneration package that contains equity shall be set with reference to P75 of the comparable ASX listed company market, with equity representing the gap between P50 orientation and P75 orientation based on relevant market data. This creates consistency between the NED remuneration policy and the remuneration policy applicable to Senior Executives, • Equity was not a component of NED remuneration during FY15 and will not apply for FY16. 97. annual report 2015 During the FY15 reporting period the following fees were applicable: Function Main Board Audit & Risk Committee Remuneration Committee Role Chair Member Chair Member Chair Member Fee Including Super $170,000 $95,000 $15,000 $0 $15,000 $0 It has been determined that for the FY16 period the same fees will apply. 4 . 6 S H O R T T E R M I N C E N T I V E ( S T I ) P O L I C Y The short term incentive policy of the Company, for the FY16 and beyond, is that an annual component of executive remuneration should be at-risk and allow the Company to modulate the cost of employment to align with individual and Company performance while motivating value creation for shareholders: • • • • The STI should be paid in cash, The STI should have a weighting in the remuneration mix that is no greater than the LTI to ensure that executives are focussed on long term value creation, STI deferral should not apply since the weighting of STI in the remuneration mix is sufficiently low as to make STI deferral unnecessary and short-term risk taking is managed by overlapping annual grants of LTI. KPI’s selected should address the main drivers of value creation at the Group, business unit or individual level, as may be appropriate to the role, with weightings that reflect the importance of each outcome. It is generally expected that the majority of the STI (highest weighting) will be linked to Group profitability, since this is the main annual outcome that shareholders focus on and for which senior executives are accountable. 4 . 7 L O N G T E R M I N C E N T I V E ( LT I ) P O L I C Y The long term incentive policy of the Company, for the FY16 and beyond, is that an annual component of remuneration of executives should be at-risk and based on equity in the Company to ensure that executives hold a stake in the Company to align their interests with those of shareholders and share risk with shareholders: • • • The LTI should be based on Performance Rights that vest based on an assessment of performance against objectives, The measurement period should be three years, There should be two measures of long term performance, one which best reflects internal measures of performance and one which best reflects external measures of performance: • • The measure that has strongest alignment with shareholders is TSR, however it is now recognised that absolute TSR is influenced by overall economic movements. Therefore future grants of LTI will be offered to executives that vest based on indexed TSR (iTSR) which removes market movements irrelevant to the performance of the Company from assessments of the Company’s TSR performance and avoids windfall gains from changes in broad market movements in share prices. More information on iTSR and its reasons for use is given below, The internal measure of performance that is understood to be well accepted by stakeholders and which the Board encourages management to focus on, is earnings per share (EPS), which will be assessed on a growth rate basis against a vesting scale. Earnings per share links to the Company’s ability to satisfy its dividend policy and is therefore highly relevant. 4 . 8 VA R I A B L E E X E C U T I V E R E M U N E R AT I O N – S H O R T T E R M I N C E N T I V E ( S T I ) The Company has replaced its STI plan with one that it believes is better aligned with market best practices. The new plan is effective 1 July 2015. The new STI plan has the following features: • • • 98. Cash based (no deferral due to the mix of STI and LTI being appropriately weighted, with overlapping measurement periods that mitigate the risk of short termism), Performance period aligned with the financial year (12 months), Majority weighting (60%) on a Normalised EBITDA KPI with a target of 110% of budget, a threshold of 95% of budget and a stretch of 140% of budget, cash converters international • The remainder of the STI is weighted across: • • • Minor weighting (10% to 20%) on strategic objective achievements (milestones that contribute to the delivery of 3 year plans) where appropriate to the individual, Business unit budget delivery for individuals with responsibility for business units (10% to 20%), and No more than 10% weighting on individual performance assessment as determined by the Board in the case of the CEO and by the CEO in conjunction with the Board in the case of other Senior Executives, Weightings are adjusted as appropriate to the scope and responsibilities of each Senior Executive role, A gate of 90% of budget normalised EBITDA applies such that no STI will be payable in relation to any measure if this condition is not exceeded, Target STI opportunities for FY16 are as follows: • • MD/CEO – 50% of Base Package, and Other Senior Executives – 30% of Base Package. • • • The STI plan that was in place during the FY15 period is described in the section below addressing incentive outcomes. It was a target based plan with largely binary business objectives (either achieved or not achieved) assessed by the Board at the end of the measurement period, with the majority weighting on the delivery of budgets agreed with the Board at the beginning of the period. The incentive opportunities under the previous STI plan were normalised EBITDA against budget with the following outcomes: • • • • • nil for an outcome under 95% of budget, 25% of base package for 95% to 105% of budget - Threshold, 50% of base package for 105.1% to 110% of budget – Target, and 75% of base package for over 110% of budget - Stretch. The plan had a gate of 95% of budget, which if not achieved resulted in no STI being payable in relation to any measure. Due to the changes to be implemented in FY 16 the amount of STI that most participants can reasonably expect has been reduced for FY16 compared to FY15, so as to better align with market practices and to ensure an appropriate focus on long term objectives. 4 . 9 VA R I A B L E E X E C U T I V E R E M U N E R AT I O N – L O N G T E R M I N C E N T I V E ( LT I ) – R I G H T S P L A N ( I R P ) The Company has replaced its LTI plan with one that it believes is better aligned with market best practices. The new plan will be effective from 1 July 2015 (the start of the measurement period) if approved by shareholders at the upcoming AGM. Due to the significant improvements in the LTI arrangements, particularly in aligning rewards with well-regarded measures of performance and shareholder value creation, it is hoped that shareholders will support the change. The LTI plan that is intended to apply for FY16 may be summarised as follows: • • • • The financial instrument is indeterminate performance rights, which is a right to the value of a share to be paid either in cash or Company shares ( at the sole discretion of the Board; necessary to address termination benefits for good-leavers, however it would generally be expected that vested Rights would be satisfied in the form of Company shares), The measurement period is to be not less than three years in respect of Performance Rights granted under the plan, Retesting will not apply, The vesting conditions/performance metrics for Performance Rights will be as follows and are intended to address both internal and external measures of Company performance over the long term: • • • A gate of Company TSR being positive for the measurement period will apply before performance against the vesting conditions is assessed to ensure that the LTI will not reward executives when shareholders have lost value, Grants of LTI are to be made each year in accordance with the remuneration policy, 50% of the grant (tranche 1) will vest based on a comparison of the Company’s TSR of the measurement period against the All Ordinaries Accumulation Index (XAOAI), referred to as an indexed TSR (iTSR) vesting scale, • • • 25% of the tranche will vest when the Company’s TSR is equal to the TSR of the index (threshold), 50% of the tranche will vest when the Company’s TSR is equal to 150% of the TSR of the index (target), and 100% of the tranche will vest when the Company’s TSR is equal to 200% of the TSR of the index (stretch), • Outcomes between these levels will be calculated on a pro-rata basis, 99. annual report 2015 • 50% of the grant (tranche 2) will vest based on earnings per share (EPS) growth over the measurement period, • • • 25% of the tranche will vest when the EPS growth rate has been 12% (threshold), 50% of the tranche will vest when the EPS growth rate has been 16% (target), and 100% of the tranche will vest when the EPS growth rate has been 20% or more (stretch), • Outcomes between these levels will be calculated on a pro-rata basis, • • • • In the case of a termination for other than special circumstances, unvested Performance Rights will be forfeited, In the case of a termination in special circumstances (death, disability, redundancy.), the grant of Performance Rights made in the year of the termination will be pro-rata forfeited for the period with remaining unvested rights to be tested at the end of the measurement period along with other participants, In the case of a change of control or major return of capital to shareholders unvested Performance Rights will vest in the proportion that the share price has risen since the date of grant, and Target LTI opportunities for FY16 are as follows: • • MD/CEO – 75% of Base Package, Other Senior Executives – 30% of Base Package Due to the changes approximately half of the participants will have an increased weighting on LTI in the remuneration mix (most notably the CEO), while the target LTI award for several participants has been reduced to ensure that total remuneration packages are better aligned with relevant market levels of remuneration and the Company’s remuneration policy. Previous grants of LTI were made infrequently, which were intended to vest each year over a number of years, however the previous grants will cease to become available for vesting in FY17. The first grant of LTI under the new plan (if approved by shareholders, in relation to the MD/CEO) will become available for vesting at the completion of FY19, ensuring an appropriate transition to the new LTI and granting structure. In addition to facilitating the LTI component of remuneration, the new Rights Plan includes the facility to grant Service Rights (which vest based on the completion of a period of service, and which are not intended to be used as part of any current LTI arrangement), as well as Deferred Rights which would be suitable for use in the case of deferred STI (currently not applicable) or salary sacrifice arrangements (currently not applicable). The details of the Plan will be presented to shareholders for approval. Likely TRP for FY16 STI LTI* BASE PACKAGE TARGET % TAR- TARGET % TAR- INCLUDING FIXED % OF BASE GET STI STI % OF BASE GET LTI TOTAL REMUNERA- TION PACKAGE AT TARGET POSITION INCUMBENT SUPER TRP PACKAGE AMOUNT TRP PACKAGE AMOUNT LTI %TRP PERFORMANCE CEO Cumins $839,286 44% 50% $419,643 22% 75% $629,464 34% $1,888,393 Mr Peter Chief Financial Officer/Company Mr Ralph Secretary Groom $432,415 55% 30% $129,725 17% 51% $221,337 28% $783,476 Chief Information Officer Mr Glen Fee $305,614 62% 30% $91,684 19% 30% $91,684 19% $488,982 General Manager, Mr Martyn UK Jenkins $301,125 62% 30% $90,338 19% 30% $90,338 19% $481,801 Group Legal Mr Michael Counsel ** Cooke $535,836 100% 0% $0 0% 0% $0 0% $535,836 * The LTI presented is the remuneration value of the LTI that was granted during the reporting period and that will vest for the achievement of target performance. ** Not a salary package but subject to a service agreement (see point 6.1 below) 100. cash converters international 4 . 1 0 S E C U R I T I E S H O L D I N G P O L I C Y The Board currently sees a securities holding policy as unnecessary since executives receive a significant component of remuneration in the form of equity. 4 . 11 C L A W B A C K P O L I C Y The Board currently holds the view that a clawback policy is not appropriate since the intention of such policies is to return funds to shareholders in the case of an employee causing material misstatements in the financial reports of the Company. The cost and complexity of implementing arrangements that would make it possible for the Company to recover such funds therefore outweigh the unlikely benefit. 5 P E R F O R M A N C E A N D R E W A R D O U T C O M E S F O R F Y 1 5 5 . 1 C O M PA N Y P E R F O R M A N C E The following outlines the performance of the Company over the FY15 period and the previous 4 financial years: Revenue Net profit/(loss) before tax Net profit/(loss) after tax Share price at start of year Share price at end of year Interim dividend (i) Final dividend (i) (ii) Basic earnings per share Diluted earnings per share $ $ $ ¢ ¢ ¢ ¢ ¢ ¢ 30 JUNE 2015 30 JUNE 2014 30 JUNE 2013 30 JUNE 2012 30 JUNE 2011 (III) 374,892,639 331,668,907 272,722,719 234,354,795 186,384,204 (16,575,798) 32,040,465 (21,685,090) 21,132,289 47,664,207 32,869,972 41,425,274 29,416,024 39,270,559 27,692,433 108.0 70.0 2.00 - (4.69) (4.69) 107.0 108.0 2.00 2.00 5.67 5.56 64.5 107.0 2.00 2.00 8.09 7.92 72.5 64.5 1.75 1.75 7.75 7.63 55.0 72.5 1.75 1.75 7.28 7.23 (i) Franked to 100% at 30% corporate income tax rate. (ii) Declared after the balance date and not reflected in the financial statements. (iii) Restated for the impact of the prior year adjustment related to Quickdraw Financial Solutions Pty Ltd. Other than with respect to share-based payments which are disclosed below, there is no relationship between shareholder wealth and remuneration, however certain bonuses are paid based on performance targets set for the individual concerned as discussed further in the following section. On vesting each performance right equates to one ordinary share. The performance rights are split into multiple tranches and are subject to various vesting conditions. One such vesting condition is the consolidated entity achieving budgeted profit after tax for various periods, should any of the vesting conditions fail to be achieved the performance rights will not vest, consequently there is a direct link between the creation of shareholder wealth and share based payment remuneration. 5 . 2 L I N K S B E T W E E N P E R F O R M A N C E A N D R E W A R D The remuneration of executive KMP is composed of three parts as outlined earlier, being: • • • Base Package, which is not intended to vary with performance but which tends to increase as the scale of the business increases (i.e. following success), STI which is intended to vary with indicators of annual Company and individual performance, and LTI which is also intended to deliver a variable reward based on long-term measures of Company performance and aligns the interests of management to shareholders. The STI payable in relation to the completion of the FY15 period was paid in September 2015. On average 55% of the award opportunity available (i.e. of the maximum opportunity) was paid. This level of award was considered appropriate under the STI scheme that was in place during FY15, which was based on the Board’s assessment of the CEO’s achievement of budget objectives 101. annual report 2015 that were set at the beginning of the year (and the CEO’s assessment in relation to other Senior Executive roles). Therefore there were strong links between internal measures of Company performance and the STI. At the completion of the FY15 period LTI vested in relation to the achievement of budget objectives as set by the Board. While this outcome has strong links with internal measures of Company performance, the Board recognised that it had limited links with external measures of Company performance, noting that the share price declined in the FY15 period. The LTI plan has therefore been replaced for FY16 as described above, so as to improve the links between long term value creation for shareholders (external measures of Company performance) and Senior Executive reward. 5 . 3 I N C E N T I V E O U T C O M E S F O R F Y 1 5 The STI achieved in relation to the FY15 period was paid after the end of the period when the audit of the Company’s accounts was signed-off (i.e. during FY16). On average 55% of the award opportunity available (i.e. of the maximum opportunity) was paid. This level of award was considered appropriate under the previous STI scheme based on objectives set and offers made in relation to the achievement of business targets at the beginning of the financial year and the majority of those objectives were met. During the FY15 period the Company paid short term incentives (STI’s) to its senior management team based on meeting short term targets (12 months) in regard to the various operating divisions the Company reports under. There are four main reporting divisions; franchise operations, store operations, financial services – administration, and financial services – personal loans. The Board approves a forward 12 month budget for each division and it is against this budget that each senior manager is assessed against. The Board has discretion to award the STI to a manager, which is only granted after a review of the manager’s performance over the full 12 month period of the STI. Each manager has an STI target that may earn him/her an incentive which represents a range of 25% to a maximum of 75% of base salary, depending on what percentage the actual result is above the budget – actual result under budget by 95%, nil STI; 95% to 105% of budget, STI 25% of base; 105.1% to 110% of budget, STI 50% of base, over 110.1% of budget, STI 75% of base. The managing director’s STI is based on the Group normalised actual performance against the Group budget. These KPIs were selected because they were the most significant matters expected to contribute to the success of the Company during FY15 in the case of each role. Following the end of the measurement period (the financial year), the Company accounts were audited and reports on the Company’s activities during the year were prepared for the Board. The Board then assessed the extent to which business objectives had been achieved in relation to each KPI to calculate the total award payable. This method of performance assessment was chosen because the metrics were largely financial in nature and subject to external audit (objective assessment), and were expected to lead to value creation for shareholders if achieved (largely profit focused). The Board has received and responded to feedback regarding the links between internal and external measures of Company performance and executive remuneration and has implemented significant changes for FY16 as described above. These changes are intended to significantly improve the links between Company performance and executive remuneration and it is accepted that in the past the links have been largely internal. 102. cash converters international TRP Comparison FY14 and FY15 BASE PACKAGE VALUE OF LTI IS THE AMORTISED INCLUDING SUPER STI ACHIEVED ACCOUNTING CHARGE ACTUAL TOTAL REMUNERATION PACKAGE (TRP) NAME ROLE(S) YEAR AMOUNT % OF TRP AMOUNT % OF TRP AMOUNT % OF TRP Mr Peter Cumins CEO CEO Mr Ralph Groom Chief Financial 2015 2014 2015 $839,286 $715,019 $432,415 57% 53% 51% $200,000 $200,000 $186,588 14% 15% 22% $439,817 $439,817 $221,337 30% 32% 26% $1,479,103 $1,354,836 $840,340 Officer/Company Secretary Chief Financial 2014 $340,931 61% $162,443 29% $54,740 10% $558,114 Officer/Company Secretary Mr Ian Day General Manager, 2015 $329,427 49% $155,985 23% $192,467 28% $677,879 Australia General Manager, 2014 $319,116 53% $233,979 39% $47,600 8% $600,695 Australia Mr Glen Fee Chief Information 2015 $302,287 81% $24,065 6% $49,079 13% $375,431 Officer Chief Information 2014 $256,029 88% $23,736 8% $12,138 4% $291,903 Officer David Patrick Chief Executive 2015 $709,871 100% Officer, UK Chief Executive 2014 $330,763 100% Officer, UK Mike Osborne Chief Financial 2015 $122,649 100% $0 $0 $0 0% 0% 0% Officer/Company Secretary, UK Chief Financial 2014 $258,185 100% $0 0% Officer/Company Secretary, UK Martyn Jenkins General Manager, UK N/A Mr Michael Cooke Group Legal Counsel 2015 2014 2015 $66,015 100% $0 $535,836 0% 82% $0 $0 $0 0% 0% 0% $0 $0 $0 $0 $0 $0 0% 0% 0% $709,871 $330,763 $122,649 0% $258,185 0% 0% $66,015 $0 $118,350 18% $654,186 (see point 6.1 below) Group Legal Counsel 2014 $520,739 81% $0 0% $118,350 19% $639,089 5 . 4 L I N K S B E T W E E N C O M PA N Y S T R AT E G Y A N D R E M U N E R AT I O N The Company intends to attract the superior talent required to successfully implement the Company’s strategies at a reasonable and appropriately variable cost by: • • Generally, positioning Base Packages (the fixed element) around P50 of relevant market data benchmarks, supplementing the Base Package with at-risk remuneration, being incentives that motivate executive focus on: • • short to mid-term objectives linked to the strategy via KPIs and annual performance assessments at the Company, business unit and individual level (see relevant section of this report), and long term value creation for shareholders by linking a material component of remuneration to those factors that shareholders have expressed should be the long term focus of executives and the Board, being earnings per share (EPS) and indexed (iTSR). During FY15 an operational review of the UK business has taken place and following this a cost cutting programme has been completed to ensure that the current cost structure better matches the size of the UK business today, including a number of senior management changes made and staff redundancies. The appointment of a very experienced and successful Cash Converters multi-store owner and operator has been made to manage the corporate store network. These changes and the ongoing review of the Australian business units is expected to lead to an increase in shareholder return. 103. annual report 2015 The Company’s focus for FY16 is to improve the performance of international business units, improve profitability by adding capabilities and services and growing existing business. This is expected to lead to increases in earnings per share annually and in shareholder returns over the longer term. The incentives for FY16 are strongly linked to this strategy via the use of budgeted profit, EPS growth and indexed TSR as well as milestone strategic objectives as the measures that will determine incentive awards. 6 . R E M U N E R AT I O N R E C O R D S F O R F Y 1 5 – S TAT U T O R Y D I S C L O S U R E S 6 . 1 R E M U N E R AT I O N O F D I R E C T O R S A N D S E N I O R M A N A G E M E N T The following table outlines the remuneration received by Senior Executives of the Company during FY15 prepared according to statutory disclosure requirements and applicable accounting standards: SHORT-TERM EMPLOYEE BENEFITS SALARY & CASH MONETARY NON OTHER POST LONG-TERM EMPLOYMENT BENEFITS SHARE BASED BENEFITS SUPER- LONG PAYMENTS SERVICE OPTIONS BONUS BENEFITS OTHER ANNUATION LEAVE & RIGHTS TOTAL $ $ $ $ $ $ $ FEES $ 170,000 45,833 45,833 94,555 64,583 18,333 39,253 2015 Non-executive directors R. Webb W. Love (iv) J. Beal (v) L. Given S. Grimshaw D. Carter (iii) K. Dundo Executive director - - - - - - - - - - - - - - P. Cumins 764,157 200,000 56,346 - - - - - - - - - - - - - - - - - - - 18,783 17,775 17,775 28,314 5,727 59,427 - - - - - - - - - - - - - - - - - - - - - - - - 170,000 45,833 45,833 94,555 64,583 18,333 39,253 439,817 1,479,103 192,467 221,337 49,079 - - - 677,879 840,340 375,431 66,015 709,871 122,649 118,350 1,021,050 654,186 5,403,864 311,652 155,985 - 395,643 186,588 18,997 273,973 24,065 60,288 235,529 21,984 - - - - - 3,210 411,705* - 100,665* 535,836 3,077,452 - 566,638 - 78,553 - 512,370 - 147,801 Other executives I. Day (vii) R. Groom G. Fee M. Jenkins (vi) D. Patrick (i) M. Osborne (ii) M. Cooke Total 104. cash converters international SHORT-TERM EMPLOYEE BENEFITS OTHER POST LONG-TERM EMPLOYMENT BENEFITS SHARE BASED SALARY & CASH MONETARY NON BENEFITS SUPER- FEES $ BONUS BENEFITS OTHER ANNUATION $ $ $ $ LONG PAYMENTS SERVICE LEAVE $ OPTIONS & RIGHTS $ TOTAL $ 2014 Non-executive directors R. Webb J. Yeudall W. Love J. Beal Executive director 125,000 36,944 90,833 90,833 - - - - - - - - P. Cumins 643,291 200,000 53,953 Other executives I. Day R. Groom G. Fee D. Patrick (i) M. Osborne (ii) M. Cooke Total 301,341 233,979 - 299,840 162,443 23,316 238,254 259,825 233,002 23,736 - - 520,739 2,839,902 - 620,158 - 4,332 - - 81,601 - - - - - - - - 3,623 3,019 - 6,642 - - - - 17,775 17,775 17,775 17,775 62,983 22,164 - 156,247 Resigned March 2015 (i) (ii) Resigned July 2014 (iii) Deceased January 2015 (iv) Resigned August 2014 (v) Resigned August 2014 (vi) Appointed April 2015 (vii) Retired August 2015 and received subsequent a termination benefit of $89,000. * Termination benefits - - - - - - - - - - - - - - - - 125,000 36,944 90,833 90,833 439,817 1,354,836 47,600 54,740 12,138 - - 600,695 558,114 291,903 330,763 258,185 118,350 672,645 639,089 4,377,195 Please note that the LTI value reported in this table is the amortised accounting charge of all grants that have not lapsed or vested. Where a market based measure of performance is used such as TSR, no adjustments can be made to reflect actual LTI vesting. No share based payments with market based vesting conditions such as TSR have been granted to date. Actual and target levels of STI and LTI remuneration are outlined in the relevant sections of the Remuneration Report since the above table does not reflect either realised remuneration or target levels of remuneration and is instead reflective of regulatory requirements. It should be noted that the remuneration disclosed in relation to the General Counsel, Mr Michael Cooke, General Counsel of Cash Converters International Limited, represents consulting fees (a retainer) paid to his firm (Cooke & Co) under a consulting agreement (negotiated 24 September 2001). The fees cover the cost of Mr Cooke’s consulting and the work of his firm’s colleagues in relation to fulfilling the General Counsel function (solicitor) for Cash Converters International Limited. The agreement contains a 12 months notice period applicable to either party. This arrangement is necessary to ensure protections related to legal privilege are not compromised and provides the company with access to the expertise of legal professionals which the Board considers to be in the interest of shareholders. 105. annual report 2015 6 . 2 S H A R E - B A S E D PAY M E N T P L A N At the annual general meeting held on 30 November, 2010, the shareholders approved the establishment of the executive performance rights plan (“EPRP”). At the same time, the shareholders passed a resolution authorising and directing the Board to issue to the managing director, Mr Peter Cumins, 10,000,000 performance rights. The conditions attaching to those rights were set out in the shareholder resolution and the Board and the remuneration committee had no discretion concerning the issue of those rights. The shareholders also authorised the issue of a further 10,000,000 performance rights to senior executives at the discretion of the Board. It is only the issue of performance rights out of this further 10,000,000 that is within the Board’s power. The rights vest into ordinary shares in the Company upon achievement of certain vesting conditions which are described fully on page 107. Insofar as the vesting conditions relate to Mr Cumins, these were set by the shareholders as explained above. Under the EPRP, the Company will issue performance rights to employees as part of their total remuneration package. The rights were issued free of charge. Terms and conditions of share-based payment arrangements affecting remuneration of key management personnel in the current or future financial years is set out below:- PERFORMANCE NO. OF RIGHTS GRANT DATE FAIR EXERCISE VESTING NAME RIGHTS SERIES YEAR GRANT DATE VESTING DATE GRANTED VALUE PRICE CONDITIONS Tranche 2 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Tranche 11 Tranche 12 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Tranche 11 Tranche 12 Tranche 3 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Tranche 11 Tranche 12 2011 2013 2013 2014 2014 2014 2015 2015 2015 2013 2013 2014 2014 2014 2015 2015 2015 2012 2013 2013 2014 2014 2014 2015 2015 2015 30/11/2010 14/10/2016 6,000,000 25/09/2012 1/07/2014 25/09/2012 1/07/2015 25/09/2013 1/07/2014 25/09/2013 1/07/2015 25/09/2013 1/07/2016 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 25/09/2012 1/07/2014 25/09/2012 1/07/2015 25/09/2013 1/07/2014 25/09/2013 1/07/2015 25/09/2013 1/07/2016 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 66,667 66,666 66,667 66,667 66,666 66,667 66,667 66,666 76,667 76,666 76,667 76,667 76,666 76,667 76,667 76,666 19/09/2011 15/09/2016 1,800,000 25/09/2012 1/07/2014 25/09/2012 1/07/2015 25/09/2013 1/07/2014 25/09/2013 1/07/2015 25/09/2013 1/07/2016 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 17,000 17,000 17,000 17,000 17,000 17,000 17,000 17,000 $0.43 $0.71 $0.68 $1.21 $1.15 $1.09 $1.06 $1.01 $0.96 $0.71 $0.68 $1.21 $1.15 $1.09 $1.06 $1.01 $0.96 $0.32 $0.71 $0.68 $1.21 $1.15 $1.09 $1.06 $1.01 $0.96 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (2) (7) (8) (7) (8) (9) (8) (9) (10) (7) (8) (7) (8) (9) (8) (9) (10) (5) (7) (8) (7) (8) (9) (8) (9) (10) P Cumins I Day R Groom M Cooke G Fee 106. cash converters international The following vesting conditions are attached to the performance rights Number Vesting condition 2 5 7 8 9 i) Completion of various predefined organisational change initiatives. ii) The Consolidated Entity achieving budgeted Net Profit after tax in each of FY2013 - FY2016. iii) Continuous employment through to vesting determination date, being 14 October 2016. i) The Consolidated Entity achieving budgeted Net Profit after tax in each of FY2012 – FY2016. ii) Continuous employment through to vesting determination date, being 15 September 2016. i) The executive’s responsible entity/division* achieving budgeted Net Profit after tax for the financial year ending 30 June 2014 ii) Continuous employment through to vesting determination date, being 1 July 2014 i) The executives responsible entity/division* achieving budgeted Net Profit after tax for the financial year ending 30 June 2015 ii) Continuous employment through to vesting determination date, being 1 July 2015 i) The executives responsible entity/division* achieving budgeted Net Profit after tax for the financial year ending 30 June 2016 ii) Continuous employment through to vesting determination date, being 1 July 2016 10 i) The executives responsible entity/division* achieving budgeted Net Profit after tax for the financial year ending 30 June 2017 ii) Continuous employment through to vesting determination date, being 1 July 2017 * the responsible entity/division allocations are as follows R Groom, G Fee, M Cooke – consolidated group I Day – Combined Australian operations 107. annual report 2015 During the financial year the following share-based payment arrangements were granted to key management personnel PERFORMANCE RIGHTS SERIES YEAR GRANT DATE VESTING DATE GRANTED FAIR VALUE CONDITIONS NO. OF RIGHTS GRANT DATE VESTING Ian Day Tranche 10 Tranche 11 Tranche 12 Ralph Groom Tranche 10 Tranche 11 Tranche 12 Glen Fee Tranche 10 Tranche 11 Tranche 12 2015 2015 2015 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 2015 2015 2015 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 2015 2015 2015 25/09/2014 1/07/2015 25/09/2014 1/07/2016 25/09/2014 1/07/2017 66,667 66,667 66,666 76,667 76,667 76,666 17,000 17,000 17,000 $1.06 $1.01 $0.96 $1.06 $1.01 $0.96 $1.06 $1.01 $0.96 (8) (9) (10) (8) (9) (10) (8) (9) (10) During the year, the following key management personnel exercised options that were granted to them as part of the compensation. Each option converts to one ordinary share of Cash Converters International Limited. PERFORMANCE VESTING RIGHTS DATE FAIR ED DURING EXERCISE AT EXER- VESTING RIGHTS SERIES YEAR GRANT DATE DATE GRANTED VALUE YEAR PRICE CISE DATE CONDITIONS NO. OF GRANT NO. VEST- FAIR VALUE NAME I Day Tranche 5 Tranche 7 R Groom Tranche 5 G Fee Tranche 7 Tranche 5 Tranche 7 2013 2014 2013 2014 2013 2014 25/09/2012 10/09/2014 25/09/2013 10/09/2014 25/09/2012 10/09/2014 25/09/2013 10/09/2014 25/09/2012 10/09/2014 25/09/2013 10/09/2014 66,667 66,667 76,667 76,667 17,000 17,000 $0.71 $1.21 $0.71 $1.21 $0.71 $1.21 66,667 66,667 76,667 76,667 17,000 17,000 Nil Nil Nil Nil Nil Nil $1.12 $1.12 $1.12 $1.12 $1.12 $1.12 (7) (7) (7) (7) (7) (7) During the year, the following key management personnel had options lapse due to their failure to meet the vesting conditions as applicable to that tranche. PERFORMANCE RIGHTS SERIES YEAR GRANT DATE VESTING DATE GRANTED VALUE DURING YEAR CONDITIONS David Patrick Tranche 6 2013 25/09/2012 1/07/2015 56,666 $0.68 56,666 (8) NO. OF RIGHTS DATE FAIR NO. LAPSED VESTING GRANT 108. cash converters international The following summarises the grants of share-based payment compensation to directors and senior management relating to the current year and prior years: VALUE OF PERFOR- MANCE RIGHTS GRANTED AT VALUE OF LAPSED GRANT DATE % OF COMPEN- SATION FOR THE VALUE OF VESTED % OF YEAR CONSISTING NAME P Cumins I Day R Groom M Cooke G Fee NO. GRANT- THE GRANT NO. PERFORMANCE NO. PERFORMANCE GRANT OF SHARE-BASED ED (I) DATE (II) LAPSED RIGHTS VESTED RIGHTS VESTED PAYMENTS 10,000,000 $4,865,040 800,000 920,000 $655,023 $753,276 3,000,000 $1,066,260 153,000 $146,506 - - - - - - - - - - 4,000,000 $2,280,360 40.00% 400,001 460,001 $258,690 50.00% $297,494 50.00% 1,200,000 $499,800 40.00% 51,000 $45,441 33.33% 29.74% 28.39% 26.34% 18.09% 13.07% The number granted includes rights granted in the current and prior years. Prior year grants are included where amounts have vested during the current year. The value of performance rights granted during the year is recognised in compensation over the vesting period of the grant, in accordance with Australian Accounting Standards. 7 . E M P L O Y M E N T T E R M S F O R K E Y M A N A G E M E N T P E R S O N N E L 7 . 1 S E R V I C E A G R E E M E N T S Contracts of employment for Mr Peter Cumins, Mr Ralph Groom and Mr Ian Day require a notice period of not less than three months from the executive and 12 months from the Company, to terminate employment. In the event of termination by the Company, the Company may elect that the executive does not serve the notice period, in which case 12 month’s salary would be payable. The contracts are rolling with no fixed term. Contracts of employment for Mr Glen Fee and Mr Martyn Jenkins require a notice period of not less than one month by either party. In the event of termination by the Company, the Company may elect that the executive does not serve the notice period, in which case one month’s salary would be payable. The treatment of incentives in the case of termination is addressed in separate sections of this report that give details of incentive design. The incentive plans are designed such that they will not give rise to a termination benefit. None of the non-executive directors have an employment contract with the Company. 109. annual report 2015 8 C H A N G E S I N K M P H E L D E Q U I T Y The following table outlines the changes in the amount of equity held by executives over the financial year: Fully paid ordinary shares held in Cash Converters International Limited BALANCE AT GRANTED AS EXERCISE OF (DISPOSAL) OF BALANCE AT 1 JULY 2014 REMUNERATION OPTIONS SHARES 30 JUNE 2015 RECEIVED ON ACQUISITION / No. No. Directors P. Cumins S. Grimshaw R. Webb W. Love J. Beal L. Given D. Carter K. Dundo Other key management personnel I. Day R. Groom G. Fee D. Patrick M. Osborne M. Jenkins M. Cooke Directors P. Cumins R. Webb J. Yeudall W. Love J. Beal Other key management personnel I. Day R. Groom G. Fee D. Patrick M. Osborne M. Cooke No. 10,253,030 - 1,012,500 - - - - - - - 17,000 - - - - 11,282,530 - - - - - - - - 133,334 153,334 34,000 - - - No. 60,000 - - - - - - - (133,334) (133,809) - - - - No. 10,313,030 - 1,012,500 - - - - - - 19,525 51,000 - - - - - - - - - - - - - - - - - - - - 320,668 - (207,143) - 11,396,055 BALANCE AT GRANTED AS EXERCISE OF (DISPOSAL) OF BALANCE AT 1 JULY 2013 REMUNERATION OPTIONS SHARES 30 JUNE 2014 RECEIVED ON ACQUISITION / No. 10,253,030 1,012,500 295,668 - - 3,781,174 1,132,318 - 85,000 50,000 - 16,609,690 No. No. - - - - - - - - - - - - - - - - - 166,677 191,667 17,000 141,667 83,333 - 600,344 No. - - (295,668) - - (3,947,851) (1,323,985) No. 10,253,030 1,012,500 - - - - - - 17,000 (226,667) (133,333) - (5,927,504) - - - 11,282,530 No shares were held indirectly by any member of the senior management in the current or preceding year. 110. cash converters international Performance rights/option holdings of key management personnel 30 JUNE 2015 Directors P. Cumins Other key management personnel M. Cooke R. Groom I. Day G. Fee D. Patrick M. Jenkins Total 30 JUNE 2014 Directors P. Cumins Other key management personnel M. Cooke R. Groom I. Day G. Fee D. Patrick M. Osborne Total BALANCE AT 1 GRANTED AS RIGHTS LAPSED/ BALANCE AT JULY 2014 REMUNERATION EXERCISED FORFEITED 30 JUNE 2015 OPTIONS / No. 6,000,000 1,800,000 383,333 333,333 85,000 56,666 - 8,658,332 No. No. No. - - 230,000 200,000 51,000 - - 481,000 - - (153,334) (133,334) (34,000) - - (320,668) OPTIONS / - - - - - (56,666) - (56,666) No. 6,000,000 1,800,000 459,999 399,999 102,000 - - 8,761,998 BALANCE AT 1 GRANTED AS RIGHTS LAPSED/ BALANCE AT JULY 2013 REMUNERATION EXERCISED FORFEITED 30 JUNE 2014 No. 6,000,000 1,800,000 345,000 300,000 51,000 255,000 150,000 8,901,000 No. No. No. - - 230,000 200,000 51,000 - - 481,000 - - (191,667) (166,667) (17,000) (141,667) (83,333) (600,334) - - - - - (56,667) (66,667) (123,334) No. 6,000,000 1,800,000 383,333 333,333 85,000 56,666 - 8,658,332 9 . O T H E R R E M U N E R AT I O N R E L AT E D M AT T E R S The following outlines other remuneration related matters that may be of interest to shareholders, in the interests of transparency and disclosure: • There were no loans to Directors or other KMP at any time during the reporting period, and • There were no relevant material transactions involving KMP other than compensation and transactions concerning shares, performance rights/options as discussed in this report. At the AGM held on 19 November 2014, approximately 30% of shareholders cast a ‘no’ vote in relation to the adoption of the remuneration report for the year ending 30 June 2014. The Company therefore received what is known as a ‘first strike’ under the Amendments to the Corporations Act. The resolution was still passed as an ‘ordinary resolution’. In the event of a ‘second strike’ at this year’s AGM, the Company must give shareholders the option to require that the entire board (excepting the managing director and any director appointed since the remuneration report was approved by the board) stand for re- election at a further general meeting (the spill meeting). This meeting must take place within 90 days. 111. annual report 2015 1 0 . E X T E R N A L R E M U N E R AT I O N C O N S U LTA N T A D V I C E During the year KMP remuneration recommendations and data were received from an external remuneration consultant. The consultant and the amount payable for the information and work that led to their recommendations are listed below: Godfrey Remuneration Group Pty Limited $34,000 +GST The consultant(s) also provided other advice during the year and the kinds of advice and remuneration payable for such advice is summarised below: Godfrey Remuneration Group Pty Limited Review of incentive plans, procedures and rules in light of regulatory changes and assistance with drafting the Remuneration Report and advice regarding stakeholder engagement on remuneration matters, and development of the remuneration governance framework. $16,000 + GST So as to ensure that KMP remuneration recommendations were free from undue influence from the KMP to whom they relate the Company established policies and procedures governing engagements with external remuneration consultants. The key aspects include: a) b) c) KMP remuneration recommendations may only be received from consultants who have been approved by the Board. This is a legal requirement. Before such approval is given and before each engagement the Board ensures that that the consultant is independent of KMP. As required by law, KMP remuneration recommendations are only received by non-executive directors, mainly the Chair of the Remuneration Committee. The policy seeks to ensure that the Board controls any engagement by management of Board approved remuneration consultants to provide advice other than KMP remuneration recommendations and any interactions between management and external remuneration consultants when undertaking work leading to KMP remuneration recommendations. The Board is satisfied that the KMP remuneration recommendations received were free from undue influence from KMP to whom the recommendations related. The reasons the Board is so satisfied include that it is confident that the policy for engaging external remuneration consultants is being adhered to and is operating as intended, the Board has been closely involved in all dealings with the external remuneration consultants and each KMP remuneration recommendation received during the year was accompanied by a legal declaration from the consultant to the effect that their advice was provided free from undue influence from the KMP to whom the recommendations related. 112. cash converters international A U D I T O R ’ S I N D E P E N D E N C E D E C L A R AT I O N The auditor’s independence declaration is included at the end of the financial statements. N O N - A U D I T S E R V I C E S The directors are satisfied that the provision of non-audit services, during the year, by the auditor 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, during the year, by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001, as the nature of the services was limited to the preparation of the statutory income tax returns, indirect tax compliance, transaction/compliance related matters and generic accounting advice. All non-audit services have been reviewed and approved to ensure they do not impact the integrity and objectivity of the auditor, and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Details of the amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 5 to the financial statements. The directors’ report is signed in accordance with a resolution of directors made pursuant to S298(2) of the Corporations Act 2001. For and on behalf of the Board Peter Cumins Director Perth, Western Australia Date: 22 September 2015 113. annual report 2015 D I R E C T O R S ’ D E C L A R AT I O N In accordance with a resolution of the directors of Cash Converters International Limited, I state that: 1. In the opinion of the directors: a the financial statements and notes are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the financial position as at 30 June 2015 and the performance for the year ended on that date of the consolidated entity; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; b c the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements; and There are reasonable grounds to believe that the Company will be able to pays its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ended 30 June 2015. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 23 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001. On behalf of the directors Peter Cumins Director Perth, Western Australia Date: 22 September 2015 114. cash converters international A U D I T O R ’ S I N D E P E N D E N C E D E C L A R AT I O N 115. annual report 2015 Independent auditor’s report 116. cash converters international 117. annual report 2015 S H A R E H O L D E R S I N F O R M AT I O N T H E S H A R E H O L D E R I N F O R M AT I O N S E T O U T B E L O W W A S A P P L I C A B L E A S AT 1 8 S E P T E M B E R 2 0 1 5 S U B S TA N T I A L S H A R E H O L D E R S Substantial shareholders (5% or above) in the Company and the number of equity securities in which they have an interest are set out below: NAME EZCORP Inc HSBC Custody Nominees (Australia) Limited RBC Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited DISTRIBUTION OF EQUITY Distribution schedule of holdings: NUMBER OF PERCENTAGE OF ORDINARY SHARES ISSUED SHARES 151,948,000 46,883,485 37,465,164 34,572,724 32,062,113 31.54 9.73 7.78 7.18 6.65 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total number of holders Number of holders of less than a marketable parcel HOLDERS 1,102 2,890 1,466 1,944 143 7,545 346 118. cash converters international S H A R E H O L D E R S I N F O R M AT I O N T W E N T Y L A R G E S T E Q U I T Y S E C U R I T Y H O L D E R S NAME 1. EZCORP Inc 2. HSBC Custody Nominees (Australia) Limited 3. RBC Investor Services Australia Nominees Pty Limited 4. Citicorp Nominees Pty Limited 5. J P Morgan Nominees Australia Limited 6. National Nominees Limited 7. BNP Paribas Noms Pty Ltd 8. RBC Investor Services Australia Nominees Pty Limited 9. RBC Investor Services Australia Nominees Pty Limited 10. Riolane Holdings Pty Ltd 11. Mrs Diana Kathryn Cumins 12. RBC Investor Services Australia Nominees Pty Limited BKCust a/c> 13. Mr Michael Piperoglou 14. Mrs Christine Dorey 15. Mr Reginald Paul Webb 16. Goosegog Pty Ltd 17. Mrs Avril Celia Irons 18. Mr Peter Cumins 19. Alli Nominees Pty Ltd 20. Mrs Christine Ann D’Souza V O T I N G R I G H T S All shares are one class with equal voting rights. S H A R E H O L D E R I N F O R M AT I O N The shareholder information set out above was applicable as at 18 September 2015. NUMBER OF PERCENTAGE OF ORDINARY SHARES ISSUED SHARES 151,948,000 46,883,485 37,465,164 34,572,724 32,062,113 16,657,037 15,087,215 7,432,376 5,632,719 3,895,226 3,752,511 3,003,080 1,585,381 1,291,731 1,012,500 1,000,000 967,261 912,759 825,000 767,138 366,753,420 31.54 9.73 7.78 7.18 6.65 3.46 3.13 1.54 1.17 0.81 0.78 0.62 0.33 0.27 0.21 0.21 0.20 0.19 0.17 0.16 76.12 119. annual report 2015 A b N 3 9 0 6 9 1 4 1 5 4 6

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