Annual Report
For the year ended 30 June 2018
Cash Converters
International
Limited
—
ABN 39 069 141 546
cashconverters.com
“ Leveraging our brand
and continuing to put
our customers at the
centre of everything
we do.”
—
CONTENTS
—
5 Corporate directory
6 Chairman’s report
8
2018 highlights
12 Operating and financial review
21
Additional securityholder information
22 Directors’ report
66 Corporate governance
67
Consolidated statement of profit or loss
and other comprehensive income
68 Consolidated statement of financial position
69 Consolidated statement of changes in equity
70 Consolidated statement of cash flows
71 Notes to the financial statements
116 Directors’ declaration
117
118
Auditor’s independence declaration
Independent auditor’s report
“ Laying the
foundations to
be Australia’s
most trusted
personal finance
provider and
second hand
goods retailer.”
—
4 | Cash Converters International Limited – Annual Report 2018
CORPORATE
DIRECTORY
—
Directors
Mr Stuart Grimshaw
Non-Executive Chairman
Mr Peter Cumins
Executive Deputy Chairman
Ms Ellen Comerford
Non-Executive Director
Mr Kevin Dundo
Non-Executive Director
Mr Lachlan Given
Non-Executive Director
Ms Andrea Waters
Non-Executive Director
Company Secretary
Mr Brad Edwards
Registered and principal office
Auditors
Level 18, Citibank House
37 St Georges Terrace
Perth WA 6000
Australia
Tel: +61 8 9221 9111
Web: www.cashconverters.com
Share registrar
Computershare Investor Services Pty Ltd
Level 11
172 St Georges Terrace
Perth WA 6000
Australia
Tel: 1300 850 505
Deloitte Touche Tohmatsu
Brookfield Place, Tower 2
123 St Georges Terrace
Perth WA 6000
Australia
Stock Exchange
Australian Securities Exchange
Exchange Plaza
2 The Esplanade
Perth WA 6000
Australia
ASX code: CCV
Cash Converters International Limited – Annual Report 2018 | 5
CHAIRMAN’S
REPORT
For the year ended 30 June 2018
—
This year has been quite a formative one for your Company. The
profitability has returned to its growth phase after dealing with certain
changes in regulatory requirements over the past few periods. These
structural changes have enabled us to diversify our revenue streams
through the introduction of new products such as MACC and the
enhanced GLA product which further connect us to our customers.
We still face headwinds in acceptance of our existence from the major
banks as evidenced by their forthright refusal to offer banking facilities
to our listed parent company. While no formal comment has been made
to us regarding the withdrawal of banking support, it does appear that
their view is one of them being a superior provider of financial services
such that they do not want to be associated with us. I believe the major
banks refer to this as “reputational risk” to them.
However, our customers have bank accounts with these major
banks and, by depositing their money with them, are in fact lending
to them. Whilst our customers lend to the major banks, the banks
will not provide credit to them which is where we come in. To some
degree, our business is enhanced due to the nearsightedness of their
business models. We provide the cash needs for our customers with
such provision of credit overseen and administered by the regulatory
authorities. We have invested heavily in our risk and compliance
departments over the past twelve months to ensure the consistent and
compliant application of lending practices to our customers.
We are proud of how we have developed our business model to meet
the needs of our customers and the feedback we receive from them
is strongly appreciative of being there for them. Many times, they hear
“no” and we are the one place that treats them with dignity and respect
consistently. In this regard, we are grateful to the major banks for
determining our customers are not worthy of their service.
I mentioned previously that we apparently represent a reputational risk
to the major banks as we deal with customers they prefer not to deal
with. My past letters, in previous reports, have talked around many of
the issues that I perceived existed within the quadropoly environment of
the big four. The Royal Commission has exposed some of the failings
that exist within the operation of these institutions, and the wider
financial services environment, such that one wonders whether it is our
customers taking reputational risk dealing with these banks.
Relying upon an algorithm to approve loans was something we did
for some years and the regulator pointed out to us that this was
something that could not be relied upon and due enquiry and process
should be followed. We changed our process accordingly and yet the
major banks continued to utilise the same process despite the fact
that the regulators had taken a position on loan approval processes. It
may appear that nonchalance has led the major banks to believe that
their approach to all facets of their business has been first class and
impeccable. However, given the amount of money invested in risk and
compliance departments it is interesting to surmise what exactly they
have been overseeing.
We have been through some tough times ourselves and are now in a
much better position. When the operational issues came to the fore
with us, you could hear the major banks saying, “I told you so” and
shaking their heads. The headlines that have been daily news reading
for the past six months have shaken the financial services industry to its
6 | Cash Converters International Limited – Annual Report 2018
core. The concerning parts really are around the consistent misleading
practices undertaken by these same institutions that deem your
Company to be a risk to deal with. Charging fees on dead customers,
originating loans via cash rebates or bonuses, and the list goes on are
not something the industry should be proud of. Placing profit before the
customer had become the norm in the industry and we will now start to
see some rational behaviour return. The incentive schemes will change
but it is reasonable to proffer a view that the profit growth of these
companies will also slow. We have already seen a reaction from major
banks in the reduction of interest only loans, a “tightening” of credit in
loan approvals, revised broker compensation, a reduction/removal of
sales incentive programs, and this is only the start. What will take some
time to change is the fundamental culture that has arisen around a sales
and profit environment to one where the customer is central to the long-
term value of the Company.
The governance environment that currently exists is one where
the paperwork received at Board level is so voluminous that it is
overwhelming. Yet despite the increasing governance oversight,
few of the issues identified by the Commission appear to have made
it into the Board environment from management. It would appear
that the operational environment within which many companies operate
has become removed from close scrutiny and the form over substance
governance approach seems to have become widely accepted
as appropriate.
At Cash Converters, we have quite a complex environment that has
a mix of serving our customers via corporate store ownership and
a franchised network structure. When operated as intended, the
mix of these two channels works very well, however, your Board
is aware that due enquiry can only ensure that the customer is not
being inconvenienced. We are also reviewing the store and executive
compensation metrics to ensure that a balanced focus that strengthens
our culture around our customers and supports our employees in
meeting the needs of our customers continues to evolve and improve.
The four key principles that have been foremost in my past letters seem
appropriate to remind us of just how important we are to our customers:
1. We respect our customers and without us, they have to borrow
from friends and families, or worse, from the lower skilled parties in
the shadow finance industry;
2. We are transparent on pricing which is governed by a high degree
of regulatory oversight and imposed legislative conditions. The
Commission has highlighted the weakness in large financial
services firms in relation to transparency of pricing of products
and services;
3. Continued investment in data and technology will continue to
enhance and improve our credit underwriting processes;
4.
The demand for credit from our customers will not disappear.
Discussion continues about how to restrict lending to this
customer segment without informed positioning. The need for
credit from our customers often relates to the criticality of a
medical emergency, a car repair that must be done to enable them
to work, a family emergency, a large utility bill and the list goes on.
Lending responsibly and respectfully is the focus of the Company.
We finished the year with a couple of personnel changes to the
Company, the departure of our CEO Mr Mark Reid and the Chair
of the Remuneration Committee, Ms Ellie Comerford. Mark took
the reigns of the Company at a time that required a rebuild of the
governance infrastructure and refocusing of the strategy of the
Company. We have been able to achieve these objectives as well
as strengthen the balance sheet.
Ellie has worked tirelessly for your Company in structuring a
remuneration environment that aligns to the interests of both customers
and shareholders. This has been a very complex process to follow and
we are now in a position that has set the Company on the path that
ensures that the appropriate governance processes are in place and
the strategy of the Company is consistent with sound market-based
remuneration principles.
We all wish Mark and Ellie the best in their future endeavours and thank
them for their commitment to the Company.
In conclusion, the success of the Company could not be achieved
without the great staff we have, coupled with the support of our
customers. To them, we say thank you and to you, the
shareholders, we continue to be gratified by your support
which we take very seriously.
Sincerely,
Stuart Grimshaw
Chairman
Cash Converters International Limited – Annual Report 2018 | 7
HIGHLIGHTS
For the year ended 30 June 2018
—
Growth across all loan books,
increasing 49.7%
Outsourcing of all collections
activity to Collections House
(ASX:CLH) as of 30 June 2018
Online corporate
store retail
sales up 12.0%
8 | Cash Converters International Limited – Annual Report 2018
New Personal
Finance website
deployed
Net Profit After Tax
of $22.5m, up 9.1%
ASIC Enforceable Undertaking
(EU) successfully closed out
February 2018
GLA maiden
profit delivered.
Revenue up 30.7%
United Kingdom
New Zealand
United Kingdom operating as a master
franchise. UK operations contributed
$3.221m of EBITDA to the group
The Company has a 25% equity investment
in New Zealand. EBITDA increased to $846k
up from $314k in the prior year
Cash Converters International Limited – Annual Report 2018 | 9
Cash Converters voice of customer program,
GEM was launched to the store network in
August 2017. The vision of the program is
to put our customers and our people first.
By listening and responding to feedback we
will create positive experiences and put the
customer at the heart of everything we do.
GEM aims to provide insight that inspires
change and create a culture where our
day-to-day purpose is always connected
to the customer experience.
10 | Cash Converters International Limited – Annual Report 2018
“ The introduction of GEM has given the Store Managers
the ability to review and action insights provided to them
from their customers. Managers can surprise and delight
their existing customers loyal to our business.”
—
Net Promoter
Score 57.4
(At 30 June 2018)
70%
Promoters
83,208
survey responses
Overall
experience = 9.0
Cash Converters International Limited – Annual Report 2018 | 11
OPERATING AND
FINANCIAL REVIEW
For the year ended 30 June 2018
—
Cash Converters International Limited (the Company) and entities
controlled by the Company and its subsidiaries (the Group) is a
diverse group generating revenues from franchising, store operations,
personal finance and vehicle finance, supported by a corporate head
office in Perth, Western Australia. The Company operates in Australia
and the United Kingdom and also has an equity interest of 25% in
Cash Converters New Zealand. There is a franchise presence in a
further 15 countries around the world.
Financial Performance
FULL YEAR NET PROFIT
AFTER TAX OF $22.5M
9.1%
The Company reports a full year net profit after tax of $22.503 million
Despite the decrease in revenue, the business saw EBITDA for the
compared to a prior year profit after tax of $20.618 million, an increase
group increase to $49.776 million, up 8.9% from $45.725 million in FY
of 9.1%. Whilst revenue was down from $271.241 million in 2017
2017. In addressing the revenue challenge, the business focussed
to $260.345 million for the current financial year, this aligned with
on operational efficiencies, performance improvements and a greater
expectations as the changes introduced to the lending operations in the
attention to cost management to ensure an overall increase in business
prior year took full effect, with the reduction in lending volumes during
profitability. The changes to the credit assessing process and the
the prior year leaving a much lower opening balance in personal loan
ensuing reduction in the loan book also saw a reduction in the rate of
receivables and cash advance loans outstanding in stores. The Green
bad debt expense for the year, with net bad debt for personal finance
Light Auto business offset some of the decline in other revenue, as the
down from 18.4% of principal advanced to 15.2%. With the successful
continued growth of the vehicle finance book saw its revenue increase
closure of the Enforceable Undertaking entered into with ASIC in
by 30.7% on the prior year. The full year result reflects a stronger
FY 2017, the additional overheads incurred in the prior year were not
than anticipated second half of the year, delivered in a difficult industry
repeated and, together with a reduced legal spend, saw the head office
environment. The second half net profit after tax increased by 40% on
EBITDA loss reduce by 11.8%.
the first half of the year, reflecting growth in the Green Light Auto (GLA)
vehicle finance division and continued revenue momentum from the
Medium Amount Credit Contract (MACC) loan book within the personal
finance division.
A summary of consolidated revenues and results by significant segment
is set out below:
Segment revenues
Segment EBITDA results
Franchise operations
Store operations
Personal finance
Vehicle financing
Totals before head office costs
Head office
Totals after head office costs
Depreciation, amortisation and impairment
Finance costs
Profit before income tax
Income tax expense
Profit / (loss) for the year
12 | Cash Converters International Limited – Annual Report 2018
2018
$’000
19,606
118,540
109,490
11,969
259,605
740
260,345
2017
$’000
20,199
124,222
117,191
9,161
270,773
468
271,241
2018
$’000
12,404)
15,787)
46,677)
2,574)
77,442)
(27,666)
49,776)
(7,683)
(10,822)
31,271)
(8,768)
22,503)
2017
$’000
10,490)
17,549)
49,472)
(408)
77,103)
(31,378)
45,725)
(8,123)
(9,404)
28,198)
(7,580)
20,618)
Significant events
A significant milestone in the current year was the closure of the
Enforceable Undertaking that was entered into in November 2016. With
the approval of ASIC, an independent expert was appointed to conduct
a thorough review of the Company’s current responsible lending
practices and its obligations under its Australian Credit License. The
review did not identify any deficiencies nor result in any recommended
actions for the Company to achieve compliance. It did recommend
several best practice enhancements which the Company implemented
The entitlement offer was well supported by eligible shareholders.
Eligible shareholders (excluding EZCORP, Inc. (‘EZCORP’)) applied for:
•
approximately $12.8 million worth of New Shares (representing
approximately 48% take-up); and
•
a further approximately $0.75 million of additional New Shares
under the oversubscription facility (up to a maximum of 50% of
their entitlement).
fully. ASIC confirmed that no further work is required by the Company
The Company’s major shareholder, EZCORP, took up its full pro rata
under the Enforceable Undertaking. As part of the Enforceable
entitlement of approximately 31.75% of the New Shares, representing
Undertaking, the Company paid ASIC infringement penalties (provided
approximately $12.5 million, and applied for a further approximately
for in the FY 2016 financials) and during the current year completed the
$5.9 million worth of New Shares through the Oversubscription Facility.
successful remediation of eligible customers.
The Company also closed out other legacy matters with ASIC
in relation to its historic collections practices, through an agreed
The approximately $7.4 million worth of New Shares that were not taken
up by eligible shareholders were allotted to sub-underwriters of the
Entitlement Offer pursuant to the underwriting agreement between the
community benefit payment of $650,000. Through the agreement,
Company and Hartleys Limited.
Cash Converters further enhanced its collections activity with the
migration of the store-based Cash Advance collections and Green Light
Auto (GLA) collections activity to Collection House (ASX: CLH).
During the year the business reviewed its funding arrangements, and
two key strategic outcomes were achieved. Firstly, the business
executed an amendment to its securitisation facility. The amendment
saw the overall facility limit increase from $100 million to $150 million,
with the availability of utilising the additional funding through the
activation of two tranches of $25 million over the following 18 months.
In addition to the increased limit, the eligibility criteria of the receivables
funded under the facility was extended to include the Medium Amount
Credit Contract (MACC) loans, which are larger loans of between
$2,000 and $5,000 and the vehicle loans financed by GLA. With the
amendment taking effect in December 2017, the facility term was also
reset for a further 3 years with an option to extend for a further 2 years.
This revised facility gives the business the capability to fund the growing
MACC and GLA loan books in addition to historic Small Amount Credit
Contract (SACC) loans, which was the extent of the facility’s eligibility at
inception.
The second strategic decision looked to address the upcoming maturity
of the $60 million bond held through FIIG securities, due to be repaid in
September 2018. Whilst options were available to refinance the bond,
the terms offered were not as favourable as the existing facility and it
was therefore agreed by the Board that the business look to the equity
market to raise capital to repay the bond. The Company announced a
fully underwritten non-renounceable entitlement offer on 30 May 2018 to
raise $39.5 million. The offer closed on 18 June 2018 and 123,288,356
new fully paid ordinary shares in Cash Converters were issued under the
entitlement offer, at an issue price of $0.32 per share.
EBITDA from continuing operations
Normalisation adjustments:
Restructure costs
Release of share-based payments accrual for lapsed LTIs
Compliance provision and associated expenses
Class action legal fees
EBITDA normalised
After allocation of issue costs, the net cash received of $37.966 million
will be used in conjunction with existing operating cash balances to
repay the FIIG bond upon its maturity date.
The reported financial performance includes transactions that the
Company categorises as outside its normal operating activity and has
listed these in the table below, to provide a ‘Normalised EBITDA’ that
more accurately reflects the underlying performance of the business.
EBITDA OF $49.8M
8.9%
2018
$’000
2017
$’000
49,776)
45,725
–)
(1,330)
–)
2,749)
51,195)
1,740
–
2,088
3,973
53,526
Cash Converters International Limited – Annual Report 2018 | 13
OPERATING AND
FINANCIAL REVIEW
For the year ended 30 June 2018
—
SACC LOAN BOOK OF $85.6M
19.4%
For the prior year the compliance provision and associated costs of
Franchise operations
$2.088 million relate to the additional costs associated with the call
centre deployed to manage the remediation program, the costs of
the independent expert and changes made to systems to meet the
reporting requirements of the EU.
The Class action legal fees of $2.749 million in the current year
(2017: $3.973 million) relate to the ongoing defence of the Queensland
Class actions.
In the current year, due to the business not meeting the vesting criteria
on the long-term incentive (LTI) plan for the options issued in FY 2016,
whose measurement period ended 30 June 2018, $1.330 million of
costs previously expensed in relation to the tranche of options linked
to normalised earnings per share growth (NEPSG) were credited
back to profit and loss. A further $764 thousand of costs associated
with the tranche of options linked to market linked total shareholder
return vesting condition, were credited directly to retained earnings in
accordance with the accounting treatment prescribed by AASB 2.
PAWN LOAN BOOK OF $10.6M
6.3%
14 | Cash Converters International Limited – Annual Report 2018
Franchise operations encapsulate royalties and licence fees from
15 countries, franchised Cash Converters operations, as well as
Cash Converters UK Ltd (CCUK), a wholly owned subsidiary of the
Company, which operates as master franchisor to 196 (2017: 196) UK
franchisee operated stores. This segment also includes fees from 84
(2017: 83) franchisee owned stores in Australia.
The total number of franchised stores globally now stands at over
650, with 84 stores in Australia, 196 in the UK and 380 throughout the
rest of the world. The Company continues to look for opportunities to
expand its franchise network, both in Australia and internationally. The
performance of this segment remains steady with long-term franchise
agreements in place driving consistent year on year revenue.
EBITDA for the franchise operations for the year was $12.404 million, an
increase of $1.914 million (18.2%) over the prior year. CCUK reported
full year EBITDA of $3.221 million (2017: $1.746 million), which reflects
the 49 previously corporate owned stores that were sold to franchisees
at the end of FY 2016 but had their franchise fees waived for the first
year, now all paying full fees in FY 2018.
Australian franchise operations contributed $4.165 million of revenue
(2017: $4.074 million). The franchisee businesses continue to drive
strong earnings, although facing a challenging retail environment
causing a slight decline in retail revenue, the franchise network has
achieved an increase to their pawn broking loan books and interest
income during the year.
International franchise revenues of $643 thousand during the year were
$96 thousand lower than the prior year. In addition to the franchise
fee revenue, the Franchise segment also includes the New Zealand
operations, in which the Company holds a 25% equity interest. New
Zealand’s operation has continued its steady growth, particularly in its
lending business, to bring the equity investment contribution to EBITDA
of $846 thousand, up from $314 thousand in the prior year.
MACC LOAN BOOK OF $34.0M
154.6%
PERSONAL FINANCE LENDING
VOLUMES OF $180.9M
22.4%
Store operations
Store operations combines the performance of the 69 Company-
owned Cash Converters stores in Australia. Revenue from these stores
is derived from the retailing of new and second hand goods both
in-store and online, as well as interest from pawn broking loans and
cash advance short-term loans. Stores also receive commission from
successful personal loan applications processed in-store and referred
to the Company’s Personal Finance business. Store operations also
receive a share of income from successful online loan applications.
The stores in Australia face a continuing challenge across the network,
being impacted from both a tough retail environment in stores and
still adjusting to the changes to the unsecured lending business that
were rolled out in FY 2017. The stores contributed a segment EBITDA
of $15.787 million, a decrease of $1.762 million from the FY 2017
result. This decrease was largely driven by a 22.1% reduction in cash
advance lending, which saw revenue reduce by 27.0%, as the changes
introduced in April 2017 through the new Income and Expenditure
application process took full effect. This was partially offset by a 10.5%
increase in personal loan commissions.
Overall retail sales decreased by 2.5% during the year to $72.963
million. This decrease was felt specifically in store, as online sales
continued to improve, up 12.0% to $7.093 million. Online retail is now
contributing 9.7% of all retail sales, up from 8.5% in 2017.
Pawn broking lending remained flat for the year, with only a slight
improvement in revenue, up 1.1% on the prior year. At the end of
FY 2018 the Company launched a new marketing campaign, ‘Flip It’,
to reimagine pawn broking, the first campaign specifically aimed
at pawn broking in over 10 years. The benefits are expected to
materialise through the following year.
Cash Converters International Limited – Annual Report 2018 | 15
OPERATING AND
FINANCIAL REVIEW
For the year ended 30 June 2018
—
GREEN LIGHT AUTO LOAN BOOK OF $42.1M
109.3%
Personal finance
The personal finance operations incorporate the trading results of
Mon-E Pty Ltd (Mon-E) and Cash Converters Personal Finance Pty Ltd
(CCPF). Mon-E is responsible for providing the software platform and
administration services for the Cash Converters network in Australia to
offer small cash advance loans to their customers (average loan size
of $426, 2017: $398) and refer personal loans from stores to CCPF
for assessing.
appetite. Following this review, the business launched the larger MACC
loans and rolled out a new assessing platform to automate the analysis
of customer bank statements and application details to accurately
and efficiently assess income and expenditure as required under our
responsible lending obligations. Cash Converters does not determine a
decision based on any benchmarks when assessing a Personal Finance
loan applicant irrespective of loan amount size, instead analysing
actual bank statement transactions to determine an accurate position
of affordability. All loan approval decisions are manually determined in
The cash advance principal loaned is financed by the corporate stores
respect of the Company’s responsible lending obligations.
CORPORATE EXPENSES
DOWN REFLECTING
TIGHTER EXPENSE CONTROL
11.8%
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 as a percentage of fees
earned by the store and successfully collected.
CCPF provides unsecured loans originated through the franchise and
corporate store networks and directly from customers online. The
loans are underwritten, and the principal funded, by CCPF, which
pays a commission to the stores (both corporate and franchise) for the
generation of the lead and processing the application in-store. The
business offers two loan types referred to as SACC (Small Amount
Credit Contracts) and MACC (Medium Amount Credit Contracts).
SACC loans range from $400 to $2,000, for a duration between 4 and
12 months, with a default 9-month term. The average size SACC loan
is $1,149 (2017: $1,044). MACC loans range from $2,000 to $5,000,
and can be from 4 to 24 months’ duration, with a default term of 9
months. Average MACC loans for the year were $3,606 (2017: $3,693).
Segment EBITDA from this division for the year was $46.677 million
(2017: $49.472 million), down $2.795 million (5.6%) on last year.
As reported in the prior year, the personal finance business made
substantial changes to its operating model in FY 2017 that saw a
comprehensive review of its underwriting process and related risk
16 | Cash Converters International Limited – Annual Report 2018
INCREASED SECURITISATION FACILITY
TO $150M UNTIL 2020 WITH THE ABILITY
TO FUND GROWTH IN MACC AND GLA
$150m
Whilst the introduction of the new Income and Expenditure platform
saw a decrease in SACC lending, with principal advanced down
5.1% on the prior year, the launch of the MACC loans in November
2016 more than compensated for this decline, with an increase in
MACC lending to $54.935 million in FY 2018, an increase of 265% on
the prior year. This, combined with SACC lending, produced an overall
increase in principal advanced of 22.4% to $180.851 million
for the year.
The combined loan book has increased during the year by 40.6% from
$81.355 million at June 2017 to $114.406 million. However, due to the
revenue recognition of the loans being spread over the life of the loans,
and starting from a lower opening balance with gradual growth through
the year, the overall revenue from personal finance is down 6.5% to
$104.607 million (2017: $111.849 million).
With the growth in MACC lending coming more from the store-based
applications (61.5% store-based advances), the overall weighting of the
channel between online and in-store has moved slightly towards stores.
However, it is notable that application volumes online have increased
but with the greater focus on quality loans, the approval rate for online
is significantly lower, resulting in fewer loans advanced. Across the
division, total loan applications are up 8.4% year on year. At 30 June
2018, 54.6% of the loan book outstanding relates to store-based
lending, up from 51.9% at 30 June 2017.
The business continues to work with Collection House as its collection
partner, utilising their industry expertise and technology to continually
improve the collection process whilst continuing to ensure the business
meets its regulatory obligations. With 2018’s focus on improving the
quality of the loan book and more rigorous assessing criteria, it is
pleasing to see that despite the reduced revenue, the impact on bad
debt has been positive, with gross SACC bad debts written off down
21.3% on the prior year. With the rapid growth of the MACC loan book,
there has been an absolute increase in the MACC bad debts, but when
combined with the overall movement in the lending for the year, net bad
debt expense (the net of bad debt expense, provision for doubtful debts
and bad debt recoveries) as a percentage of principal advanced has
reduced from 18.4% in FY 2017 to 15.2% in FY 2018.
Cash Converters International Limited – Annual Report 2018 | 17
OPERATING AND
FINANCIAL REVIEW
For the year ended 30 June 2018
—
Vehicle financing
Green Light Auto Finance (GLA) is the Company’s vehicle financing
business, offering a range of secured automotive loans through a
network of brokers, car dealerships, Cash Converters stores and direct
to customer online. GLA’s product offerings are loans from $5,000 to
$50,000 for a term up to 7 years. In the current year the average loan
value was $18,054 (2017: $18,322) with an average term of 54 months
(2017: 56 months). During the year the business expanded its offering
to include financing for private vehicle sales and for motorcycles.
Having launched the auto loan model in March 2016, the business
is pleased to report the loan book at 30 June 2018 has increased by
109.3% to $42.070 million over the year. This has led to an EBITDA
contribution of $2.574 million, up from a reported EBITDA loss in FY
2017 of $408 thousand, making FY 2018 GLA’s first profitable year.
Total revenue from vehicle financing is up 30.7% to $11.969 million,
with loans advanced totalling $26.305 million.
Corporate costs
FRANCHISE OPERATIONS
DELIVERED EBITDA OF $12.4M
18.2%
During the year GLA successfully completed the migration of its
Corporate costs consist of corporate related activities, such as IT,
loan management platform to the core CCPF platform, which sets
Business Development, Finance, HR, Risk and Internal Audit, Legal,
the foundation for the scalability needed to continue the growth of
Marketing, Board and leadership team. During the year, corporate
the vehicle finance business. In conjunction with this, the business
costs decreased by 10.8%, largely due to a $1.330 million credit for
deployed its version of the Income and Expenditure process to
lapsed LTI options where the share-based payment expense was
determine loan affordability in line with the GLA assessing criteria and
reversed, and a $1.224 million lower spend on legal fees associated
assisting with the risk-based pricing of the vehicle loan product.
with the Queensland class action. The business also benefited from
The discontinued Carboodle lease business continues to naturally
wind down as leases come to an end. The total number of
outstanding leases at 30 June 2018 was 230 (2017: 435). These
increased interest income from bank deposits, which is allocated to
the Head Office segment EBITDA. Other costs remained relatively
consistent as the focus remains on investing in the long-term growth
of the business, whilst continuing to monitor costs and efficiencies
remaining leases are scheduled to complete over the next 18 months,
and represent $1.472 million of receivables on the balance sheet
where possible.
(2017: $3.700 million).
PERSONAL FINANCE NET
BAD DEBT DOWN TO
15.2% OF OUTGOINGS
15.2%
18 | Cash Converters International Limited – Annual Report 2018
Financial Position
Summarised Financial Position
Cash at bank
Loan receivables
Other receivables
Inventories
Other assets and intangibles
Total assets
Borrowings
Other liabilities
Total liabilities
Total equity
Operating cash flow
Gearing (net debt/equity)
Basic earnings per share (cents)
Return on equity
2018
$’000
2017
$’000
139,991)
151,724)
28,261)
20,673)
168,480)
509,129)
158,347)
28,374)
186,721)
80,571
101,970
31,051
20,991
164,262
398,845
107,237
30,769
138,006
322,408)
260,839
(21,549)
6.1%)
43,534
10.2%
4.55 cents)
4.21 cents
7.0%)
7.9%
Cash Converters International Limited – Annual Report 2018 | 19
OPERATING AND
FINANCIAL REVIEW
For the year ended 30 June 2018
—
Receivables (trade and personal loans)
Outlook
Outstanding loan receivables (personal loans and vehicle finance loans)
With FY 2017 being the year of transformation, FY 2018 was a
for the year have increased from $101.970 million to $151.724 million,
foundation year upon which the strategic growth of the business will
due largely to the significant increase in MACC and vehicle loans during
be built. Looking ahead, the opportunity to execute across all pillars
the year. Other trade receivables reflect the continued run-off of the
of the Company’s strategic plan is present. At its core, there is digital
Carboodle leases and the scheduled repayment of the loans provided to
transformation, with a new lending site deployed in 2018, and in the
franchisees in the UK for the purchase of corporate stores in 2016.
year ahead the new e-commerce site will launch replacing the now
Other assets and intangibles
10-year-old ‘Webshop’, building on already record online retail volumes.
The Company’s customer engagement program will step up a gear and
The Company continues to invest in its digital transformation, with
see the implementation of text analytics of customer feedback to drive
$7.458 million of capitalised software development incurred during the
new operational and product improvements. The appointment of a new
year (2017: $7.325 million). Following an increase in FY 2017, inventory
head of the store network, General Manager Corporate Distribution,
levels have steadied in FY 2018, with aged stock being a focus for store
Ben Cox, will bring a wealth of knowledge from his successful
operations.
Borrowing and gearing
As reported under significant events, the Company has successfully
secured an amendment to its securitisation facility with Fortress
Investment Group, increasing the facility limit to $150 million and
extending the eligibility to include the MACC and GLA loans.
At 30 June 2018 the facility was drawn to $99.500 million (2017:
$45.500 million), a net increase in borrowings of $54.0 million.
The FIIG Securities bond of $60 million has a maturity date of
Cash Converters franchise in the UK, to bear on the Australian store
network, bringing renewed energy to the core functions of buy, sell
and pawn.
Technology will continue to play a key part in the ongoing expansion
of Green Light Auto’s vehicle financing operations, to ensure its
support operations can efficiently scale with its loan writing growth.
Similarly, CCPF’s personal finance offering will look to optimise the
customer experience with advancements made to system automation,
machine learning and enhanced payment processing. Strategically,
the Company will continue to broaden its product offering beyond
19 September 2018, at which point the Company will repay the full
SACC which ends FY 2018 at less than 50% of the combined
amount using available cash reserves.
With the increased cash on balance sheet following the additional draw
down from Fortress and the capital raise completed in June 2018, the
loan book (down from 89% in FY 2016) to attract a new customer
demographic to the business, leveraging scale to control costs and
optimise marketing returns.
net debt position at 30 June 2018 is $19.509 million (2017: $26.666
The business will also continue to pursue opportunities to expand
million) and the gearing ratio has reduced to 6.1% at 30 June 2018
its store network in Australia and the UK as franchisees express the
desire to add to their store numbers. Development of the international
Cash Converters network is also a key strategic opportunity to continue
to explore in the year ahead.
(2017: 10.2%).
Cash flows
With the substantial increase in MACC and GLA lending in the year,
which are typically longer-term loans, the operating cash flow has been
a net outflow of $21.549 million, quite different from the prior year
which saw overall loan book volumes reduce and hence an increase in
operating cash flow of $43.534 million.
The cash and cash equivalents reported of $139.991 million includes
the $37.966 million net proceeds from the non-renounceable
entitlement issue completed in June 2018. When deducting the
committed balance to repay the FIIG bond of $60 million and the
restricted cash held as security for the transactional banking facilities
together with cash held in trust for the securitisation facility, free cash
remains of $69.766 million, up from $59.988 million the previous year.
20 | Cash Converters International Limited – Annual Report 2018
ADDITIONAL SECURITYHOLDER
INFORMATION
As at 25 September 2018
—
1. Number of holders of equity securities
(a) Distribution of holders of equity securities
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
(b) Voting rights
Holders
Number
731
1,522
891
1,516
248
4,908
Fully paid ordinary shares
Number
346,967
4,273,537
6,972,971
48,051,568
556,792,903
616,437,946
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show
of hands.
(c) Less than marketable parcel of shares
The number of shareholders holding less than a marketable parcel is 1,067, given a share price of $0.315 per share.
(d) Substantial shareholders
Ordinary shareholder
EZCORP Inc
Adam Smith Asset Management
2. Twenty largest equity security holders
Ordinary shareholder
1. EZCORP Inc
2. HSBC Custody Nominees (Australia) Limited
3. Citicorp Nominees Pty Limited
4. JP Morgan Nominees Australia Limited
5. BNP Paribas Nominees Pty Ltd
6. BNP Paribas Noms Pty Ltd
7. National Nominees Limited
8. Riolane Holdings Pty Ltd
9. Mr Noel D’Souza + Mrs Christine D’Souza
10. Investment Custodial Services Limited <990048401 A/C>
11. Mr Frederick Benjamin Warmbrand
12. NCH Pty Ltd
13. Mrs Lilian Jeanette Warmbrand
14. Dorran Pty Ltd
15. Mr Craig Graeme Chapman
16. Neweconomy com au Nominees Pty Limited <900 Account>
17. Vadina Pty Limited
18. Ms Choi Chu Lee
19. Sporran Lean Pty Ltd
20. Mr Kamil Umit Yesilyurt
Number of
shares
214,183,714
42,945,495
% of
issued
shares
34.75
6.97
Number of
shares
214,183,714
136,045,813
43,809,153
33,382,195
20,361,692
13,657,346
10,900,154
6,795,226
2,051,156
1,875,000
1,805,774
1,680,333
1,504,825
1,500,000
1,474,454
1,467,200
1,420,000
1,250,000
1,199,999
1,187,500
% of
issued
shares
34.75
22.07
7.11
5.42
3.30
2.22
1.77
1.10
0.33
0.30
0.29
0.27
0.24
0.24
0.24
0.24
0.23
0.20
0.19
0.19
497,551,534
80.71
Cash Converters International Limited – Annual Report 2018 | 21
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
The directors of Cash Converters International Limited submit the following report of the Company for the financial year ended 30 June 2018.
In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:
Information about directors
The following persons held office as directors of the Company during the whole of the financial year and until the date of this report unless
otherwise stated:
Mr Stuart Grimshaw
Non-Executive Chairman
Appointed director 1 November 2014
Appointed Chairman 10 September 2015
—
Mr Grimshaw joined the Board in 2014 and was appointed Non-Executive Chairman on
10 September 2015. Mr Grimshaw is currently the Chief Executive Officer of EZCORP Inc.
Prior to joining EZCORP in November 2014, Mr Grimshaw was the Managing Director and Chief
Executive Officer of Bank of Queensland Limited (BOQ).
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 recognised 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 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, Australia). He has also completed the Program for Management Development at Harvard
Business School.
Over the past 3 years Mr Grimshaw has held directorships with the following listed company;
Company
EZCORP Inc
Commenced
3 November 2014
Ceased
–
22 | Cash Converters International Limited – Annual Report 2018
Mr Peter Cumins
Executive Deputy Chairman
Mr Lachlan Given
Non-Executive Director
Appointed director April 1995
Appointed Executive Deputy Chairman 23 January 2017
—
Mr Cumins joined the Company in August 1990 as Finance and Administration Manager when the
Company had just 23 stores, becoming General Manager in March 1992. He became Managing
Director in April 1995. Mr Cumins moved from this role to the role of Executive Deputy Chairman on
23 January 2017.
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.
Over the past 3 years Mr Cumins has held a directorship with the following listed company:
Company
EZCORP Inc
Commenced
28 July 2014
Ceased
–
Appointed director 22 August 2014
—
Mr Given joined the Board in 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; CANSTAR
Pty Ltd, the leading Australian financial services ratings and research firm; and RateCity.com Pty
Ltd, one of Australia’s largest internet based financial services comparison organisations.
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).
Over the past 3 years Mr Given has held directorships with the following listed companies:
Company
Commenced
Ceased
Senetas Corporation Limited
20 March 2013
EZCORP Inc
18 July 2014
–
–
Cash Converters International Limited – Annual Report 2018 | 23
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Mr Kevin Dundo
Non-Executive Director
Ms Andrea Waters
Non-Executive Director
Appointed director 20 February 2015
—
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 of ASX-listed Imdex Limited (ASX: IMD) and
Non-Executive Chairman of ASX-listed Red 5 Limited (ASX: RED).
Mr Dundo is a member of the Company’s Audit and Risk Committee and Remuneration and
Nomination Committee, and until 24 February 2017 was the Chair of the Audit and
Remuneration Committees.
Over the past 3 years Mr Dundo has held directorships with the following listed companies:
Company
Imdex Limited
Red 5 Limited
Commenced
14 January 2004
29 March 2010
Ceased
–
–
Appointed director 9 February 2017
—
Ms Waters is a Chartered Accountant with an extensive career at KPMG, with 16 years as a Financial
Services Audit Partner (until 2012), specialising in managed investments and superannuation. She
has extensive experience with audit committees, and using this knowledge, she is a professional
non-executive director, with a strong passion for implementing and improving governance and audit
structures within business operations. Ms Waters is also an accredited facilitator for Australian
Institute of Company Directors’ Company Director Course.
Ms Waters is also a non-executive director of My State Limited (ASX: MYS) (also Chair of the group
Audit Committee), Bennelong Funds Management Ltd (also Chair of the Audit, Risk and Compliance
Committee), Care Super, CityWide Service Solutions (also Chair of the Audit and Finance Committee)
and Colonial Foundation Limited. She has previously been a non-executive director of Chartered
Accountants Australia and New Zealand, Lord Mayor’s Charitable Foundation and Cancer Council
Victoria. Ms Waters holds a Bachelor of Commerce from the University of Melbourne, is a Fellow of
Chartered Accountants Australia and New Zealand, is a graduate member of the Australian Institute of
Company Directors and the Australian Institute of Superannuation Trustees.
Ms Waters is Chair of the Company’s Audit and Risk Committee and a member of the Remuneration
and Nomination Committee.
Over the past 3 years Ms Waters has held directorships with the following listed company:
Company
MyState Limited
Commenced
19 October 2017
Ceased
–
24 | Cash Converters International Limited – Annual Report 2018
Ms Ellen Comerford
Non-Executive Director
Appointed director 9 February 2017
Resigned with effective date 30 September 2018
—
Ms Comerford has over 30 years of financial services experience across a range of banking and
insurance businesses. Most recently Ms Comerford was Chief Executive Officer and Managing
Director of Genworth Australia, an ASX top 200 listed company, successfully leading the company
through an IPO in 2014. She has also held various positions with leading global title and specialty
insurance company First American Financial Corporation, both in Australia and internationally,
including CEO and Managing Director for the Australian and New Zealand operations, and
Chief Operating Officer for the international division. Prior to this, she was at Citigroup for
approximately 14 years.Ms Comerford brings significant experience in enhancing performance
culture within businesses with a commitment to promoting diversity and she is a member of Chief
Executive Women.
Ms Comerford is also a non-executive director of Hollard Holdings Australia and Hollard Insurance
Company in Australia and Heartland Bank Limited in New Zealand and certain of its subsidiaries
in Australia.
Ms Comerford is Chair of the Company’s Remuneration and Nomination Committee and a member
of the Audit and Risk Committee.
Over the past 3 years Ms Comerford has held directorships with the following listed companies:
Company
Commenced
Ceased
Genworth Mortgage
Insurance Australia Limited
20 February 2012
9 October 2015
Heartland Bank Limited (NZX)
1 January 2017
–
Cash Converters International Limited – Annual Report 2018 | 25
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Directors’ shareholdings
The following table sets out each director’s relevant interest in shares and options in shares of Cash Converters International Limited as at the date of
this report:
Directors
Mr S Grimshaw
Mr P Cumins
Mr L Given
Mr K Dundo
Ms A Waters
Ms E Comerford
Company Secretary
Mr Brad Edwards
Appointed 30 June 2017
Fully paid ordinary shares
Share options
Number
Number
–
7,575,694
–
–
68,750
–
–
4,572,920
–
–
–
–
With a background in law, Mr Edwards has extensive private practice and corporate experience, most notably with the Bank of Queensland Group
for 15 years, where he held the roles of Company Secretary and General Counsel. His career encompasses financial services, including retail
franchising, regulatory matters, dispute resolution and class action litigation, capital markets and mergers and acquisitions.
Principal activities
The principal activity of Cash Converters International Limited and its subsidiaries (the Group) 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 number of corporate stores in Australia, all of which trade
under the Cash Converters name.
Country master 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.
Review of operations
The Group’s net profit attributable to members of the parent entity for the year ended 30 June 2018 was $22.503 million (2017: $20.618 million)
after a charge for income tax of $8.768 million (2017: $7.580 million).
A review of the Group’s operations and financial performance has been provided on pages 12 to 20.
Changes in state of affairs
During the financial year the following change occurred within the Group.
Issue of Share Capital – On 30 May 2018 the Company announced a fully underwritten non-renounceable entitlement offer to raise $39.5 million.
The offer closed on 18 June 2018 and 123,288,356 new fully paid ordinary shares in Cash Converters were issued under the entitlement offer, at an
issue price of $0.32 per share.
Subsequent events
The Company has continued to evolve and is positioning itself for future growth. As this re-positioning has occurred, the recognition of the talent
of people within the organisation has also become apparent. While it is never preferred to have changes in the Company’s structure, we must also
recognise that opportunities will be presented to our people, some very attractive. We are seeing this evolve as disclosed below.
On 23 August 2018 the Company announced that Ms Ellen Comerford had submitted her resignation as a Director effective 30 September 2018.
26 | Cash Converters International Limited – Annual Report 2018
On 27 August 2018 the Company announced that Mr Mark Reid has submitted his resignation as Chief Executive Officer with immediate effect.
Chief Operating Officer, Mr Sam Budiselik has been appointed as Interim Chief Executive Officer whilst the Board conduct an executive search for a
permanent replacement for Mr Reid.
There have been no other events subsequent to the reporting date requiring disclosure in this report.
Future developments
Likely developments in expected results of the Group’s operations in subsequent years and the Group’s business strategies are referred to elsewhere
in this report. In the opinion of the directors, any further information on those matters could prejudice the interest of the Company and has therefore
not been included in this report.
Dividends
On 27 August 2018 the Company announced that there would be no final dividend in respect of the financial year ended 30 June 2018.
No final dividend was paid in respect of the financial year ended 30 June 2017.
Shares under option or issued on exercise of options
Details of unissued shares or interests under option as at the date of this report are:
Issuing entity
Cash Converters International Limited
Cash Converters International Limited
Number of
shares under
option
6,358,218
3,461,288
Class of
shares
Exercise price
of option
Ordinary
Ordinary
Nil
Nil
Vesting
determination
date
30 Jun 2019
30 Jun 2020
The performance rights 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.
No shares have been issued as a result of the exercise of share options or performance rights during or since the end of the financial year.
Indemnification and insurance of directors and officers
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company Secretary
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.
Cash Converters International Limited – Annual Report 2018 | 27
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Directors’ meetings
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:
Directors
Board of directors
Audit and Risk
Remuneration and
Committee
Nomination Committee
Special Purpose
Committees~
Mr S Grimshaw
Mr P Cumins
Ms E Comerford
Mr K Dundo
Mr L Given
Ms A Waters
Held
Attended
Held
Attended
Held
Attended
Held
Attended
15
15
15
15
15
15
15
15
15
15
15
15
7*
7*
7
7
7*
7
6*
6*
7
6
5*
7
5*
5*
5
5
5*
5
5*
5*
5
5
4*
5
–
–
7
7
–
7
–
–
7
7
–
7
* Denotes directors who were not a member of the Committee but attended meetings by invitation.
~
In the current year, the Special Purpose Committee was an independent Board sub-committee convened in relation to the non-renounceable
entitlement offer, announced 30 May 2018.
Non-audit services
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 income tax and 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 6.6 to the
financial statements.
Rounding off of amounts
The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials / Directors’ Reports) Instrument 2016/191, dated
24 March 2016, and in accordance with that Corporations Instrument, amounts in the directors’ report and the financial statements are rounded off
to the nearest thousand dollars, unless otherwise indicated.
Auditor’s independence declaration
The auditor’s independence declaration is included on page 117.
28 | Cash Converters International Limited – Annual Report 2018
Remuneration report
(audited)
1.
2.
Letter from the Chair of the Remuneration and Nomination Committee
Persons addressed and scope of the Remuneration Report
3. Context of and changes to KMP remuneration for FY 2018 and into FY 2019
4. Overview of Cash Converters’ Remuneration Governance Framework and strategy
5.
6.
7.
Planned executive remuneration for FY 2018 (non-statutory disclosure)
Vested / awarded incentives and remuneration outcomes in respect of the completed FY 2018 period (non-statutory disclosure)
Performance outcomes for FY 2018 including STI and LTI assessment
8. Changes in KMP-held equity
9. Non-Executive Director fee policy rates for FY 2018 and FY 2019 and fee limit
10. Remuneration records for FY 2018 (statutory disclosures)
11. Employment terms for KMPs
12. Other remuneration-related matters
13. External remuneration consultant advice
Cash Converters International Limited – Annual Report 2018 | 29
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
1. Letter from the Chair of the Remuneration and Nomination Committee
Dear Shareholders
On behalf of the Board, I am pleased to present our 2018 directors’ Remuneration Report for Cash Converters International Limited.
The Board is committed to KMP remuneration being aligned to organisational performance, while ensuring we incentivise and retain employees
critical to delivering our strategy. At the same time, we continue to pursue growth plans that will enhance shareholder value.
Financial performance during the year exceeded expectations with a net profit after tax of $22.503 million being achieved as we continue to
transition the business.
FY 2018 was a successful year and a number of milestones were met which contributed to the realisation of our strategy. These include
strengthening our digital presence, development and growth of personal finance product offerings and significant capital raising that strengthened
the structure of the balance sheet.
The Board had a strong focus on remuneration governance and key outcomes of the execution of our remuneration governance framework include:
• Review of all remuneration governance framework policies;
•
Engagement of an independent executive remuneration consultant to assist with salary benchmarking and advice linked to long-term incentives;
•
Aligning the measurement of financial measurements for incentive plans to NPAT as opposed to previously used measure of EBITDA so that a
greater link was made to shareholder outcomes;
• Reviewing the non-financial measures for executive short-term incentive key performance indicators;
• Amending the vesting criteria for FY 2018 grant offers to ensure an appropriate target index for TSR value;
• Reviewing NED remuneration with the addition of a fee for special purpose committees;
• Approval of a minimum shareholding policy;
• Addition of a risk score gate opener for FY 2019 incentive plans.
Other governance work completed as part of our Remuneration and Nominations Charter included the review of remuneration practices for the
organisation as a whole, along with focus on diversity, recruitment, termination and retention practices.
In consideration of industry movement in remuneration practices in the banking and finance industry, the Board has, over the course of FY 2018,
and will continue in FY 2019, to review governance and compliance with remuneration policies and practices implemented by the Company with the
aim of achieving outcomes expected by shareholders (aligned with shareholder expectations). Linked to understanding and monitoring the role of
incentive plans and the behaviours they influence, the Board is committed to continually seeking feedback from both stakeholder and independent
consultants with respect to KMP remuneration governance and practices. There will continue to be a strong focus in FY 2019 on the link between
the remuneration and risk frameworks to support the incentive plans.
The Board is confident that the remuneration structures in place are an appropriate response to industry and Company circumstances and will
enable the continued performance and growth of the Company, with the aim of realising our strategy and the associated shareholder benefits.
Yours faithfully,
Ellen Comerford
Chair, Remuneration and Nomination Committee
30 | Cash Converters International Limited – Annual Report 2018
2. Persons addressed and scope of the Remuneration Report
This remuneration report forms part of the directors’ report for the year ended 30 June 2018 and, in accordance with section 300A of the
Corporations Act, provides information in regard to:
(i)
the Company’s governance relating to remuneration;
(ii)
the policy for determining the nature and amount or value of remuneration of Key Management Personnel (KMP);
(iii) the various components of that remuneration;
(iv) the prescribed details relating to the amount or value paid to KMP, as well as a description of any performance conditions;
(v) the relationship between the policy and the performance of the Company.
The Company has also provided additional information to assist shareholders in obtaining an accurate and complete understanding of the
Company’s approach to the remuneration of KMP.
KMP are the non-executive directors (NEDs), executive directors and senior executive employees who have authority and responsibility for planning,
directing and controlling the activities of the Company. On that basis, the following roles / individuals are addressed in this report:
Non-executive directors
Position
Mr Stuart Grimshaw
Ms Ellen Comerford
Mr Kevin Dundo
Mr Lachlan Given
Ms Andrea Waters
Executive director
Mr Peter Cumins
Senior Executives classified as KMP
Mr Mark Reid
Mr Sam Budiselik
Mr Nathan Carbone
Mr Ben Cox
Ms Myrrhine Cutten
Mr Brad Edwards
Mr Martyn Jenkins
Mr Shane Prior
Chairman and non-executive director
Non-executive director
Chair of Remuneration and Nomination Committee
Audit and Risk Committee member
Audit and Risk Committee member
Remuneration and Nomination Committee member
Non-executive director
Non-executive director
Chair of Audit and Risk Committee
Remuneration and Nomination Committee member
Executive Deputy Chairman
Chief Executive Officer
Chief Operating Officer
Chief Risk Officer
General Manager Corporate Distribution
Chief Human Resources Officer
General Counsel and Company Secretary
Chief Financial Officer
Chief Operating Officer – Stores
Cash Converters International Limited – Annual Report 2018 | 31
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Appointments / changes that have occurred to the KMP during or since the end of the financial year are:
Ms Ellen Comerford
Mr Mark Reid
Ms Comerford resigned as a Director effective 30 September 2018.
Mr Reid resigned as Chief Executive Officer effective 27 August 2018. Mr Reid’s termination
payment will include payment in lieu of notice in accordance with his contract, capped at the
statutory entitlement under the Corporations Act.
Ms Alice Manners
Chief Digital and Marketing Officer is no longer a KMP as a result of reporting line changes
Ms Myrrhine Cutten
Mr Sam Budiselik
effective 1 January 2018.
Ms Cutten became KMP 3 July 2017.
Mr Budiselik became KMP 3 July 2017, and his role was subsequently expanded effective
1 January 2018 to be Chief Operating Officer of the Company. Mr Budiselik was appointed
Interim Chief Executive Officer on 27 August 2018.
Mr Ben Cox
Mr Cox was engaged on a maximum term contract as Stores Consultant on 6 March 2018
and appointed on a permanent basis as the General Manager Corporate Distribution effective
Mr Shane Prior
Mr Prior resigned and departed the organisation 4 July 2018.
27 May 2018.
3. Context of and changes to KMP remuneration for FY 2018 and into FY 2019
3.1 Matters identified as relevant context for remuneration governance in FY 2018 and into FY 2019
As is required by regulation, the KMP remuneration structures that are detailed in this report are those that prevailed over FY 2018. The following
outlines important context for the decisions that were made in relation to remuneration for / during FY 2018, the outcomes of which are presented in
this report.
In light of industry movement in remuneration practices in the banking and finance industry the Board has, over the course of FY 2018, and will
continue in FY 2019, to review governance and compliance with remuneration policies and practices implemented by the Company with the aim of
achieving quality outcomes for shareholders. Linked to understanding and monitoring the role of incentive plans and the behaviours they influence,
the Board is committed to continually seek feedback from both stakeholder and independent consultants with respect to KMP remuneration
governance and practices.
In FY 2018, the Board reviewed Key Performance Indicators (KPIs) for KMP executives as they relate to variable remuneration, with a view to
mitigating any behavioural and operational risks that may be driven by the current plan. Each KPI scorecard used in FY 2018 for senior executives
incorporated components of non-financial operational risk in the weighting mix. As a result of a review in FY 2018 for the FY 2019 measurement
period a risk scorecard measurement is intended to be incorporated into the STI Plan as a mandatory gate for all KMP executives. There will
continue to be a strong focus in FY 2019 on the link between the remuneration and risk frameworks as part of the variable incentive plans
considerations.
The Board is focused on continuing the implementation of its renewed business strategy. To attract and retain the best possible talent to the
leadership team, the Company needs to ensure its remuneration offering reflects the complex and diverse nature of the business and the challenges
facing the business to achieve its strategic objectives. Independent input on KMP remuneration decision-making processes continued throughout
2018, with promotions and appointments being endorsed by the Board after considering both internal and external relativities using external
remuneration consultants Godfrey Remuneration Group Pty Limited (GRG). Remuneration benchmarking was also conducted internally using the
external AON Hewitt Data Centre sourced in March 2018. Ongoing benchmarking analysis, on an annual basis, will be conducted in relation to
overall remuneration for KMP executives.
32 | Cash Converters International Limited – Annual Report 2018
During FY 2018 the Board reviewed and approved a general remuneration framework that will guide remuneration governance and policies for
all Cash Converters employees. The principles of job evaluation and internal relativities, along with market influences and the performance of
the individual will impact on the remuneration package for all individuals. Over the course of FY 2019, following implementation of the general
remuneration framework, there will be an emphasis on job evaluation for executive roles that will strengthen the governance of senior remuneration
packages so that fair, equitable and non-biased remuneration decisions are made at all times.
3.2 Key remuneration matters identified, and adjustments made or planned in response, since the previous report
During FY 2018 the following KMP remuneration-related matters were identified by the Board and are being considered and/or actioned during the
reporting period and into FY 2019:
• Executive KMP remuneration:
o
A remuneration review of KMP (including Executive Deputy Chairman) was undertaken with the engagement of GRG as appropriate.
GRG were predominantly engaged to assist with advice in regard to benchmarking (FAR and Total Package) and review of the LTI plan.
o
During the year, the Company implemented organisational structure changes that were designed to allow the Chief Executive Officer a
greater focus on strategic objectives. With this change, additional portfolios of marketing, information technology and digital transformation
were added to the Chief Operating Officer’s (COO) role, and as such an adjustment was made to the COO remuneration. The remuneration
adjustment was in alignment with policy and appropriate to attract the level of capabilities and expertise for the role. Further, Aon Hewitt
Data Centre benchmarking was utilised to support these changes.
o
Benchmarking of all KMP executives was conducted in FY 2018 to evaluate the remuneration packages appropriate to the specific job
responsibilities and ensure alignment with both strategy and shareholder interest and compliance with the Company’s remuneration policy.
o Gender Pay Gap Analysis was completed as part of an ongoing annual process using the Aon Hewitt data.
o
Fixed Annual Reward and Total Remuneration Packages were reviewed linked to proposed salary changes for KMP executives in
FY 2019. This was completed within the limits of the remuneration framework.
• Variable incentive programme:
o
For FY 2018, each KMP Executive was subject to a formal Short-Term Incentive Plan statement (STIP) which included itemised and
measurable KPIs (both financial and non-financial) with disclosure of dollar values for financial performance measures at threshold, target
and stretch outcomes of budgeted Net Profit After Tax (NPAT).
o
As part of formulation of the STIPs, the Board focused on ensuring alignment of each KMP Executive’s STI KPIs to the Company’s strategic
objectives to focus on directly creating shareholder value.
o
Based on advice from GRG, the vesting criteria for the FY 2018 LTI TSR tranche issued under the LTI Plan was changed, moving the
Indexed Total Shareholder Return (iTSR) from the All Ordinary index to the Small Industrials Index, believed to be a more accurate
benchmark of the Company’s performance. The threshold, target and stretch percentage requirements for the vesting criteria against the
index and EPS growth were also amended to reflect the revised corporate strategy.
• NED remuneration:
o
During FY 2018 no changes have been made to the base remuneration received by non-executive directors and the Board will not be
seeking an increase to the aggregate fee limit (AFL) for NED remuneration (AFL $800,000 approved by shareholders at the Annual General
Meeting 2015).
o
As part of an annual review, the Board reviewed the current remuneration levels for NEDs and it was decided that there would be no
change/adjustments to existing director and standing committee chair remuneration levels for FY 2019.
o
In view of additional work being undertaken by non-executive directors in FY 2018 by way of a special purpose subcommittee of the Board,
the Board has agreed a policy for payment of an additional one-off fee of $7,500 for the Chair of any special purpose committee. The
Non-Executive Director remuneration policy has been amended to reflect this policy change. The payment of this fee will not cause total
remuneration paid to NEDs to exceed the AFL.
Cash Converters International Limited – Annual Report 2018 | 33
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
• Remuneration policies and procedures:
o
Since the last report, the Company has reviewed the complete Remuneration Governance Framework and the associated policies on an
annual basis. The associated policies are the Short-Term Incentive Policy and Procedure, the Long-Term Incentive Policy and Procedure,
Engaging External Remuneration Consultants Policy and Procedure, Non-Executive Director Remuneration Policy and Procedure and the
Senior Executive Remuneration Policy and Procedure. No material changes were made.
o
The Company seeks to improve shareholder engagement and will continue to annually review its formal policies and procedures as they
relate to KMP remuneration and publish the revised versions on the Company website. Feedback from shareholders regarding this material
is welcome.
o
It is recommended that the material on the website be considered as part of forming an opinion regarding the appropriateness of the
remuneration practices of the Company.
• STI Financial Measures and Normalisation of financial metric calculations for incentive plans:
o
For STI measures for FY 2018, Net Profit After Tax (NPAT) was employed as the key financial measure rather than EBITDA which was used
in previous years. This decision was made as it was viewed to be of greater interest to shareholders than the previous EBITDA measure.
o
As detailed in section 7.3, for the purpose of STI award evaluation, NPAT for FY 2018 was normalised, reducing NPAT by $1.874 million. In
order to manage key stakeholder expectations, the Company will continue to disclose amendments of this nature.
• Review of incentive plans:
o
The Board completed a review of the LTI and STI policies during the course of the year and the allocations for KMP Executives were
considered during FY 2018.
o
The Board aims to ensure incentive arrangements for KMP executives are designed appropriately to motivate enhanced and sustainable
performance, build on the risk culture, execute on strategy and ultimately increase shareholder value.
o
In order to do so, in FY 2019 the Board will continue to review remuneration matters such as relativity of STI and LTI to total remuneration,
and the appropriateness of LTI vesting conditions in view of the Company’s current circumstances.
o
In light of the emerging issues that are driving change in the banking and finance industry the Board is committed to ongoing review of the
STI and LTI components of KMP packages.
o
STI payment deferral was considered by the Board and will be further investigated in FY 2019 to determine the impact of deferral and other
options to encourage required behaviours and outcomes.
o A Minimum Shareholding Policy was approved in August 2018.
4. Overview of Cash Converters’ Remuneration Governance Framework and Strategy
4.1 Transparency and engagement
The Board seeks input regarding the governance of KMP remuneration from a wide range of sources, including:
• Shareholders;
• Remuneration and Nomination Committee Members;
• Stakeholder groups including proxy advisors;
• External remuneration consultants;
• Other experts and professionals such as tax advisors and lawyers; and
• Company management.
34 | Cash Converters International Limited – Annual Report 2018
The following outlines a summary of Cash Converters’ formal Remuneration Governance Framework that has resulted from those engagements and
related considerations.
The complete framework can be accessed on the Company’s remuneration governance portal at www.cashconverters.com/Governance/
RemunerationCommittee, and a channel for direct feedback (remuneration@cashconverters.com) is provided. Shareholders, proxy advisors and
other interested parties are invited to consider this information as part of forming a judgement regarding the remuneration policies, procedures and
practices of the Company.
4.2 Remuneration and Nomination Committee Charter
The Remuneration and Nomination Committee Charter (the Charter) is due for review on an annual basis. The Charter was reviewed and approved
by the Board in June 2018 and is accessible on the Company’s portal at www.cashconverters.com/Governance/RemunerationCommittee.
The Charter governs the operation of the Remuneration and Nomination Committee (the Committee). It sets out the Committee’s role and
responsibilities, composition, structure and membership requirements. The purpose of the Committee, as it relates to remuneration, is to assist the
Board by:
•
providing advice in relation to the remuneration packages of Senior Executives and NEDs, equity-based incentive plans and other employee
benefit programs;
• developing and maintaining the policies and other documents that guide and govern KMP remuneration decisions, practices and outcomes;
• determining and reviewing the nature of the Company’s disclosure or communication of remuneration practices and policies;
•
regularly reviewing the Company’s recruitment, retention and termination policies, superannuation arrangements, succession plans, and the
performance of the Board and Senior Executives; and
•
reviewing the Company’s diversity policy and monitoring diversity within the Company, including monitoring and appraising the size and
composition of the Board.
The Committee has the authority to retain outside legal or other professional advice or assistance on any matters within its terms of reference.
The Board recognises the importance of ensuring that any recommendations provided by remuneration consultants are provided independently of
those to whom the recommendations relate. Further information about the parameters under which external remuneration consultants are engaged
is provided in Section 4.11.
4.3 Senior Executive Remuneration Policy and Procedure
The Senior Executive Remuneration Policy and Procedure applies to Senior Executives who are defined as follows:
• Executive Directors;
• Chief Executive Officer (CEO);
• Those roles classified as executive KMP; and
•
Executive Leadership Team (ELT) members who are in roles that are business unit, functional, or expertise heads
(who may or may not be KMP).
The policy outlines the Company’s intentions regarding Senior Executive remuneration, as well as how remuneration is intended to be structured,
benchmarked and adjusted in response to changes in the circumstances of the Company, and in line with good governance.
Cash Converters International Limited – Annual Report 2018 | 35
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Broadly the policy describes the following in relation to Senior Executives:
• Remuneration should be composed of:
o Fixed Annual Reward (FAR) which is inclusive of salary, superannuation, allowances, benefits and any applicable fringe benefits tax;
o STI which provides a reward for performance against annual objectives;
o
LTI which provides an equity-based reward for performance against indicators of shareholder benefit or value creation, over a
three-year period;
o
In total the sum of the elements will constitute a total remuneration package (TRP).
• Both internal relativities and external market factors should be considered.
• TRPs should be structured with reference to market practices and the circumstances of the Company at the time.
• FAR policy mid-points should be set with reference to P50 (the median or the middle) of the relevant market practice.
•
TRPs at Target (being the FAR 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.
•
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).
• Termination benefits will generally be limited to the default amount allowed for under the Corporations Act (without shareholder approval).
The policy also outlines the procedure that should be undertaken to review Senior Executive remuneration and determine appropriate changes.
Changes to remuneration resulting from annual reviews are generally to be determined in relation to:
• external benchmarking;
•
whether current remuneration for the incumbent is above or below the policy midpoint/benchmark – those below the midpoint will tend to
receive higher increases;
•
the competence of the incumbent in fulfilling their role which determines their positioning within the policy range – higher calibre incumbents are
intended to be positioned higher in the range; and
• any changes to internal relativities related to role/organisation design that have occurred since the previous review.
4.4 Non-Executive Director Remuneration Policy and Procedure
The Non-Executive Director Remuneration Policy and Procedure applies to non-executive directors of the Company in their capacity as directors and
as members of committees, and may be summarised as follows:
• Remuneration may be composed of:
o Board fees;
o Committee fees;
o Superannuation;
o Other benefits; and
o Equity (if appropriate at the time, currently not applicable).
36 | Cash Converters International Limited – Annual Report 2018
• Remuneration will be managed within the aggregate fee limit (AFL) or fee pool approved by shareholders of the Company;
• Guidelines regarding when the Board should seek adjustment to the AFL such as in the case of the appointment of additional NEDs;
• Remuneration should be reviewed annually;
• Termination benefits will not be paid to NEDs;
•
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 made by members of committees to the work of the Board. The inclusion of
these fees 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.
The policy also outlines the procedure that should be undertaken to review non-executive director remuneration and determine appropriate changes.
4.5 Short-Term Incentive Policy and Procedure
The Short-Term Incentive Policy of the Company, since the commencement of the policy in FY 2016, 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. Key aspects of the policy are as follows:
• Participants will include Senior Executives and other participants who may be invited from time to time.
• Non-executive directors are excluded from participation in the STI Plan.
•
STI should be paid in cash unless deferral applies. The Board has the discretion to determine, as part of any offer, that upon calculation of the
awards some portion of achieved STI is to be deferred.
•
A termination of employment will trigger a forfeiture of some or all of unearned STI entitlements depending upon the circumstances of the
termination. Amounts that are not forfeited will be tested and potentially paid based on actual performance during employment relative to target
performance to the end of the measurement period (i.e. pro rata).
•
The Board retains discretion to trigger or accelerate payment or vesting of incentives provided the limitation on termination benefits as outlined in
the Corporations Act is not breached.
4.6 Long-Term Incentive Policy and Procedure
The Long-Term Incentive Policy of the Company, since the commencement of the policy in FY 2016, 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. Key aspects of the policy are as follows:
• 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, noting that with annual grants of overlapping measurement periods, the need for longer periods
is mitigated (continuous improvement framework).
• Non-executive directors are not eligible to participate in the LTI Plan.
• Participants should be provided with an offer letter/invitation, an explanatory booklet and a copy of the LTIP Rules.
Cash Converters International Limited – Annual Report 2018 | 37
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
•
There should be two measures of long-term performance, one that best reflects internal measures of performance and one that best reflects
external measures of performance (see Section 4.13 for indicators selected).
•
A termination of employment will trigger a forfeiture of some or all the unvested rights held by an executive depending upon the circumstances
of the termination. Those that are not forfeited will be held for possible vesting, based on performance relative to the vesting conditions following
the end of the measurement period.
•
The Board retains discretion to trigger or accelerate payment or vesting of incentives provided the limitation on termination benefits as outlined in
the Corporations Act is not breached.
4.7 Defining threshold, target and stretch for incentive purposes
In relation to the design, implementation and operation of incentives, the Board is of the view that there should, where possible, be a range of
performance and reward outcomes identified and defined. These should be set with regard to the elasticity of the measure, the impact of the
measure on shareholder value creation and the ability of Senior Executives to influence the measure. In order to create clarity and consistency, the
following concepts and principles are generally applied to the design of incentive scales:
•
“Threshold”, being a minimum acceptable outcome for a “near miss” of the target, associated with a fraction of the target reward appropriate to
the threshold outcome (generally around 80% probability of achievement);
•
“Target”, being a challenging but achievable outcome, and which is the expected outcome for a Senior Executive/team that is of high calibre and
high performing (generally 50% – 60% probability of achievement); and
•
“Stretch” (the maximum) levels of objectives, which is intended to be a “blue sky” or exceptional outperformance, not expected to be achieved,
the purpose of which is to create a continuous incentive to outperform when outperformance of the Target has already been achieved (generally
10% – 20% probability of achievement). This is particularly important for shareholders to understand when comparing with other companies
whose maximum levels of incentives may be associated with a planned or target outcome.
Awards for outcomes between these levels should generally be scaled on a pro rata basis dependent on actual performances. This is intended to
provide a motivating opportunity to attain a reward, and to ensure that reward outcomes align with performance, under a range of circumstances.
It is recognised that there is a link between the budget setting culture of the Company and the setting of incentive hurdles. In this regard, the Board
is confident that budgets developed, and approved are sufficiently challenging but also achievable, given the circumstances of the Company at the
time of each budget.
4.8 Clawback policy
During the course of FY 2019 the Board will consider the relevance of a clawback policy. Traditionally the Board held the view that a clawback policy
was 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. In the light of changing industry practice, further investigation is required regarding the implementation of a
clawback policy.
4.9 Securities Trading Policy
The Company’s Securities Trading Policy sets out the guidelines for dealing in any type of Company securities by the Company’s KMP. It also
summarises the law relating to insider trading which applies to everyone, including to all Company employees as well as to KMP. Under the current
policy, KMP may only trade during a “trading window” (with some limited exceptions as set out in the policy). The following periods in a year are
“trading windows”, unless otherwise determined by the Board:
• 6 weeks commencing 24 hours immediately after the day of release of the half-yearly results announcement to the ASX Limited (ASX);
• 6 weeks commencing 24 hours immediately after the day of release of the yearly results announcement to the ASX *;
38 | Cash Converters International Limited – Annual Report 2018
• 6 weeks commencing 24 hours immediately after the day of 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 release of the yearly results announcement is determined by the Board as being the release of the audited Financial Report.
4.10 Equity Holding Policy
The Board has previously seen an equity holding policy as unnecessary since previous KMP executives received a significant component of
remuneration in the form of equity and executive directors generally have had material equity holdings. Given the change in KMP over the recent
years, during FY 2018 the Board initiated a preliminary review into an equity holding policy for KMP and Directors and a Minimum Shareholding
Policy was approved by the Board in August 2018.
The policy is applicable to Non-Executive Directors and KMP Executives and broadly requires accumulation of a minimum holding of shares
equivalent to one year’s base salary (inclusive of superannuation and other benefits) with target time to accumulate, being 5 years, and
allowances for Board discretion to be applied in circumstances such as exclusion of directors who are representatives of a major shareholder,
retention of a proportion of vested LTI grants for accumulation purposes and exceptions for KMP where circumstances make it difficult to meet
minimum requirements.
4.11 Executive remuneration consultant engagement policy and procedure
The Company has an executive remuneration consultant (ERC) engagement policy and procedure which is intended to manage the interactions
between the Company and ERCs, so as to ensure their independence and that the Remuneration and Nomination 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 or not
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. Interactions between management and the
ERC must be approved and will be overseen by the Remuneration and Nomination Committee.
Cash Converters International Limited – Annual Report 2018 | 39
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
4.12 Variable executive remuneration – Short-term Incentive plan (STIP)
Aspect
Purpose
Plan, Offers and Comments
The STI Plan’s purpose is to give effect to an element of remuneration. This element of remuneration constitutes
part of a market competitive total remuneration package and aims to increase the commitment of Senior
Executives to deliver and outperform annual business plans, to align their interests with shareholders, reinforce
a performance culture and create a strong link between performance and reward, encourage a pursuit of
sustainable improvements in Group performance, encourage teamwork and co-operation among executive team
members and maintain a stable executive team by helping retain key talent. These objectives aim to be achieved
by a simple plan that rewards participants for performance relative to key performance indicators (KPIs) derived from
annual business plans.
Measurement
The Company’s financial year (12 months).
Period
Award
Opportunities
Key
Performance
Indicators
(KPIs),
Weighting and
Performance
Goals
FY 2018 Invitations
The Executive Deputy Chairman was offered a target-based STIP equivalent to 48% of FAR for Target performance, with
a maximum/stretch opportunity of up to 77% of FAR.
The Chief Executive Officer was offered a target-based STIP equivalent to 48% of FAR for Target performance, with a
maximum/stretch opportunity of up to 76% of FAR.
Other Senior Executives who are KMP were offered a target-based STIP in a range equivalent to 18–47% of their FAR for
Target performance with a maximum/stretch opportunity between 36–75% of FAR.
FY 2018 Invitations
FY 2018 Invitations to participate in the STIP were based on a number of KPIs set for each executive,
summarised as follows and showing the weighting for target performance. Standards of performance are presented
later in this report.
Executive Deputy Chairman
• Group Net Profit after Tax budget achieved
•
International Franchise objectives achieved
Chief Executive Officer
• Group Net Profit after Tax budget achieved
•
•
Strategic and operational effectiveness
Individual effectiveness
50%
50%
60%
35%
5%
Other Executives
The FY 2018 KPI metrics for other KMP executives were grouped into five categories being Financial, Customer, Operational
Excellence, People and Individual Effectiveness. Within these groups there were common shared group KPIs such as risk
measures, NPAT, Net Promoter Score as well as individual KPIs specifically relating to the individual’s key deliverables under
the strategic roadmap. Refer to Section 7.2 for additional information on award outcomes.
Comments
The Board selected these measures as being those that are expected to drive economic profitability, and ultimately
shareholder value creation over the long-term, within a financial year period. More detail is provided in this regard in the latter
section of this report dealing with incentive outcomes for the reporting period. Refer Section 7.2.
40 | Cash Converters International Limited – Annual Report 2018
Aspect
Plan, Offers and Comments
Plan Gate &
Board
Discretion
For each Measurement Period the Board will have the discretion to either abandon the plan or adjust award payouts
if the Company’s overall performance during the Measurement Period was substantially lower than expectations and
resulted in significant loss of value for shareholders. A specified gate condition may apply to offers of STI such that no
award will be payable in relation to any KPI if the gate condition is not met or exceeded.
FY 2018 Invitations
A gate of 90% of budget NPAT applied so that no STI would be payable if this condition was not met or exceeded.
FY 2019 Adjustments
In addition to the NPAT gate applied in FY 2018, a risk gate will be applied to all KMP STIs in FY 2019. The Risk Balanced
Scorecard details a number of risk KPIs and associated targets that have been designed to monitor and manage risk
within Cash Converters, thereby influencing the risk culture. As a minimum, the business must achieve a consolidated
overall “meets expectations” performance outcome for the scorecard prior to any STI being payable.
Calculations are performed following the end of the Measurement Period and the auditing of Company accounts.
Awards will generally be paid in cash in the September following the end of the Measurement Period. They are to be
paid through payroll with PAYG tax and superannuation deducted as appropriate.
In the event of cessation of employment due to dismissal for cause, all entitlements in relation to the Measurement
Period are forfeited.
In the event of cessation of employment due to resignation, all entitlements in relation to the Measurement Period are
forfeited, unless the termination is classified as “Other” (good leaver) in the discretion of the Board (see below).
In the case of cessation of employment in other circumstances (good leaver) the award opportunity will be reduced
proportionately to reflect the portion of the Measurement Period worked. The actual award earned will not be calculated
until after end of the financial year, along with other participants. The Board retains discretion to trigger or accelerate
payment or vesting of incentives in the case of a termination, provided that the limitations on termination benefits as
outlined in the Corporations Act are not breached.
In the event of a Change of Control, including a takeover, the Board may, in its discretion, decide to:
•
•
terminate the STIP for the Measurement Period and pay pro rata awards based on the completed proportion of the
Measurement Period and taking into account performance up to the date of the Change of Control, or
continue the STIP but make interim non-refundable pro rata Awards based on the completed proportion of the
Measurement Period and taking into account performance up to the date of the Change of Control, or
• allow the STIP to continue.
If the Board forms the view that a Participant has committed fraud, defalcation or gross misconduct in relation to the
Company, then all entitlements in relation to the Measurement Period will be forfeited.
The Board held the view for the FY 2018 year that a clawback policy was not appropriate. Refer to Section 4.8 for
discussion regarding this policy.
Award
Determination
and Payment
Cessation of
Employment
During a
Measurement
Period
Change of
Control
Fraud, Gross
Misconduct
etc.
Clawback
Cash Converters International Limited – Annual Report 2018 | 41
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
4.13 Variable executive remuneration – Long-Term Incentive Plan (LTIP) – Performance Rights Plan
Aspect
Purpose
Form of
Equity
Plan Rules, Offers and Comments
The LTI Plan’s purpose is to give effect to an element of Senior Executive remuneration. This element of remuneration
constitutes part of a market competitive total remuneration package and aims to ensure that Senior Executives have
commonly shared goals related to producing relatively high returns for Shareholders. Other purposes of the LTI Plan
are to assist Senior Executives to become Shareholders, provide a component of remuneration to enable the Company
to compete effectively for the calibre of talent required for it to be successful and to help retain employees, thereby
minimising turnover and stabilising the workforce such that in periods of poor performance the cost is lesser (applies to
non-market measures under AASB 2).
Currently the Company operates a Rights plan for the purposes of the LTIP.
The current Rights plan includes the ability to grant:
a) Performance Rights, which are subject to performance related vesting conditions, for the purposes of the LTIP.
b) Retention Rights, which are subject to service related vesting conditions, (not currently used).
c)
Deferred Rights which are not subject to vesting conditions, but which are subject to disposal restrictions that attach
to the Shares that result from Rights being exercised (not currently used).
The LTIP is based on grants of Performance Rights. The Rights are Indeterminate Rights and confer the right (following
valid exercise) to the value of an ordinary Share in the Company at the time, either:
• Settled in Shares that may be issued or acquired on-market, or
• Settled in the form of cash,
at the discretion of the Board (a feature intended to ensure appropriate outcomes in the case of terminations).
No dividends accrue to unvested Rights, and no voting rights are attached.
LTI Value
The Board retains discretion to determine the value of LTI to be offered each year, subject to shareholder approval in
relation to Directors, when the Rights are to be settled in the form of a new issue of Company shares. The Board may
also seek shareholder approval for grants to Directors in other circumstances, at its discretion.
FY 2018 Invitations
Over the duration of FY 2018 no additional grants have been made to the Executive Deputy Chairman position.
The CEO was granted Performance Rights with a Target value equivalent to 35% of Base Salary and a maximum/stretch
value of 70% of Base Salary.
For other Senior Executives Performance Rights with a Target value between 10–20% of Base Salary and a maximum/
stretch value of between 20–40% of Base Salary were granted.
Comments
The number of LTI Rights to be granted is calculated with reference to the maximum/stretch LTI, divided by the
Right value (valued as ignoring vesting conditions). This produces a mathematically identical outcome to the following
formula:
Number = Base package x Target LTI% x Tranche Weighting ÷ Right Value ÷ Target Vesting%
The equity-based Right Value is the Share price at the time of the calculation (a VWAP calculation is used), less the
expected value of dividends that will not accrue to Right holders (Rights are not eligible to receive dividends). This is
equivalent to a Black-Scholes value ignoring any vesting conditions.
42 | Cash Converters International Limited – Annual Report 2018
Aspect
Plan Rules, Offers and Comments
Measurement
Period
The Measurement Period will include three financial years unless otherwise determined by the Board (which would only
apply in exceptional circumstances).
Vesting
Conditions
FY 2018 Invitations
The Measurement Period is from 1 July 2017 to 30 June 2020.
FY 2019 Invitations
The Measurement Period will be from 1 July 2018 to 30 June 2021.
Comments
Three-year Measurement Periods combined with annual grants will produce overlapping cycles that will promote a focus on
producing long-term sustainable performance/value improvement and mitigates the risk of manipulation and short-termism
(continuous improvement). Because of the timing of grants, the life of the Right may be less than 3 years at times, however
this does not impact the Measurement Period over which performance is measured.
The Board has discretion to set vesting conditions for each offer. Performance Rights that do not vest will lapse.
FY 2018 Invitations
Except as indicated below, a participant must remain employed by the Company during the Measurement Period and
the performance conditions must be satisfied for Rights to vest.
The FY 2018 Invitations included:
• a tranche (50% weighting) with a indexed total shareholder return (iTSR) vesting condition, and
• a tranche (50% weighting) with normalised earnings per share growth (NEPSG) vesting condition, as follows:
Tranche 1
Performance
Level
CCIL’s TSR vs S&P ASX Small Industrials Index
over the Measurement Period
% of Tranche
Vesting
Stretch
>Target
Target
>Threshold
Threshold
Target
Target
>Threshold
Threshold
Index TSR +4.25% < Index TSR +8.5%
Index TSR + 4.25%
>Index TSR & < Index TSR +4.25%
=Index TSR
13.5% & <20%
13.5%
>10% & <13.5%
10%
<10%
100%
Pro-rata
50%
Pro-rata
25%
Nil
Cash Converters International Limited – Annual Report 2018 | 43
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Aspect
Plan Rules, Offers and Comments
Normalised EPS will relate to normal operations and will exclude abnormal items as determined by the Board in its
discretion. See Section 7.3 for further details regarding normalisation.
Comments
The Board recognises that it is important that shareholders understand why the LTI vesting conditions selected are
appropriate to the circumstances of the Company, and therefore seeks to be transparent in this regard.
While the measure that has strongest alignment with shareholders is Total Shareholder Return (TSR), it is recognised that
absolute TSR is influenced by overall economic movements. Therefore, 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.
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.
The Comparator Group for the assessment of the iTSR vesting conditions is the S&P/ASX Small Industrials Index (abbreviated
to AXSI). This group was selected because it is the best indicator of broad economic sentiment and market movements,
which are to be effectively removed from the assessment of the Company’s TSR via the iTSR measure.
Retesting
None of the grants made in respect of the reporting period included a retesting feature.
Plan Gate &
Board
Discretion
Amount
Payable for
Performance
Rights
Exercise of
Vested
Performance
Rights
Disposal
Restrictions
etc.
FY 2018 Invitations
A gate of Company TSR being positive for the measurement period applied to both vesting conditions, before performance
against the vesting conditions is assessed to ensure that the LTI will not reward executives when shareholders have lost value.
The Board retains discretion to adjust vesting outcomes in the circumstances that the outcomes from applying the vesting
scales alone would be likely to be seen as inappropriate.
No amount is payable by participants for Performance Rights. The target value of Rights is included in assessments of
remuneration benchmarking and policy positioning. This is standard market practice and consistent with the nature of
Performance Rights.
Under the plan rules, vested Performance Rights are exercised automatically following vesting. Rights that are not
exercised, lapse. Exercised Rights will be satisfied in the form of ordinary Company shares, except where the Board
exercises its discretion to settle in the form of cash.
Rights may not be disposed of or otherwise dealt with while they remain Rights i.e. prior to exercise.
All shares acquired by Participants as a consequence of exercising vested Rights, shall be subject to a dealing restriction
(Restricted Shares) being that such Restricted Shares may not be disposed of or otherwise dealt with until:
a)
The time specified by the Company’s securities trading policy with regards to when executives and directors may
deal in securities of the Company, and
b)
The time at which dealing in securities of the Company is permitted under the Corporations Act having regard to
division 3 of Part 7.10 (insider trading restrictions).
44 | Cash Converters International Limited – Annual Report 2018
Aspect
Plan Rules, Offers and Comments
Cessation of
Employment
Change of
Control of the
Company
In the event of cessation of employment in the circumstances of a bad leaver, all unvested Performance Rights will be
forfeited. In the case of special circumstances (good leaver) the grant of Performance Rights made in the year of the
termination will be pro rata forfeited for the period with remaining rights to be tested at the end of the measurement
period along with other participants. Other grants made in previous years will be unaffected by the termination. The
Board retains discretion to trigger or accelerate payment or vesting of Performance and/or Retention Rights in the case
of a termination of the employment of a Participant.
If in the opinion of the Board a change of control event has occurred, or is likely to occur, the Vesting Conditions
attached to the Tranche at the time of the Offer will cease to apply and:
a)
unvested Performance Rights granted in the financial year of the Change of Control will lapse in the proportion that
the remainder of the financial year bears to the full financial year,
b)
all remaining unvested Performance Rights will vest in accordance with the application of the following formula
(noting that negative results will be taken to be nil):
Number of
Performance
Rights to Vest
=
Unvested Performance Rights x (Share Price at the Change of
Control - Offer Share Price) ÷ Offer Share Price
a)
any unvested Performance Rights that do not vest in relation to (b) will lapse unless otherwise determined
by the Board,
b) all unvested Retention Rights will vest, and
c)
disposal restrictions applied to Deferred Rights by the Company and specified as part of the terms of the LTI will be
lifted (including the removal of any Company initiated CHESS holding lock if applicable), unless otherwise determined
by the Board and participants notified in writing.
Clawback
For FY 2018 the Board held the view that a clawback policy was not appropriate. The Board intends to review this
position over the course of FY 2019. Refer to Section 4.8 for discussion regarding this policy.
5. Planned executive remuneration for FY 2018 (non-statutory disclosure)
The disclosures required under the Corporations Act (including regulations) and prepared in accordance with applicable accounting standards
do not necessarily provide shareholders with an understanding of the intended remuneration in a given year. For example, the LTI disclosed
is not reflective of the remuneration opportunity for the year being reported on, due to the requirements of AASB 2. Therefore, the following
table is provided to ensure that shareholders have an accurate understanding of the Board’s intention regarding the remuneration offered to
executives during FY 2018, as at target performance, to facilitate an assessment of the alignment between performance and reward. In this
regard, the definition of Target needs to be considered, as provided in this report. Generally, there are opportunities for incentives to exceed the
target levels outlined here, as discussed in the relevant sections, however stretch/maximum incentives are designed to be unlikely to occur.
The incentive levels presented are based on the policy at the time of determining remuneration for the year, and in the case of LTI, translated into
a number of rights at the time of the grant calculation.
Cash Converters International Limited – Annual Report 2018 | 45
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
5.1 Planned KMP remuneration at target
FAR
Target STI opportunity
Target LTI opportunity
Amount
% of
TRP
% of
FAR
STI
amount
% of
TRP
% of
FAR
LTI
amount
% of
TRP
$
%
%
$
%
%
$
%
Mr P Cumins
Mr M Reid
Mr S Budiselik ^
Mr N Carbone
Ms M Cutten
Mr B Edwards
Mr M Jenkins
Ms A Manners ~
Mr S Prior
864,618
641,065
320,048
331,065
251,065
340,848
331,065
281,065
293,365
67%
55%
60%
73%
74%
62%
61%
69%
67%
48% 416,777
48% 305,000
47% 150,000
18%
26%
60,000
66,000
44% 150,000
45% 150,000
27%
33%
75,000
97,920
33%
26%
28%
13%
19%
27%
28%
18%
22%
0%
33%
19%
18%
9%
18%
18%
18%
17%
–
213,500
60,000
60,000
22,000
60,000
60,000
50,000
48,960
0%
18%
11%
13%
6%
11%
11%
12%
11%
Total Target
Remuneration
Package
(TRP)
$
1,281,395
1,159,565
530,048
451,065
339,065
550,048
541,065
406,065
440,245
^
Mr Budiselik’s stated FAR reflects his contract as at 3 July 2017. The FAR was amended upon change of role to Chief Operating Officer effective 1 January 2018
with an increase from $320,048 to $351,128.
~ Ms Manners’ stated FAR reflects her contract as at 1 July 2017 and is no longer KMP as a result of reporting line changes effective 1 January 2018.
Mr Cox did not become KMP until 27 May 2018 and accordingly did not have a target STI or LTI opportunity set for FY 2018.
5.2 Planned KMP remuneration at maximum
FAR
Maximum STI opportunity
Maximum LTI opportunity
Amount
% of
TRP
% of
FAR
STI
amount
% of
TRP
% of
FAR
LTI
amount
% of
TRP
Total
Maximum
Remuneration
Package (TRP)
$
%
%
$
%
%
$
%
$
Mr P Cumins
Mr M Reid
Mr S Budiselik ^
Mr N Carbone
Ms M Cutten
Mr B Edwards
Mr M Jenkins
Ms A Manners ~
Mr S Prior
864,618
641,065
320,048
331,065
251,065
340,848
331,065
281,065
293,365
56%
41%
47%
58%
59%
49%
48%
53%
50%
77% 666,842
76% 488,000
75% 240,000
36% 120,000
53% 132,000
70% 240,000
72% 240,000
53% 150,000
67% 195,840
44%
31%
35%
21%
31%
34%
35%
28%
33%
0%
67%
37%
36%
18%
35%
36%
36%
33%
–
427,000
120,000
120,000
44,000
120,000
120,000
100,000
97,920
0%
27%
18%
21%
10%
17%
17%
19%
17%
1,531,460
1,556,065
680,048
571,065
427,065
700,848
691,065
531,065
587,125
^
Mr Budiselik’s stated FAR reflects his contract as at 3 July 2017. The FAR was amended upon change of role to Chief Operating Officer effective 01 January 2018
with an increase from $320,048 to $351,128.
~ Ms Manners’ stated FAR reflects her contract as at 1 July 2017 and is no longer KMP as a result of reporting line changes effective 1 January 2018.
Mr Cox did not become KMP until 27 May 2018 and accordingly did not have a target STI or LTI opportunity set for FY 2018.
46 | Cash Converters International Limited – Annual Report 2018
6.
Vested / awarded incentives and remuneration outcomes for KMP in respect of the completed FY 2018 period (non-statutory disclosure)
The statutory disclosure requirements and accounting standards make it difficult for shareholders to obtain a clear understanding of what the actual
remuneration outcomes for executives were in relation to a given reporting period. It should be noted that typically STI for a reporting period is paid
after the end of the financial year/reporting period, following audit, and that LTI vesting is similarly delayed. The following table brings these outcomes back to
the year of performance to which the outcome relates, and which is the reporting period i.e. STI is presented as being part of the remuneration for the year in
which performance was tested, and LTI would be presented as being part of the remuneration for the year during which performance testing was completed.
Name & role
Year
FAR
Total STI
awarded
following
completion of
financial year
(cash and
equity) (i)
Mr P Cumins
Executive Deputy
Chairman
Mr M Reid
Chief Executive
Officer
Mr S Budiselik
Chief Operating
Officer
Mr N Carbone
Chief Risk Officer
Ms M Cutten
Chief Human
Resources Officer
Mr B Edwards
General Counsel &
Company Secretary
Mr M Jenkins
Chief Financial
Officer
Chief Operating
Officer – Personal
Finance
Ms A Manners
Chief Digital and
Marketing Officer
Mr S Prior
Chief Operating
Officer – Stores
$
% of
TRP
$
% of
TRP
2018
2017
2018
2017
864,618
874,942
641,065
^550,923
69%
71%
67%
66%
392,117
364,875
308,965
*285,046
31%
29%
33%
34%
2018
#320,048
66%
167,239
34%
2018
2017
331,065
~321,308
83%
89%
65,772
39,000
17%
11%
2018
251,065
83%
50,930
17%
2018
340,848
67%
166,196
33%
2018
331,065
68%
154,145
32%
2017
278,318
79%
75,833
21%
2018
°281,065
81%
75,885
19%
2018
2017
293,365
100%
–
292,933
86%
39,168
0%
12%
Value of LTI
Total
Gain / loss
vested
remuneration
on vested
following
package
LTI from
completion of
measurement
period /
financial year
(ii)
$
% of
TRP
(TRP)
change in
value
during
vesting
period (iii)
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
8,143
0%
0%
0%
0%
1,256,735
1,239,818
950,030
835,969
0%
487,287
0%
0%
396,837
360,308
0%
301,995
0%
507,044
0%
0%
0%
0%
2%
485,210
354,151
346,950
293,365
340,244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,466)
Cash Converters International Limited – Annual Report 2018 | 47
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
(i) This is the value of the total STI award calculated following the end of the Financial Year
(ii) This is the value as at time of the calculation of the grant of the LTI that vested in relation to the completion of the specified financial year, noting that vesting is
determined and occurs following the end of the Measurement Period i.e. number that vested multiplied by the undiscounted Right Value
(iii) This is the number of LTI Rights that vested following the completion of the Financial Year, multiplied by the closing Share Price on the date of vesting, less the
grant value
# Mr Budiselik’s remuneration was adjusted 1 January 2018 from FAR $320,048 to $351,128
°
Stated FAR reflects Ms Manners’ contract at 1 July 2017, however Ms Manners is no longer KMP as a result of reporting line changes effective
1 January 2018
^ Mr Reid’s remuneration was adjusted 23 January 2017 from FAR $495,517 to $620,633
* Mr Reid’s remuneration includes $35,625 ex gratia payment during FY 2017
~ Mr Carbone’s remuneration for FY 2017 was based on contract role from 1 July 2016 to 31 December 2016 and permanent role from 1 January 2017 to 30 June
2017
Mr Cox did not become KMP until 27 May 2018 and accordingly did not have a target STI or LTI opportunity set for FY 2018. The Board approved a discretionary
bonus of $50,000 in recognition of his contribution to the business since joining the Company and will be paid in FY 2019.
Details regarding the assessments of performance that gave rise to the incentive outcomes for FY 2018 are given below.
7. Performance outcomes for FY 2018 including STI and LTI assessment
7.1 Company performance
Financial performance during the year met expectations despite the significant changes to the business delivering a net profit after tax of $22.503
million for FY 2018 up from a net profit after tax of $20.618 million in FY 2017. This represents a return to growth in profitability after the Company
digested regulatory changes to the industry and adjusted its business model appropriately and compliantly.
During the reporting period the Company has delivered on a number of key objectives as outlined in the operating and financial review section of the
annual report.
48 | Cash Converters International Limited – Annual Report 2018
The following outlines the performance of the Company over the year ended 30 June 2018 and the previous four financial years in accordance
with the requirements of the Corporations Act:
2018
$’000
2017
$’000
2016
$’000
2015
$’000
2014
$’000
Year ended 30 June
Revenue from continuing operations
260,345
271,241
311,599)
288,666)
331,669
Net profit before tax from continuing
operations
Net profit / (loss) after tax
– continuing operations
– discontinued operations
Profit/(loss) after tax
Share price
– beginning of year
– end of year
Dividend (i)
– interim
– final dividend
Earnings per share from continuing
and discontinued operations
– basic
– diluted
31,271
28,198
31,171)
3,855)
32,040
22,503
–
22,503
20,618
–
20,618
25,894)
(31,166)
(5,272)
cents
cents
cents
31.5
31.0
–
–
4.55
4.43
43.5
31.5
–
–
4.21
4.12
70.0)
43.5)
2.00)
1.00)
(1.09)
(1.09)
(1,255)
(20,430)
(21,685)
cents
108.0)
70.0)
2.00)
–)
(4.69)
(4.69)
21,132
–
21,132
cents
107.0
108.0
2.00
2.00
5.67
5.56
(i) Franked to 100% at 30% corporate income tax rate.
The table below sets out the comparison between Cash Converters internal targets set by the Company compared to actual performance for the
key performance metrics that are the main drivers of incentive outcomes in FY 2018. This gives some indication of a correlation between planning
and outcomes.
Year ended 30 June
2018
2017
Actual NPAT
$’000
Budgeted NPAT
$’000
22,503
20,618
20,419
20,358
7.2 Links between performance and reward including STI and LTI determination
The remuneration of executive KMP is intended to be composed of three parts as outlined earlier, being:
•
FAR, 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 intended to deliver a variable reward based on long-term measures of Company performance.
Cash Converters International Limited – Annual Report 2018 | 49
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Short-Term Incentives
The Board believes there are strong links between internal measures of Company performance and the payment of short-term incentives with each
KMP Executive having STI KPIs linked to strategic objectives of the Company.
The STI achieved in relation to the FY 2018 period being completed will be paid after the end of the period (i.e. during FY 2019, usually in
September). On average 99.7% of the target award opportunity or 60.5% of the maximum award opportunity available will be paid to KMP
Executives. This level of award was considered appropriate under the STI plan since the objectives were set and offers made in relation to the
achievement of each KPI at the beginning of the financial year, and the majority of those objectives were met.
In relation to the completed FY 2018 period the payment of STI was calculated as follows:
Name & role
FY 2018 KPI summary
Award outcomes
FY 2018, paid FY 2019
KPI summary
Weighting
Threshold
Target
Stretch
Achievement
Awarded
Mr P Cumins
Executive Deputy
Chairman
Mr M Reid
Chief Executive
Officer
Mr S Budiselik
Chief Operating
Officer (1)
Mr N Carbone
Chief Risk Officer
%
Group Financial
50%
Functional
Financial
Customer
Operational
People
Individual
effectiveness
Financial
Customer
Operational
People
Individual
effectiveness
Financial
Customer
Operational
People
Individual
effectiveness
50%
60%
10%
20%
5%
5%
50%
10%
20%
10%
10%
25%
10%
45%
10%
10%
90%
budget
70%
90%
budget
70%
70%
70%
70%
90%
budget
70%
70%
70%
70%
90%
budget
70%
70%
70%
70%
100%
budget
100%
100%
budget
100%
100%
100%
100%
100%
budget
100%
100%
100%
100%
100%
budget
100%
100%
100%
100%
140%
budget
200%
140%
budget
200%
200%
200%
200%
140%
budget
200%
200%
200%
200%
140%
budget
200%
200%
200%
200%
101%
95%
103%
95%
105%
95%
100%
107%
95%
105%
105%
120%
105%
118%
109%
109%
100%
$
211,514
180,603
191,235
26,433
62,830
13,217
15,250
87,019
13,913
32,445
16,222
17,640
16,875
7,050
29,322
6,525
6,000
Total STI
award
$
392,117
308,965
167,239
65,772
50 | Cash Converters International Limited – Annual Report 2018
Name & role
FY 2018 KPI summary
Award outcomes
FY 2018, paid FY 2019
KPI summary
Weighting
Threshold
Target
Stretch
Achievement
Awarded
Ms M Cutten
Chief Human
Resources Officer
Mr B Edwards
General Counsel &
Company Secretary
Mr M Jenkins
Chief Financial
Officer
Ms A Manners
Chief Digital &
Marketing Officer (2)
Financial
Customer
Operational
People
Individual
effectiveness
Financial
Divisional
Customer
Operational
Individual
effectiveness
Financial
Customer
Operational
People
Individual
effectiveness
Financial
Customer
Operational
People
Individual
effectiveness
%
20%
10%
30%
30%
10%
20%
20%
10%
40%
10%
50%
10%
20%
10%
10%
25%
15%
40%
10%
10%
90%
budget
70%
70%
70%
70%
90%
budget
90%
budget
70%
70%
70%
90%
budget
70%
70%
70%
70%
90%
budget
70%
70%
70%
70%
100%
budget
100%
100%
100%
100%
100%
budget
100%
budget
100%
100%
100%
100%
budget
100%
100%
100%
100%
100%
budget
100%
100%
100%
100%
140%
budget
200%
200%
200%
200%
140%
budget
140%
budget
200%
200%
200%
140%
budget
200%
200%
200%
200%
140%
budget
200%
200%
200%
200%
101%
70%
95%
85%
85%
101%
130%
105%
105%
100%
103%
95%
105%
118%
100%
101%
95%
95%
80%
90%
$
13,530
2,200
17,600
13,200
4,400
30,450
43,500
15,450
61,796
15,000
78,375
13,250
30,900
16,620
15,000
19,219
10,000
26,667
4,166
5,833
Total STI
award
$
50,930
166,196
154,145
65,885
(1) Mr Budiselik’s Key Performance Indicators were reviewed during FY 2018 to ensure they aligned to the change of role to Chief Operating Officer on
1 January 2018
(2) Ms Manners is no longer KMP as a result of reporting line changes effective 1 January 2018
Mr Cox did not become KMP until 27 May 2018 and accordingly did not have a target STI or LTI opportunity set for FY 2018. The Board approved a discretionary
bonus of $50,000 in recognition of his contribution to the business since joining the Company and will be paid in FY 2019.
Due to Mr Prior’s departure from the Company prior to 30 June 2018, he was ineligible for STIs.
The KPIs selected were based on them reflecting and linking to the most significant matters expected to contribute to the success of the
Company during FY 2018 in the case of each role. As previously outlined in this report, the KPI metrics for FY 2018 for other KMP were
tailored to specific objectives relevant to role and shared objectives of financial performance of the relevant business unit and Company set
with reference to the annual budget for the financial year. The KPIs were consistently grouped into key metrics including Financial, Customer,
Operational, People and Individual Effectiveness. Financial target metrics were based on consolidated and divisional NPAT and accounted for
on average a weighting of the overall KPI result of 32%.
Cash Converters International Limited – Annual Report 2018 | 51
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
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 target levels of performance had been achieved in
relation to each KPI and used the pro rata scales (for non-binary measures) to calculate the total award payable. This method of performance
assessment was chosen because it is the most objective approach to short-term incentive governance, and reflective of market best practices.
Long-Term Incentives
In FY 2018 grants of equity were made to executive KMP in relation to the LTI Plan as part of remuneration for FY 2018. These grants have a
measurement period of 3 years and hence will not have the possibility of vesting until the end of the measurement period (30 June 2020).
In relation to the completion of the FY 2018 reporting period, grants of equity made under the LTI plan whose measurement period ended at 30 June
2018 (tranches 13, 14, 15 & 16) did not vest due to the vesting conditions having not been met for the period.
As indicated in the prior report, previous eligible grants of equity made under the previous LTI plan (Tranche 12) vested and the appropriate shares
were issued during FY 2018.
Details are given in Section 8 of this report in relation to changes in equity interests.
7.3 Impact of normalisation on incentives
The Board recognises that the use of normalisation to adjust indicators of profitability has been an issue of concern to some external stakeholders in
recent years, particularly with regards to the calculation of incentive outcomes. It is important that there is transparency regarding this practice and
the rationale for its use, and therefore the following information is provided in this regard.
The Board sees it as appropriate to apply normalisation to profit measures for the purposes of incentive calculation to ensure that the right
behaviours are motivated, and inappropriate behaviours are not motivated, in respect of the profit calculation. Generally, adjustments will be
balanced so that the impact of normalisation is not skewed to create advantage, for example if the cost of the acquisition of a new business is
excluded, the revenue from the business unit will also be excluded. The Board has discretion to determine which adjustments will be appropriate
given the circumstances, and business plans.
FY 2018 net adjustments – ($1.874 million)
• Reversal to profit and loss for lapsed performance rights ($1.330 million)
• Other items of a non-recurring nature
FY 2017 net adjustments – $3.383 million
• Legal expenses (excess to budget class action legal costs)
• Risk and Compliance Project costs (excess to budget one off costs associated with EU remediation)
• Restructuring costs related to operating efficiency projects and permanent ongoing reduction in annual expenses
• Portion of 2016 incentive and other payments expensed but not utilised and released to FY 2017 result
52 | Cash Converters International Limited – Annual Report 2018
7.4 Links between Company strategy and remuneration
The Company intends to attract the superior talent required to successfully implement the Company’s strategies at a reasonable and
appropriately variable cost by:
• positioning FAR (the fixed element) around relevant market data benchmarks when they are undertaken, and
•
supplementing the FAR with at-risk remuneration, being incentives that motivate executive focus on:
o short to mid-term objectives linked to the strategy via KPIs and annual performance assessments, and
o
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.
To the extent appropriate, the Company links strategic implementation and measures of success of the strategy, directly to incentives in the way
that measures are selected and calibrated.
8. Changes in KMP-held equity
The following tables outline the changes in equity held by KMP over the financial year.
Fully paid ordinary shares of Cash Converters International Limited
Balance at
1 July 2017
Granted as
remuneration
Received
on exercise of
Net other
change
Balance at
30 June 2018
Number
Number
rights
Number
Number
Number
Other key management personnel
Directors
Mr S Grimshaw
Mr P Cumins
Ms E Comerford
Mr K Dundo
Mr L Given
Ms A Waters
Mr M Reid
Mr S Budiselik (1)
Mr N Carbone
Mr B Cox (1)
Ms M Cutten (1)
Mr B Edwards
Mr M Jenkins
Ms A Manners (2)
Mr S Prior
–
7,575,694
–
–
–
–
–
–
–
–
–
84,511
3,375
–
–
7,663,580
(1) Opening balance at date of appointment
(2) Closing balance at date of ceasing to be KMP
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,500
8,500
–
–
–
–
–
–
7,575,694
–
–
–
68,750
68,750
–
116,875
–
–
–
81,692
–
–
–
–
116,875
–
–
–
166,203
3,375
–
8,500
267,317
7,939,397
Cash Converters International Limited – Annual Report 2018 | 53
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Balance at 1
Granted as
Received on
Net other
Balance at
July 2016
remuneration
exercise of
change
Number
Number
rights
Number
Number
30 June
2017
Number
Directors
Mr S Grimshaw
Mr P Cumins
Ms E Comerford
Mr K Dundo
Mr L Given
Ms A Waters (1)
Mr R Webb (2)
Other key management personnel
Mr M Reid
Mr N Carbone (1)
Mr M Cooke (2)
Mr B Edwards (1)
Mr G Fee
Mr R Groom
Mr M Jenkins
Ms A Manners (1)
Mr S Prior
–
10,513,030
–
–
–
–
1,012,500
–
–
–
84,511
102,000
249,525
3,375
–
–
11,964,941
(1) Opening balance at date of appointment / becoming member of KMP
(2) Closing balance at date of resignation
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–)
–
(2,937,336)
7,575,694
–)
–)
–)
–)
–)
–)
–)
–)
–)
(90,000)
(249,525)
–)
–)
–)
–
–
–
–
1,012,500
–
–
–
84,511
12,000
–
3,375
–
–
(3,276,861)
8,688,080
54 | Cash Converters International Limited – Annual Report 2018
Performance rights of Cash Converters International Limited
Balance at
Granted as
1 July 2017
remuneration
Rights
exercised
Rights
lapsed /
forfeited (3)
Number
Number
Number
Number
Balance at
30 June
2018
Number
Balance
vested at
30 June 2018
Number
Directors
Mr S Grimshaw
Mr P Cumins
Ms E Comerford
Mr K Dundo
Mr L Given
Ms A Waters
–
8,302,920
–
–
–
–
–
–
–
–
–
–
Other key management personnel
Mr M Reid
Mr S Budiselik (1)
Mr N Carbone
Mr B Cox (1)
Ms M Cutten (1)
Mr B Edwards
Mr M Jenkins
Ms A Manners (2)
Mr S Prior
1,879,660
1,377,420
–
–
–
–
–
630,104
–
191,066
387,096
387,096
–
106,452
387,096
387,096
322,580
–
11,003,750
3,354,836
(1) Opening balance at date of becoming member of KMP
(2) Closing balance at date of ceasing to be KMP
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
(8,500)
(8,500)
–)
–
(3,730,000)
4,572,920
–)
–)
–)
–)
–
–
–
–
(844,440)
2,412,640
–)
–)
–)
–)
–)
(523,200)
–))
(182,566)
387,096
387,096
–
106,452
387,096
494,000
322,580
–
(5,280,206)
9,069,880
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3) Rights relating to Mr Cumins, Mr Reid and Mr Jenkins that lapsed during the period were issued in FY 2016. In addition to 82,018 rights issued in FY 2016 granted
to Mr Prior that lapsed during the period, 100,548 rights issued to Mr Prior in FY 2017, were forfeited during the period.
Cash Converters International Limited – Annual Report 2018 | 55
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Balance at
Granted as
1 July 2016
remuneration
Rights
exercised
Right lapsed /
Balance at
forfeited
30 June 2017
(3)
Balance
vested at
30 June 2017
Number
Number
Number
Number
Number
Number
Directors
Mr S Grimshaw
Mr P Cumins
Ms E Comerford (1)
Mr K Dundo
Mr L Given
Ms A Waters (1)
Mr R Webb
–
–
3,730,000
4,572,920
–
–
–
–
–
–
–
–
–
–
Other key management personnel
Mr M Reid
Mr N Carbone (1)
Mr M Cooke
Mr B Edwards (1)
Mr G Fee
Mr R Groom
Mr M Jenkins
Ms A Manners (1)
Mr S Prior
844,440
1,035,220
–
–
–
107,552
1,305,226
523,200
–
90,518
6,600,936
–
–
–
111,012
1,506,120
106,904
–
100,548
7,432,724
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
(104,192)
(1,413,600)
–)
–)
–)
–
8,302,920
–
–
–
–
–
1,879,660
–
–
–
114,372
1,397,746
630,104
–
191,066
(1,517,792)
12,515,868
–
–
–
–
–
–
–
–
–
–
–
17,000
76,666
–
–
8,500
102,166
(1) Opening balance at date of appointment / becoming member of KMP
(2) Closing balance at date of resignation
(3) Of the rights that were forfeited during the period, 30,184 were issued to Mr Fee and 409,520 to Mr Groom in FY 2016 and 74,008 to Mr Fee and 1,004,080
to Mr Groom in FY 2017.
56 | Cash Converters International Limited – Annual Report 2018
Terms and conditions of share-based payment arrangements affecting remuneration of KMP in the current or future financial years is
set out below:
Tranche
Grant date
Grant date
fair value (i)
Exercise price
Expiry date
Vesting date
Tranche 12
Tranche 13
Tranche 14
Tranche 15
Tranche 16
Tranche 17
Tranche 18
Tranche 19
Tranche 20
Tranche 21
Tranche 22
25 Sep 2014
18 Nov 2015
18 Nov 2015
28 Jan 2016
28 Jan 2016
23 Nov 2016
23 Nov 2016
12 Dec 2016
12 Dec 2016
14 Feb 2018
14 Feb 2018
$
0.96
0.23
0.41
0.26
0.45
0.20
0.31
0.17
0.29
0.22
0.33
$
–
–
–
–
–
–
–
–
–
–
–
1 Jul 2017
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2020
30 Jun 2020
1 Jul 2017
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2020
30 Jun 2020
(i)
The grant date fair value is calculated as at the grant date using a Monte Carlo pricing model for tranches 13, 15, 17, 19 and 21 and a binomial
pricing model for other tranches.
There has been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date.
The following table outlines the value of equity granted to KMP during the year that may be realised in the future:
Name
Tranche
Number of
Value at grant
Value
Value to be
Mr M Reid
Mr S Budiselik
Mr N Carbone
Ms M Cutten
Mr B Edwards
Mr M Jenkins
Ms A Manners
rights
688,710
688,710
193,548
193,548
193,548
193,548
53,226
53,226
193,548
193,548
193,548
193,548
161,290
161,290
Per right
$
0.22
0.33
0.22
0.33
0.22
0.33
0.22
0.33
0.22
0.33
0.22
0.33
0.22
0.33
Total
$
154,271
228,597
43,355
64,242
43,355
64,242
11,923
17,667
43,355
64,242
43,355
64,242
36,129
53,535
expensed in
expensed in
current year
future years
$
$
24,200
35,858
6,801
10,077
6,801
10,077
1,870
2,771
6,801
10,077
6,801
10,077
5,667
8,398
130,071
192,739
36,554
54,165
36,554
54,165
10,053
14,896
36,554
54,165
36,554
54,165
30,462
45,137
21
22
21
22
21
22
21
22
21
22
21
22
21
22
Total
3,354,836
932,510
146,276
786,234
Cash Converters International Limited – Annual Report 2018 | 57
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
9. Non-Executive Director fee policy rates for FY 2018 and FY 2019 and fee limit
Non-executive director fees are managed within the current annual fees limit (AFL or fee pool) of $800,000 which was approved by shareholders on
18 November 2015 and it is anticipated that there will be no requirement for an increase of the AFL in FY 2019.
The following table outlines the NED Remuneration policy rates that were applicable as at the end of FY 2018.
The Non-Executive Director Remuneration policy is designed to ensure that remuneration is reasonable, appropriate, and produces outcomes
that fall within the fee limit, at each point of being assessed. The Board assessed the current level of NED fees for FY 2019 and determined that
no change would be applicable to main Board and existing committee fees and approved an update to the policy to allow for the payment of an
additional special purpose committee chair fee of $7,500 from time to time.
Function
Main Board
Audit and risk committee
Remuneration committee
Special purpose committee
Role
Chair
Member
Chair
Member
Chair
Member
Chair
Member
Fee including
superannuation
$170,000
$95,000
$15,000
$0
$15,000
$0
$7,500
$0
58 | Cash Converters International Limited – Annual Report 2018
10. Remuneration records for FY 2018 (statutory disclosures)
The following table outlines the remuneration received by directors and senior executives who are classified as KMP of the Company during the
years ended 30 June 2018 and 2017, prepared according to statutory disclosure requirements and applicable accounting standards:
Short-term employee benefits
Post-
Other
employment
long-term
Share-
based
Total
benefits
benefits
payments
Salary
Cash STI
Non-
Termination
and fees
monetary
benefits
Super-
annuation
benefits
$
$
$
$
$
$
$
$
2018
Non-executive directors
Mr S Grimshaw
Ms E Comerford
Mr K Dundo
Mr L Given
Ms A Waters
Executive director
170,000
100,457
95,000
95,000
117,500
–
–
–
–
–
–
–
–
–
–
Mr P Cumins
719,748
392,117
149,237
Other executives
Mr M Reid
Mr S Budiselik (1)
Mr N Carbone
Mr B Cox (2)
Ms M Cutten (1)
Mr B Edwards
Mr M Jenkins
Ms A Manners (3)
Mr S Prior
Total
612,784
322,754
310,424
31,589
238,472
330,078
311,546
129,633
241,337
308,965
167,239
65,772
50,000
50,930
166,196
154,145
32,942
–
11,375
–
8,585
961
8,585
–
11,375
5,610
11,375
3,826,322
1,388,306
207,103
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99,218
99,218
–
9,543
–
–
–
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
170,000
110,000
95,000
95,000
117,500
24,072
(1,469)
135,931)
1,419,636
24,457
27,271
20,049
1,709
20,049
20,049
20,049
10,024
20,049
–)
–)
–)
–)
–)
–)
87,764)
1,045,345
16,878)
534,142
16,878)
421,708
–)
84,259
4,641)
322,677
16,878)
533,201
15,600)
(14,852)
497,863
–)
–)
178,209
(2,696)
(11,547)
357,736
197,321
11,435)
252,571)
5,982,276
Cash Converters International Limited – Annual Report 2018 | 59
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
Short-term employee benefits
Post-
Other
employment
long-term
Share-
based
Total
benefits
benefits
payments
Salary
Cash STI
Non-
Termination
Super-
and fees
monetary
benefits
annuation
benefits
$
$
$
$
$
$
$
$
2017
Non-executive directors
Mr S Grimshaw
Ms E Comerford (4)
Mr K Dundo
Mr L Given
Ms A Waters (4)
Mr R Webb (5)
Executive director
170,000
16,918
114,583
106,250
42,513
59,375
-
-
-
-
-
-
-
-
-
-
-
-
Mr P Cumins
754,056
364,875
108,626
Other executives
Mr M Reid
Mr N Carbone (6)
Mr M Cooke (7)
Mr B Edwards (8)
Mr G Fee
Mr R Groom
Mr M Jenkins
Ms A Manners (9)
Mr S Prior
Total
540,834
314,177
91,190
25,082
270,107
430,872
246,056
94,353
266,604
285,046
39,000
-
-
16,062
38,064
75,833
-
11,017
3,126
1,871
-
8,603
3,834
39,168
11,017
9,991
84,240
25,010
515,910
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,478
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
170,000
42,396
114,583
106,250
42,513
59,375
35,201
130,310
728,792
2,121,860
30,973
9,808
-
2,051
23,721
35,000
19,616
7,180
19,616
-
-
-
-
176,213
1,044,083
-
-
-
366,111
93,061
27,133
13,381
12,492
5,290
-
24,782
442,284
282,912
1,340,260
82,386
437,784
-
105,367
4,047
20,058
360,510
3,542,970
858,048
183,095
600,150
208,644
165,520
1,315,143
6,873,570
(1) Became KMP 3 July 2017
(2) Became KMP 27 May 2018
(4) Appointed 9 February 2017
(5) Retired 14 February 2017
(7) Retired 31 August 2016
(8) Appointed 6 June 2017
(3) Ceased to be KMP 1 January 2018
(6) Appointed 1 January 2017
(9) Appointed 24 February 2017
The STI values reported in this table are the STIs awarded for the performance period but are paid in the financial year following the year to which
they relate (i.e. the value shown for 2018 is the value earned in FY 2018 and paid during FY 2019).
The LTI value reported in this table is the accounting charge of all grants, amortised over the vesting period. Where a market-based measure of
performance is used as a vesting condition, such as iTSR, no adjustments can be made to the profit or loss to reflect rights that lapse unexercised.
However, in relation to non-market vesting conditions, such as EPS, adjustments have been made to the profit or loss to reverse amounts previously
expensed for rights that have lapsed during the period.
60 | Cash Converters International Limited – Annual Report 2018
Both target and awarded values of STI and LTI remuneration are outlined in the relevant sections of the Remuneration Report to assist shareholders
to obtain a more complete understanding of remuneration as it relates to senior executives.
11. Employment terms for KMP and Senior Executives
11.1 Employment contracts
The remuneration and other terms of employment for executive KMP are covered in formal employment contracts of an ongoing nature.
All KMP are entitled to receive pay in lieu of any accrued but untaken annual and long service leave on cessation of employment. The treatment
of incentives in the case of termination is addressed in separate sections of this report that give details of incentive design. However, a retirement
payments clause in KMP employment contracts qualifies that the amounts payable will be limited to the terms of Part 2D.2 of the Corporations Act.
A summary of contract terms in relation to executive KMP is presented below:
Name
Position held
Mr P Cumins
Mr M Reid
Mr S Budiselik
Mr N Carbone
Mr B Cox
Ms M Cutten
Mr B Edwards
Mr M Jenkins
Executive Deputy Chairman
Chief Executive Officer
Chief Operating Officer
Chief Risk Officer
General Manager Corporate Distribution
Chief Human Resources Officer
General Counsel and Company Secretary
Chief Financial Officer
Ms A Manners *
Chief Manager Digital, Marketing and Product
Mr S Prior
Chief Operating Officer – Stores
* Ms Manners is no longer KMP as a result of reporting line changes effective 1 January 2018
Period of notice
From Company
From KMP
12 months
12 months
6 months
3 months
3 months
3 months
3 months
6 months
6 months
3 months
6 months
12 months
6 months
3 months
3 months
3 months
3 months
6 months
6 months
3 months
On appointment to the Board, all NEDs enter into a service agreement with the Company in the form of a letter of appointment. The letter
summarises the Board policies and terms, including compensation relevant to the office of the director and does not include a notice period. NEDs
are not eligible to receive termination payments under the terms of the appointments.
12. Other remuneration-related matters
The following outlines other remuneration related matters that may be of interest to stakeholders, in the interests of transparency and disclosure:
•
Mr Sam Budiselik’s remuneration was reviewed and amended effective 1 January 2018 and increased to $350,048 FAR as a result of additional
accountabilities with change of role to Chief Operating Officer for the Company.
•
Mr Ben Cox was employed under a contract by the Company from 6 March 2018. He was appointed in a permanent capacity as the General
Manager Corporate Distribution effective 27 May 2018 with a remuneration package comprising $289,465 FAR and 50% STI Target.
•
Mr Ben Cox, General Manager Corporate Distribution is a Director and 20% shareholder of Cash Converters Yorkshire Ltd, a franchisee in the
UK. As part of the restructure of Cash Converters UK operations, Cash Converters Yorkshire Ltd acquired 17 of the corporate stores from the
Company. The purchase of these stores was funded by a loan from Cash Converters (UK) Ltd to Cash Converters Yorkshire Ltd
of £2,631,731 made on 4 April 2016 and repayable over 6 years. As at 30 June 2018, the balance owing on the loan was £2,026,954.
No repayments of the loan have been missed and the Company has no reason to believe the full repayment of the loan will not be met.
Cash Converters International Limited – Annual Report 2018 | 61
DIRECTORS’
REPORT
For the year ended 30 June 2018
—
Remuneration report (audited) (continued)
•
There were no other relevant material transactions involving KMP other than compensation and transactions concerning shares, performance
rights/options as discussed in this report.
The following summarises the treatment of remuneration in respect of those KMP who are no longer employed by the Company during or since the
reporting period:
Mr Michael Cooke – Former Group Legal Counsel
The Company entered into a separate arrangement with Mr Cooke on 19 September 2016 for payment of a monthly retainer in regard to ongoing
provision of legal services.
Mr Ralph Groom – Chief Financial Officer and Company Secretary and Mr Glen Fee – Chief Information Officer
In addition to contractual termination payments accounted for in FY 2017 and disclosed in Section 10, Mr Groom and Mr Fee continue to participate
in the Company LTI Plan on a pro rata basis in Tranches 19 and 20. It is anticipated that this continued participation supports alignment with the
interest of shareholders post the incumbents’ separation from the Company.
13. External remuneration consultant advice
During the reporting period, the Board approved and engaged an external remuneration consultant (ERC) to provide KMP remuneration recommendations
and advice. The consultants and the amount payable for the information and work that led to their recommendations are listed below:
Godfrey
•
Fees for work undertaken in July 2017 including provision of a GRG Remuneration Guide
$45,320
Remuneration Group
accompanied by an advisory letter and re-drafting of the Remuneration Report for FY 2017.
• Work undertaken in September and October 2017 to draft:
– a letter advising on executive remuneration and profiles,
– a discussion paper on salary sacrifice equity plans,
– a letter addressing LTI vesting conditions,
– a letter addressing the proposed short-term incentive,
–
–
subscription to quarterly reporting of the iTSR metric for FY 2018, and
support, replication, data and checking in relation to LTI grant calculations etc.
KBA Consulting Group
•
Fees for work undertaken in April included a workshop and training session linked to the current
$14,461
LTI scheme and the drivers of the current vesting conditions
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 any 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.
62 | Cash Converters International Limited – Annual Report 2018
This directors’ report is signed in accordance with a resolution of directors made pursuant to s298(2) of the Corporations Act 2001.
On behalf of the directors
Stuart Grimshaw
Director
Perth, Western Australia
27 August 2018
Cash Converters International Limited – Annual Report 2018 | 63
PERTH
SOUP RUN
Community engagement
—
2500kg
OF ITEMS
The Salvos participated at
The Great Aussie Garage
Sale collecting over 2500kg
of items for their stores.
64 | Cash Converters International Limited – Annual Report 2018
Community
partnership was
initiated with
The Salvation Army
on the back of the
EU remediation.
community Seven days a week, 365 days a year, you’ll find
volunteers in a Salvation Army van serving a
breakfast of soup, sandwiches, pies and coffee
around Perth’s CBD to people who otherwise
might not have a substantial breakfast.
Cash Converters staff volunteered their time to
be part of the Perth Soup Run.
“ Cashies is committed
to fostering a culture
of social responsibility
and giving back to the
community”.
Cash Converters International Limited – Annual Report 2018 | 65
community CORPORATE
GOVERNANCE
For the year ended 30 June 2018
—
The Company’s most recent Corporate Governance Statement can be found on the Company’s website at
http://www.cashconverters.com/Governance.
The following governance-related documents can also be found in the Corporate Governance section of the Company’s website:
• Board Charter
• Code of Conduct
• Continuous Disclosure Policy
• Securities Trading Policy
• Audit and Risk Committee Charter
• Remuneration and Nomination Committee Charter
• Gender Equality Report 2017–18
• Short-Term Incentive Policy and Procedure
• Long-Term Incentive Policy and Procedure
• Engaging External Remuneration Consultants Policy
• Non-Executive Director Remuneration Policy and Procedure
• Senior Executive Remuneration Policy and Procedure
• Diversity and Inclusion Policy
66 | Cash Converters International Limited – Annual Report 2018
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2018
—
Continuing operations
Franchise fee revenue
Financial services interest revenue
Sale of goods
Other revenues
Total revenue
Financial services cost of sales
Cost of goods sold
Other cost of sales
Total cost of sales
Gross profit
Employee expenses
Administrative expenses
Advertising expenses
Occupancy expenses
Other expenses
Finance costs
Share of net profit of equity accounted investments
Profit before income tax
Income tax expense
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 / (loss) for the year
Total comprehensive profit for the year
Profit attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive profit / (loss) attributable to:
Owners of the Company
Non-controlling interest
Earnings / (loss) per share
Basic (cents per share)
Diluted (cents per share)
Notes
2018
$’000
2017
$’000
2.1
2.1
2.1
2.2
2.2
2.2
2.2
2.2
2.2
5.1
2.3
2.4
2.4
14,665)
166,502)
74,977)
4,201)
260,345)
(47,620)
(43,859)
(3,259)
(94,738)
15,444)
174,440)
76,799)
4,558)
271,241)
(49,609)
(42,596)
(5,366)
(97,571)
165,607)
173,670)
(69,099)
(8,005)
(10,767)
(15,155)
(21,334)
(10,822)
846)
31,271)
(8,768)
22,503)
495)
495)
22,998)
22,503)
–)
22,503)
22,998)
–)
22,998)
4.55)
4.43)
(75,754)
(8,302)
(10,844)
(14,443)
(27,039)
(9,404)
314)
28,198)
(7,580)
20,618)
(1,208)
(1,208)
19,410)
20,618)
–)
20,618)
19,410)
–)
19,410)
4.21)
4.11)
The accompanying notes form an integral part of the consolidated statement of profit or loss and other comprehensive income.
Cash Converters International Limited – Annual Report 2018 | 67
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
As at 30 June 2018
—
Current assets
Cash and cash equivalents
Trade and other receivables
Loan receivables
Inventories
Prepayments
Current tax receivable
Total current assets
Non-current assets
Trade and other receivables
Loan receivables
Plant and equipment
Deferred tax assets
Goodwill
Other intangible assets
Prepayments
Investments in associates
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Notes
4.1
3.1
3.2
3.3
3.1
3.2
3.4
2.3
3.5
3.6
5.1
3.7
4.2
3.8
4.2
3.8
4.4
2018
$’000
139,991
22,701
118,962
20,673
6,828
–
2017
$’000
80,571
7,571
87,933
20,991
5,512
35
309,155
202,613
5,560
32,762
9,141
8,614
106,967
30,150
1,498
5,282
199,974
509,129
19,485
139,351
6,572
466
165,874
18,996
1,851
20,847
186,721
322,408
248,714
7,007
66,687
322,408
23,480
14,037
10,233
9,879
107,009
26,987
–
4,607
196,232
398,845
21,288
46,303
7,064
–
74,655
60,934
2,417
63,351
138,006
260,839
210,203
7,206
43,430
260,839
The accompanying notes form an integral part of the consolidated statement of financial position.
68 | Cash Converters International Limited – Annual Report 2018
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 30 June 2018
—
Notes
Issued
capital
Foreign
currency
Non-
controlling
Share-
based
Retained
earnings
Total
translation
interest
payment
reserve
acquisition
reserve
$’000
$’000
reserve
$’000
$’000
$’000
$’000
Balance at 1 July 2016
207,540
6,543
(15,809)
540)
Profit for the year
Exchange differences arising on
translation of foreign operations
Total comprehensive income
for the year
–
–
–
Dividend reinvestment plan
2,663
Share-based payments
Dividends paid
Transfer reserve balance to
retained earnings
–
–
–
–
(1,208)
(1,208)
–
–
–
–
Balance at 30 June 2017
210,203
5,335
Profit for the year
Exchange differences arising on
translation of foreign operations
Total comprehensive income
for the year
Share-based payments
Shares issued under
entitlement offer, net of issue
–
–
–
–
costs
4.4
38,413
Shares issued on exercise of
performance rights
Transfer reserve balance to
retained earnings
98
–
–
495
495
–
–
–
–
Balance at 30 June 2018
248,714
5,830
–)
–)
–)
–)
–)
–)
15,809)
–)
–)
–)
–)
–)
–)
–)
–)
–)
The accompanying notes form an integral part of the consolidated statement of changes in equity.
–)
–)
–)
–)
1,331)
–)
–)
1,871)
–)
–)
–)
158)
–)
(98)
(754)
1,177)
43,471)
20,618)
242,285)
20,618)
–)
(1,208)
20,618)
–)
–)
(4,850)
(15,809)
43,430)
19,410)
2,663)
1,331)
(4,850)
–)
260,839)
22,503)
22,503)
–)
495)
22,503)
–)
–)
–)
754)
22,998)
158)
38,413)
–)
–)
66,687)
322,408)
Cash Converters International Limited – Annual Report 2018 | 69
CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 30 June 2018
—
Notes
2018
$’000
2017
$’000
2.2
2.7
3.6
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Payment for settlement expense
Interest received
Interest received from personal loans
Net decrease / (increase) in personal loans advanced
Interest and costs of finance paid
Income tax refunded / (paid)
Net cash flows (used in) / provided by operating activities
Cash flows from investing activities
Acquisition of intangible assets
Purchase of plant and equipment
Instalment credit loans repaid by franchisees
Net cash flows used in investing activities
Cash flows from financing activities
Dividends paid
Proceeds from borrowings
Repayment of borrowings
Capital element of finance lease and hire purchase payment
Net proceeds from issue of shares
Net cash flows provided by / (used in) 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 foreign currencies
Cash and cash equivalents at the end of the year
4.1
The accompanying notes form an integral part of the consolidated statement of cash flows.
173,934)
(186,667)
–)
1,941)
62,029)
(56,421)
(9,937)
(6,428)
(21,549)
(6,897)
(2,744)
1,441)
(8,200)
–)
186,000)
(135,028)
(79)
37,966)
88,859)
59,110)
80,571)
310)
139,991)
196,661)
(193,578)
(12,152)
1,797)
50,463)
4,487)
(9,404)
5,260)
43,534)
(6,272)
(1,149)
1,020)
(6,401)
(2,186)
57,500)
(85,098)
(32)
–)
(29,816)
7,317)
73,609)
(355)
80,571)
70 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE
FINANCIAL STATEMENTS
For the year ended 30 June 2018
—
These financial statements have been organised
Each section sets out the accounting policies applied in
into the following six sections:
1. Basis of preparation
2. Financial performance
3. Assets and liabilities
4. Capital structure and financing costs
5. Group structure
6. Other items
(1) Basis of preparation
producing the relevant notes, along with details of any key
judgements and estimates used or information required to
understand the note. The purpose of this format is to provide
readers with a clearer understanding of what drives the financial
performance and financial position of the Group.
In this section
This section sets out the basis upon which the Group’s financial statements are prepared as a whole. Specific accounting policies are
described in the note to which they relate.
Cash Converters International Limited is a for-profit company limited by shares, incorporated and domiciled in Australia. Its shares are publicly
traded on the Australian Securities Exchange.
The financial report of the Company for the year ended 30 June 2018 was authorised for issue in accordance with a resolution of directors dated
27 August 2018.
(a) Statement of compliance
The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act
2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board.
The financial report has been prepared on a historical cost basis, except where noted. The financial report is presented in Australian dollars.
The financial report comprises the consolidated financial report of Cash Converters International Limited and its subsidiaries (the Group, as
outlined in note 5.2). Accounting Standards include Australian Accounting Standards. Compliance with the Australian Accounting Standards
ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’).
(b) Changes to accounting policies
Adoption of new and revised Accounting Standards
The Group has adopted all of the new and revised Standards and Interpretations, including amendments to the existing standards issued by the
Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period.
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.
Cash Converters International Limited – Annual Report 2018 | 71
NOTES TO THE
FINANCIAL STATEMENTS
For the year ended 30 June 2018
—
(1) Basis of preparation (continued)
Standards and interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet effective are listed below:
Standard / Interpretation
Effective for
Expected
annual reporting
to be initially
periods beginning
applied in financial
on or after
year ending
AASB 9 ‘Financial Instruments’, and the relevant amending standards
1 January 2018
30 June 2019
AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014–5 ‘Amendments to Australian
Accounting Standards arising from AASB 15’, AASB 2015–8 ‘Amendments to Australian
Accounting Standards – Effective date of AASB 15’
AASB 16 ‘Leases’
1 January 2018
30 June 2019
1 January 2019
30 June 2020
AASB 2014–10 ‘Amendments to Australian Accounting Standards – Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture’ and AASB 2015–10
‘Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB
10 and AASB 128’
1 January 2018
30 June 2019
AASB 2016–5 ‘Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions’
1 January 2018
30 June 2019
AASB 2016–3 ‘Amendments to Australian Accounting Standards – Clarifications to
AASB 15’
AASB 2017–3 ‘Amendments to Australian Accounting Standards – Clarifications to
AASB 4’
1 January 2018
30 June 2019
1 January 2018
30 June 2019
AASB Interpretation 22 ‘Foreign Currency Translation and Advance Consideration’
1 January 2018
30 June 2019
AASB 2017–4 ‘Amendments to Australian Accounting Standards – Uncertainty over Income
Tax Treatments’
1 January 2019
30 June 2020
Long-term Interests in Associates and Joint Ventures Amendments to IAS 28 and Illustrative
Example—Long-term Interests in Associates and Joint Ventures
1 January 2019
30 June 2020
Prepayment Features with Negative Compensation Amendments to IFRS 9
1 January 2019
30 June 2020
Impact of changes to Australian Accounting Standards and Interpretations
A number of Australian Accounting Standards and Interpretations are in issue but are not effective for the current year end. The Company has
considered the potential impact of these new standards as outlined below.
AASB 9 ‘Financial Instruments’, and the relevant amending standards
AASB 9 will be applied from 1 July 2018 and replaces AASB 139 ‘Financial instruments: Recognition and measurement’. AASB 9 significantly
changes the recognition of impairment on customer receivables with the standard introducing an expected loss model. Under this approach
impairment provisions are recognised based on the life time expected loss on a loan. This differs from the current incurred loss model under
AASB 139 whereby impairment provisions are only recognised when there is objective evidence of impairment. The standard also includes a
single approach for the classification and measurement of financial assets based on cash flow characteristics and the business model used for
the management of the financial instruments. Of the changes that AASB 9 introduces, the Company has identified the impact of the revised
credit provisioning approach, using the expected loss model, as having the most significant impact.
Under this expected loss model, impairment provisions are recognised on inception of a loan based on the probability of default and the typical
loss arising on default:
72 | Cash Converters International Limited – Annual Report 2018
• Stage 1 – Accounts at initial recognition. The expected loss is based on a 12 month probability of default, based on historic experience.
•
Stage 2 – Accounts which have suffered a significant deterioration in credit risk. The expected loss is based on a lifetime probability of
default, based on historic experience.
•
Stage 3 – Accounts which have missed payments and are significantly in arrears. Provisions are based on expected losses based on
historic experience.
•
Provisions are calculated based on an unbiased probability-weighted outcome which take into account historic performance and considers
the outlook for macro-economic conditions.
The impact would be that impairment losses under AASB 9 are recognised in the profit or loss earlier in the life of the respective loan. This will
result in a one-off adjustment to provisions for loan receivables and retained earnings / reserves on adoption of AASB 9. Cash Converters has
modelled the impact of the changes on the impairment of customer receivables based on the 30 June 2018 loan book using the characteristics
of the underlying loan books at that point in time. The modelling results indicate an increase in the allowance of $9.4 million, from $17.9 million
to $27.3 million at 30 June 2018. The one-off increase in the allowance on adoption of AASB 9 will result in an adjustment to retained earnings /
reserves of $6.6 million tax affected (assuming an effective tax rate of 30%).
AASB 15 ‘Revenue from Contracts with Customers’
AASB 15 replaces AASB 118 ‘Revenue’ and will be applied from 1 July 2018. AASB 15 provides a single, principles-based five-step model
to be applied to all contracts with customers. Guidance is provided on topics such as the point at which revenue is recognised, accounting
for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures regarding revenue are
also introduced.
An initial impact assessment has been performed and, based on material revenue streams in FY 2017, no significant risk of an impact to revenue
recognition has been identified. This analysis considered the Company’s current accounting policies for material revenue streams to which the
new standard applies, including retail goods sold and franchise fees. The Company will formalise its impact assessment during FY 2019.
AASB 16 ‘Leases’
AASB 16 replaces AASB 117 ‘Leases’ and will be applied from 1 July 2019. AASB 16 will significantly impact the accounting for operating
leases as it requires the recognition of a lease liability, being the present value of future lease payments and corresponding right-of-use asset,
which will initially be recognised at the same value as the lease liability or lower amount depending on the transition approach adopted. AASB
16 permits either a full retrospective or a modified retrospective approach for the adoption, and will primarily affect the accounting for the
Group’s operating leases, including property leases at the corporate store network of 69 stores. As at the reporting date, the Group has
non-cancellable operating lease commitments of $39.667 million as detailed in Note 6.2.
The Company is currently assessing the impact of applying the new standard on the Group’s financial statements and the extent to which these
commitments will result in the recognition of lease assets and liabilities for future lease payments and how this will affect the Group’s profit and
classification of cash flows. As part of this process, a detailed review is currently being undertaken on the Group’s leasing arrangements using
lease management software to calculate the AASB 16 adjustments required.
The financial impact of the new standard in the first year of adoption will be dependent on the Group’s lease arrangements in place when the
new standard is effective, and the accounting approach adopted on transition, however on adoption of the new standard, the Group is currently
estimating an increase in reported earnings before interest, tax, depreciation and amortisation (EBITDA) in excess of $11 million, to be more than
offset in the initial year of adoption by higher depreciation and interest expense resulting in a $2 million to $3 million reduction in reported profit
after tax. The Group’s assets and liabilities are forecast to increase significantly following recognition of assets and liabilities representing the
present value of the operating lease commitments. Current estimates suggest initial right-of-use assets and corresponding liabilities between
$50 million and $60 million will be recognised upon initial adoption of the standard.
Cash Converters International Limited – Annual Report 2018 | 73
NOTES TO THE
FINANCIAL STATEMENTS
For the year ended 30 June 2018
—
(1) Basis of preparation (continued)
(c) Key judgements and estimates
In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience
and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions
made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from
the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of
these financial statements are outlined below:
Significant accounting judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving
estimations, which have the most significant effect on the amount recognised in the financial statements:
•
Recoverability of deferred tax assets – see note 2.3(g))
•
Classification of contingent liabilities – see note 6.1
Significant accounting estimates and assumptions
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities
within the next annual reporting period are:
•
Impairment of goodwill and other intangible assets – see note 3.5 and 3.6
•
Useful lives of other intangible assets – see note 3.6
•
Impairment of financial assets (including personal loan receivables) – see note 3.2
•
Impairment for inventory obsolescence – see note 3.3
(d) Basis of consolidation
The consolidated financial statements comprise the financial statements of Cash Converters International Limited and entities controlled by the
Company and its subsidiaries (the Group, as outlined in note 5.3). 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.
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.
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.
74 | Cash Converters International Limited – Annual Report 2018
(e) Foreign currency
Both the functional and presentation currency of Cash Converters International Limited and its Australian subsidiaries is Australian dollars ($).
The functional and presentation currency of the non-Australian Group companies is the national currency of the country of operation.
As at the reporting date, the assets and liabilities of foreign subsidiaries are translated into Australian dollars at the rate of exchange ruling at
the reporting date and the statements of comprehensive income are translated at the average exchange rates for the year. The exchange
differences arising on the translation are taken directly to a separate component of equity, the foreign currency translation reserve.
Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Foreign
currency differences arising on translation are recognised in the income statement.
(f) Other accounting policies
Significant and other accounting policies that summarise the measurement basis used, and are relevant to an understanding of the financial
statements are provided throughout the notes to the financial statements.
(g) Rounding
The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated
24 March 2016, and in accordance with that Corporations Instrument amounts in the financial report are rounded off to the nearest thousand
dollars, unless otherwise indicated.
(2) Financial performance
In this section
This section explains the results and performance of the Group. This section provides additional information about those individual line
items in the financial statements that the Directors consider most relevant in the context of the operations of the Group, including:
a) Accounting policies that are relevant for understanding the items recognised in the financial statements; and
b) Analysis of the Group’s result for the year by reference to key areas, including revenue, results by operating segment and income tax.
Cash Converters International Limited – Annual Report 2018 | 75
2.1 Revenue
Financial services interest revenue
Personal loan interest and establishment fees
Pawn broking fees
Cash advance fee income
Vehicle loan interest and establishment fees
Other financial services revenue
Sale of goods
Retail sales
Vehicle trade sales
Other revenue
Bank interest
Other vehicle revenue
Other revenue
Accounting policies
Franchise fees
2018
$’000
2017
$’000
104,270
111,669
29,383
22,150
8,639
2,060
29,057
26,702
3,589
3,423
166,502
174,440
74,121
856
74,977
741
1,831
1,629
4,201
76,125
674
76,799
591
3,103
864
4,558
Franchise fees and 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.
Personal loan, cash advance, vehicle finance loan, vehicle lease and pawn broking interest
Interest revenue 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’s net carrying amount.
Loan establishment fee revenue
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.
Other vehicle revenue
Charges relating to the vehicle leases such as vehicle maintenance, warranty, registration and insurance are recognised over the life of the lease.
Other categories of revenue
Other categories of revenue, such as financial services commission and retail sales, are recognised when the Group has transferred the risks
and rewards of the goods to the buyer or when the services are provided. Bank interest is recognised as earned on an accruals basis.
76 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
2.2 Expenses
2018
$’000
2017
$’000
Financial services cost of sales
Net bad and doubtful debt expense
Commissions
Other financial services cost of sales
Refer below for details of finance costs.
Employee expenses
Employee benefits
Share-based payments
Superannuation expense
Administrative expenses
General administrative expenses
Communications expenses
IT expenses
Travel costs
Occupancy expenses
Rent
Outgoings
Other
Other expenses
Legal fees
Professional and registry costs
Auditing and accounting services
Bank charges
Other expenses from ordinary activities
Depreciation
Amortisation
Loss on write down of assets
Finance costs
Interest
Finance lease charge
31,660
12,204
3,756
47,620
64,091
159
4,849
69,099
2,503
1,669
2,923
910
8,005
11,220
1,791
2,144
15,155
3,097
5,394
343
876
3,941
3,081
4,364
238
29,527
14,576
5,506
49,609
69,416
1,331
5,007
75,754
2,784
2,119
2,523
876
8,302
10,540
1,745
2,158
14,443
5,209
4,879
670
1,978
6,180
3,580
3,717
826
21,334
27,039
10,820
2
10,822
9,339
65
9,404
Cash Converters International Limited – Annual Report 2018 | 77
2.2 Expenses (continued)
Accounting policies
Employee benefits expense
The Group’s accounting policy for liabilities associated with employee benefits is set out in note 3.8. The policy relating to share-based
payments is set out in note 6.5.
Leasing
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.
Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a
finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are
directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs
(see note 4.2 below).
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.
Impairment
Impairment expenses are recognised to the extent that the carrying amount of assets exceeds their recoverable amount. Refer to note 3.5 for
further details on impairment.
2.3 Taxation
This note sets out the Group tax accounting policies and provides an analysis of the Group’s income tax expense / benefit and deferred
tax balances, including a reconciliation of tax expense to accounting profit.
Income tax is accounted for using the balance sheet method. Accounting income is not always the same as taxable income, creating
timing differences. These differences usually reverse over time. Until they reverse, a deferred tax asset or liability must be recognised
in the statement of financial position.
(a) Consolidated income statement
The major components of tax expense are:
Current income tax expense
Current year
Adjustment for prior years
Deferred income tax expense
Temporary differences
Adjustment for prior years
Income tax expense reported in income statement
78 | Cash Converters International Limited – Annual Report 2018
2018
$’000
2017
$’000
7,257)
(330)
1,810))
31))
8,768))
4,153
402
2,685
340
7,580
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Tax reconciliation
Profit before tax from continuing operations
Income tax at the statutory rate of 30% (2016: 30%)
Research and development tax benefits recognised
Adjustments relating to prior years
Income tax rate differential
Non-deductible items
Tax effect of share-based payment expense
Recognition of previously impaired tax losses
Other
Income tax expense on profit before tax
(b) Deferred tax
Deferred income tax in the statement of financial position relates to the following:
Deferred tax assets
Allowance for doubtful debts
Accruals
Provision for employee entitlements
Other provisions
Other
Carry forward losses
Deferred tax liabilities
Fixed assets
Intangible assets
Net deferred tax assets
Reconciliation of net deferred tax assets
Opening balance at beginning of period
Tax (expense) / benefit during period recognised in profit or loss
Prior year adjustment
Other
Closing balance at end of period
2018
$’000
2017
$’000
31,271)
28,198)
9,381)
(298)
(1)
(263)
325)
48)
(424)
–))
8,459)
(958)
(20)
(170)
203)
399)
(341)
8)
8,768))
7,580))
6,462))
671))
1,945))
–))
477))
2,750))
12,305))
(2,493)
(1,198)
(3,691)
8,614)
9,879)
(1,810)
446)
(31)
130)
8,614)
7,082))
665))
1,858))
665))
1,665))
2,620))
14,555))
(3,375)
(1,301)
(4,676)
9,879)
13,075)
(2,685)
–)
(340)
(171)
9,879)
Cash Converters International Limited – Annual Report 2018 | 79
2.3 Taxation (continued)
(c) Unrecognised deferred tax balances
Deferred income tax relating to the UK in the balance sheet excludes the following:
Tax losses – revenue
(d) Carry forward tax losses
2018
$’000
2017
$’000
4,160
4,904
Carry forward losses of $2.750 million (2017: $2.620 million) have been recognised in relation to the Group’s UK operations, which are profitable
in the current year, however have had a recent history of losses. Refer to note 2.3(g) for further information supporting the recognition of these
losses.
(e) Tax consolidation
Relevance of tax consolidation to the Group
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 5.2.
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 obligation. No amounts have been recognised in the
financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.
(f) Accounting policies
Current taxes
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. Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, taxation authorities. All are
calculated at the tax rates and tax laws enacted or substantively enacted by the balance sheet date.
Deferred taxes
Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible
temporary differences, carried forward unused tax assets and unused tax losses, to the extent it is probable that taxable profit will be available
to utilise them. 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) that affect neither taxable income nor accounting
profit. A deferred tax liability is not recognised in relation to the temporary differences arising from the initial recognition of goodwill.
The carrying amount of deferred income tax assets is reviewed at balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to utilise them.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised, or the
liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
80 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and
the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
Current and deferred tax for the period
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.
(g) Key estimate: deferred tax assets
A net deferred tax asset of $8.614 million (2017: $9.879 million) has been recognised in the consolidated statement of financial position. This
includes $2.750 million (2017: $2.620 million) of carried forward tax losses in relation to the Group’s UK operations, which although profitable
in the current year, have a recent history of losses. The UK tax losses have an indefinite availability period subject to satisfaction of the same
ownership and continuity of business tests. A deferred tax asset for the UK operations has only been recognised to the extent tax losses are
expected to be recoverable against future earnings.
In making this assessment, a forward-looking estimation of taxable profit was made, based on management’s best estimate of future UK
performance from continuing operations as at 30 June 2018.
Continuing operations in Australia were profitable during the current year and the Australian tax group is expected to continue to be profitable,
therefore supporting the recognition of net deferred tax assets arising from temporary differences in Australia.
2.4 Earnings per share
Earnings per share (EPS) is the amount of post-tax profit / (loss) attributable to each share. Basic EPS is calculated on the Company’s statutory
profit for the year divided by the weighted average number of shares outstanding. Diluted EPS adjusts the basic EPS for the dilutive effect of
any instruments, such as options, that could be converted into ordinary shares. The calculation of basic earnings per share has been based on
the following profit / (loss) attributable to ordinary shareholders and weighted average number of ordinary shares outstanding.
Reconciliation of earnings used in calculating earnings per share
2018
$’000
2017
$’000
Basic and diluted earnings per share
Profit / (loss) attributable to shareholders of the Company used in calculating
earnings per share
22,503
20,618
Weighted average number of shares used as the denominator
Weighted average number of shares – basic
Dilutive effect of performance rights
Weighted average number of shares – diluted
Number
Number
494,462,348
490,327,477
13,981,247
10,890,748
508,443,595
501,218,225
The number of potential ordinary shares not included in the above calculation is 9,819,506 (2017: 12,755,380), equating to a weighted average
dilutive effect of 13,981,247 (2017: 10,890,748).
Cash Converters International Limited – Annual Report 2018 | 81
2.5 Segment information
The Group’s operating segments are organised and managed separately according to the nature of their operations. Each segment represents
a strategic business unit that provides different services to different categories of customer. The Chief Executive Officer (chief operating
decision-maker) monitors the operating results of the business units separately for the purpose of making decisions about resource allocation
and performance assessment. The Group’s reportable segments under AASB 8 ‘Operating Segments’ are therefore as follows:
Franchise operations
This involves the sale of franchises for the retail sale of new and second hand goods and the sale of master licenses for the development of
franchises in countries around the world.
Store operations
This segment involves the retail sale of new and second hand goods, cash advance and pawn broking operations at corporate owned stores in
Australia.
Personal finance
This segment comprises the Cash Converters Personal Finance personal loans business and Mon-E, which is responsible for providing the
administration services for the Cash Converters network in Australia to offer small cash advance loans to customers.
Vehicle financing
This segment comprises Green Light Auto Group Pty Ltd, which provides motor vehicle finance since March 2016, and fully maintained vehicles
through a lease product to customers for a term of up to 4 years (a product that the Group ceased to offer during the 2016 financial year).
The accounting policies of the reportable segments are the same as the Group’s accounting policies.
The following is an analysis of the Group’s revenue and results by reportable operating segment for the periods under review.
Segment profit represents the profit earned by each segment without the allocation of central administration costs and directors’ fees and
expenses, interest income and expense in relation to corporate facilities and tax expense. This is the measure reported to the chief executive
officer (chief operating decision maker) for the purpose of resource allocation and assessment of segment performance.
82 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Year ended 30 June 2018
Interest revenue (i)
Other revenue
Gross revenue
2,987)
53,376)
112,729)
18,487)
73,476)
328)
9,281)
2,687)
21,474)
126,852)
113,057)
11,968)
Less inter-company sales
(1,868)
(8,312)
(3,567)
–)
Franchise
Store
Personal
Vehicle
Corporate
Total
operations
operations
$’000
$’000
finance
$’000
financing
head office
$’000
$’000
$’000
–)
–)
–)
–)
–)
740)
740)
178,373)
94,978)
273,351)
(13,747)
259,604)
741)
260,345)
19,606)
118,540)
109,490)
11,968)
–)
–)
–)
1)
19,606)
118,540)
109,490)
11,969)
13,666)
11,285)
(1,262)
4,502)
12,404)
15,787)
(124)
(3,267)
12,280)
12,520)
(276)
–)
49,926)
(3,249)
46,677)
(186)
46,491)
(5,073)
2,565)
(27,666)
49,776)
9)
2,574)
(564)
2,010)
(1,128)
–)
–)
(27,666)
49,776)
(3,542)
(7,683)
(31,208)
42,093)
(4,345)
(10,822)
12,004)
12,520)
41,418)
882)
(35,553)
31,271)
2,981)
56,511)
121,652)
17,900)
75,222)
–)
20,881)
131,733)
121,652)
(682)
(7,524)
(4,558)
20,199)
124,209)
117,094)
–)
13)
97)
20,199)
124,222)
117,191)
11,172)
12,318)
(682)
5,231)
10,490)
17,549)
(149)
(3,859)
10,341)
13,690)
–)
–)
54,014)
(4,542)
49,472)
(1,116)
48,356)
(4,154)
5,372)
3,777)
9,149)
–)
9,149)
12)
9,161)
(401)
(7)
(408)
(69)
(477)
(415)
–)
–)
–)
–)
–)
468)
468)
186,516)
96,899)
283,415)
(12,764)
270,651)
590)
271,241)
(31,378)
45,725)
–)
–)
(31,378)
45,725)
(2,930)
(8,123)
(34,308)
37,602)
(4,835)
(9,404)
10,341)
13,690)
44,202)
(892)
(39,143)
28,198)
Cash Converters International Limited – Annual Report 2018 | 83
Segment revenue
External interest revenue (ii)
Total revenue
EBITDA (iii)
Less inter-company eliminations
Segment EBITDA
Depreciation and amortisation
EBIT
Interest expense
Profit / (loss) before tax from
continuing operations
Year ended 30 June 2017
Interest revenue (i)
Other revenue
Gross revenue
Less inter-company sales
Segment revenue
External interest revenue (ii)
Total revenue
EBITDA (iii)
Less inter-company eliminations
Segment EBITDA
Depreciation and amortisation
EBIT
Interest expense
Profit / (loss) before tax from
continuing operations
2.5 Segment information (continued)
(i)
Interest revenue comprises personal loan interest, cash advance fee income, pawn broking interest from customers and commercial loan interest from third parties
(ii) External interest is interest received on bank deposits
(iii) EBITDA is earnings before interest, tax, depreciation, amortisation and impairment
2018
$’000
2017
$’000
Group assets by reportable segment
Franchise operations
Store operations
Personal finance
Vehicle financing
Total of all segments
Unallocated assets
Consolidated total assets
37,728
80,822
219,941
47,129
385,620
123,509
509,129
Unallocated assets include various corporate assets including cash held at a corporate level that has not been allocated to the
underlying segments.
Group liabilities by reportable segment
Franchise operations
Store operations
Personal finance
Vehicle financing
Total of all segments
Unallocated liabilities
Consolidated total liabilities
5,663
7,559
118,127
1,681
133,030
53,691
186,721
36,573
73,409
186,195
24,977
321,154
77,691
398,845
6,879
7,604
51,226
3,978
69,687
68,319
138,006
Unallocated liabilities include Group borrowings not specifically allocated to the underlying segments.
Other segment information
Depreciation, amortisation
and impairment
2018
$’000
2017
$’000
Additions to
non-current assets
2018
$’000
2017
$’000
124
3,111
184
484
3,903
3,542
7,445
104
3,855
1,081
72
5,112
2,185
7,297
1,640
1,590
2,637
2,339
8,206
1,528
9,734
570
1,555
4,291
364
6,780
224
7,004
Franchise operations
Store operations
Personal finance
Vehicle financing
Total of all segments
Unallocated
Total
84 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 — Geographical information
The Group operates in two principal geographical areas – Australia (country of domicile) and the United Kingdom. The Group’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
Non-current assets
2018
$’000
248,480
11,222
643
260,345
2017
$’000
259,113
11,389
739
271,241
2018
$’000
143,831
2,427
–
2017
$’000
142,516
1,713
–
146,258
144,229
Non-current assets include property, plant and equipment, goodwill and other intangible assets, and exclude deferred tax assets, trade and
other receivables and other financial assets.
2.6 Dividends
2018
2017
Per share
cents
Total
$’000
Per share
cents
Total
$’000
Recognised amounts
Final dividend – prior year 100% franked at 30%
Interim dividend – current year 100% franked at 30%
Unrecognised amounts
Final dividend – current year 100% franked at 30%
–
–
–
–
–
–
–
–
1.00
–
1.00
–
4,850
–
4,850
–
The Company did not pay a dividend in respect of the financial year ended 30 June 2017.
On 27 August 2018 the Company announced that there would be no final dividend in respect of the financial year ended 30 June 2018.
The Company has Australian franking credits available of $66.109 million on a tax paid basis (2017: $57.782 million).
Cash Converters International Limited – Annual Report 2018 | 85
2.7 Notes to cash flow statement
Reconciliation of profit to net cash flow from operating activities:
Profit / (loss) after tax
Non-cash adjustment to reconcile profit after tax to net cash flows:
Amortisation
Depreciation
Share-based payments
Loss on disposal of non-current assets
Share of net (profit) / loss of equity accounted investment
Changes in assets and liabilities:
Trade and loan receivables
Inventories
Other assets
Trade and other payables
Provisions
Income tax payables
Net cash provided by operating activities
2018
$’000
2017
$’000
22,503)
20,618)
4,364)
3,081)
159)
238)
(848)
(47,608)
321)
(2,784)
(2,121)
(1,196)
2,342)
(21,549)
3,717)
3,580)
1,331)
826)
(314)
14,786)
(3,469)
3,879)
(1,686)
(12,574)
12,840)
43,534)
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.
86 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
(3) Assets and liabilities
In this section
This section shows the assets used to generate Cash Converters’ trading performance and the liabilities incurred as a result. Information on
other assets and liabilities are in the following sections:
•
•
•
Section 2 – Deferred tax assets and liabilities
Section 4 – Financing activities
Section 5 – Equity-accounted investments
3.1 Trade and other receivables
Current
Trade receivables
Allowance for impairment losses
Total trade receivables (net)
Finance lease receivables
Vendor finance loans
Loan to associate
Other receivables
Total trade receivables
Non-current
Finance lease receivables
Vendor finance loans
Loan to associate
Other receivables
Total trade and other receivables
2018
$’000
2017
$’000
1,537)
(136)
1,401)
157)
2,068)
14,981)
4,094)
22,701)
534)
5,014)
–)
12)
5,560)
1,187)
(58)
1,129)
506)
1,521)
–)
4,415)
7,571)
1,932)
6,628)
14,908)
12)
23,480)
(i)
(ii)
(iii)
(iv)
(v)
(ii)
(iii)
(iv)
(v)
(i) Trade receivables 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.
(ii) The Group entered into finance lease arrangements with customers for leasing of vehicles. All leases are denominated in Australian dollars.
The average term of finance leases entered into is 4 years. The Group ceased entering into such finance lease arrangements from March 2016.
(iii) Vendor finance loans are loans made to purchasers of the Group’s UK corporate stores during the prior year as part of the purchase agreement.
The loans have various terms of up to 6 years, and bear interest at rates between nil and 9%. The receivables are held at amortised cost.
No receivables are past due or impaired at 30 June 2018 (2017: nil).
(iv) 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.
(v) Other receivables include GST receivable, development agent fees outstanding, sub-master license sales, Mon-E fees, financial commission and
instalment credit loans. None of these receivables are past due or considered impaired (2017: nil).
Cash Converters International Limited – Annual Report 2018 | 87
3.1 Trade and other receivables (continued)
As at 30 June the ageing analysis of trade receivables was as follows:
0 to 30 days
31 to 60 days past due not impaired
61 to 90 days past due not impaired
90 + days past due not impaired
Considered impaired
Balance at end of year
Accounting policy
2018
$’000
2017
$’000
963
39
104
295
136
634
21
22
452
58
1,537
1,187
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as
trade and other receivables and are measured at amortised costs 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.
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.
Allowance for impairment losses
As at 30 June 2018, trade receivables and instalment credit loans of $136 thousand (2017: $58 thousand) were impaired and fully provided for.
Movements in the provision for impairment of trade receivables were as follows:
Balance at beginning of year
Impairment losses recognised on receivables
Amounts written off as uncollectible
Foreign currency exchange differences
Balance at end of year
Amounts receivable under finance leases
Not later than one year
Later than one year and not later than five years
Less unearned finance income
Present value of minimum lease payments receivable
Allowance for uncollectible lease payments
58)
88)
(12)
2)
136)
2,309)
58)
(2,309)
–)
58)
Minimum lease payments
Present value of minimum
2018
$’000
1,725)
504)
2,229)
(758)
1,471)
(780)
691)
2017
$’000
3,309)
1,734)
5,043)
(1,343)
3,700)
(1,262)
2,438)
lease payments
2018
$’000
2017
$’000
937)
534)
1,471)
–)
1,471)
(780)
691)
1,768)
1,932)
3,700)
–)
3,700)
(1,262)
2,438)
88 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Unguaranteed residual values of assets leased under finance leases at the end of the reporting period are estimated at $491 thousand (30 June
2017: $1.312 million). The residual amounts have been excluded from the above calculations in the present value 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 25.0% (30 June 2017: 26.0%) per annum.
3.2 Loan receivables
Current
Personal short-term loans (unsecured)
Allowance for impairment losses
Total personal short-term loans (net)
Vehicle finance loans (secured)
Allowance for impairment losses
Deferred establishment fees
Total vehicle finance loans (net)
Total loan receivables
Non-current
Personal short-term loans (unsecured)
Allowance for impairment losses
Total personal loans (net)
Vehicle finance loans (secured)
Allowance for impairment losses
Deferred establishment fees
Total vehicle finance loans (net)
Total loan receivables
(i)
(ii)
(i)
(ii)
2018
$’000
2017
$’000
128,575)
(18,358)
110,217)
10,765)
(1,506)
(514)
8,745)
118,962)
3,277)
(164)
3,113)
31,305)
(162)
(1,494)
29,649)
32,762)
108,010
(25,286)
82,724)
6,064
(377)
(478)
5,209
87,933
–)
–)
–)
14,037
–)
–)
14,037
14,037
(i) The credit period provided in relation to personal short-term unsecured 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 Group 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.
(ii) Vehicle finance loans are secured loans advanced for financing the purchase of vehicles. The average term of these loans is 4.5 years (2017:
4.6 years) and the average interest rate is 25.6% (2017: 25.0%).
Cash Converters International Limited – Annual Report 2018 | 89
3.2 Loan receivables (continued)
As at 30 June the ageing analysis of personal loan receivables was as follows:
0 to 30 days
31 to 60 days past due not impaired
61 to 90 days past due not impaired
90 + days past due not impaired
Considered impaired
Balance at end of year
As at 30 June the ageing analysis of vehicle finance loan receivables was as follows:
0 to 30 days
31 to 60 days past due not impaired
61 to 90 days past due not impaired
90 + days past due not impaired
Considered impaired
Balance at end of year
Allowance for impairment losses
2018
$’000
2017
$’000
104,506)
83,844)
3,098)
3,705)
2,328)
18,215)
131,852)
38,147)
1,464)
440)
351)
1,668)
42,070)
641)
159)
139)
23,227)
108,010)
18,919)
590)
112)
103)
377)
20,101)
As at 30 June 2018, personal loan receivables of $18.522 million (2017: $25.286 million) were impaired and fully provided for. Movements in
the provision for impairment of personal loan receivables were as follows:
Balance at beginning of year
Impairment losses recognised on receivables
Amounts written off as uncollectible
Balance at end of year
25,286)
35,974)
(42,738)
18,522)
26,302)
37,295)
(38,311)
25,286)
In determining the recoverability of a personal loan, the Group 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 2018 vehicle finance loan receivables of $1.668 million (2017: $377 thousand) were impaired and fully provided for.
Movements in the provision for impairment of vehicle finance loan receivables were as follows:
Balance at beginning of year
Impairment losses recognised on receivables
Amounts written off as uncollectible
Balance at end of year
377)
2,155)
(864)
1,668)
30)
347)
–)
377)
90 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
In determining the recoverability of a vehicle finance loan, the Group considers any change in the credit quality of the receivable from the date
credit was initially granted up to the reporting date. As the current customer base is relatively small, the Group has made a provision based on
known historical losses and reasonable estimation of expected future losses. As these loans are secured by the underlying vehicle financed, the
total loss will be reduced by the recoverable amount. Accordingly, the directors believe that there is no further credit provision required in excess
of the allowance for doubtful debts.
Accounting policy
Loan receivables that have fixed or determinable payments that are not quoted in an active market are classified as loan receivables and are
measured at amortised costs 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.
Key estimate – impairment of financial assets
The impairment of personal loans requires the Group 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 based on 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.
During the current year, the directors determined that the estimates for the specific provision for personal loans should be reduced, to reflect
the improved credit quality of the personal loan book and reduction in losses over the preceding year compared to historic levels. These
developments are a result of the comprehensive overhaul of the personal loan assessing platform and introduction of a revised Income and
Expenditure process in March 2017, which improved the assessment of loan applicant affordability. Additionally, the Group has additional
information with respect to the recoverability of the MACC loan product which was launched in October 2016 with tighter credit criteria attracting
a lower risk customer demographic compared to the SACC loan book.
The impact of this change in estimates has been made prospectively in accordance with AASB 108 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’, and reduced the allowance for impairment losses as at 30 June 2018 by $1.186 million. As the provision
is made on the current balance of the loan books at a point in time, it is not possible to accurately estimate what the impact will be on
future periods.
The impact of the future adoption of the expected credit loss model for impairment, as required under AASB 9 ‘Financial Instruments’ has been
included in note 1(b) and will be applicable to the Company for the year ending 30 June 2019.
3.3 Inventories
New and pre-owned goods at cost
Provision for obsolete stock
New and pre-owned goods (net)
New and used motor vehicles at cost
Accounting policies
2018
$’000
21,164)
(534)
20,630)
43)
20,673)
2017
$’000
20,651
–
20,651
340
20,991
Inventories are valued at the lower of cost and net realisable value. Costs, including purchase costs 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.
Cash Converters International Limited – Annual Report 2018 | 91
3.3 Inventories (continued)
With a significant proportion of inventory being jewellery, which retains its value, acquired from customers across 69 corporate stores (2017: 71)
and due to the diverse range of other products, the overall exposure to obsolescence is low. Inventory is discounted in stores as it ages in order
to effect a sale. At the reporting date a provision was made for inventory where the retail price was below cost. The provision amount was the
difference between the marked down price and original cost. An additional provision was also made against the expected loss on sale of any
other general inventory (non-jewellery) that was over 1 year old.
3.4 Plant and equipment
Leasehold
improvements
Plant and
equipment
$’000
$’000
12,345)
13,119)
543)
772)
–)
–)
(4)
13,656)
391)
17)
(618)
3)
13,449)
5,233)
–)
181)
1,688)
(4)
7,098)
(532)
1,647)
3)
8,216)
6,558)
5,233)
666)
276)
(1,020)
(1,298)
(39)
11,704)
1,884)
(17)
(1,529)
31)
12,073)
6,473)
(1,070)
772)
1,892)
(38)
8,029
(1,324)
1,434)
26)
8,165)
3,675)
3,908)
Leasehold
improvements
under finance
lease
$’000
1,048)
–)
(1,048)
–)
–)
–)
–)
–)
–)
–)
–)
–)
953)
–)
(953)
–)
–)
–)
–)
–)
–)
–)
–)
–)
Total
$’000
26,512)
1,209)
–)
(1,020)
(1,298)
(43)
25,360)
2,275)
–)
(2,147)
34)
25,522)
12,659)
(1,070)
–)
3,580)
(42)
15,127)
(1,856)
3,081)
29)
16,381)
10,233)
9,141)
Cost
Balance at 1 July 2016
Additions
Transfers between asset categories
Transfers to intangible assets
Disposals
Foreign currency exchange differences
Balance at 30 June 2017
Additions
Transfers between asset categories
Disposals
Foreign currency exchange differences
Balance at 30 June 2018
Depreciation and impairment
Balance at 1 July 2016
Disposals
Transfers between asset categories
Depreciation expense
Foreign currency exchange differences
Balance at 30 June 2017
Disposals
Depreciation expense
Foreign currency exchange differences
Balance at 30 June 2018
Net book value
As at 30 June 2017
As at 30 June 2018
92 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Accounting policies
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
revalued 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 and fittings
3.5 Goodwill
8 years
5 years
5 years
8 years
Gross carrying amount
Balance at beginning of year
Goodwill written off on closure of stores
Balance at end of year
Accounting policies
2018
$’000
2017
$’000
107,009)
107,009
(42)
–
106,967)
107,009
Goodwill arising on an acquisition of a business is carried at cost at the date of acquisition of the business less accumulated impairment losses,
if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit
from the synergies of the combination. CGUs 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 CGU is less than its carrying amount, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is recognised directly in profit or loss and is not reversed
in subsequent periods.
On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Allocation of goodwill to CGUs
Goodwill has been allocated for impairment testing purposes to the following CGUs or groups of CGUs:
Personal finance
Store operations
90,561)
16,406)
106,967)
90,561
16,448
107,009
Impairment losses recognised
No impairment losses have been recognised in the years ended 30 June 2018 or 30 June 2017.
Cash Converters International Limited – Annual Report 2018 | 93
3.5 Goodwill (continued)
Impairment testing and key assumptions
Impairment testing approach applicable to all CGUs
Impairment modelling for each CGU has been prepared separately based on a value in use model which uses cash flow projections based on
budgets approved by management covering a five-year period. Cash flows beyond the five-year period are estimated using a terminal value
calculated based on a terminal growth rate under standard valuation principles.
Key assumptions are based on a combination of past experience for mature products and external sources (market data) for less mature
products and economic metrics such as interest rates. In FY 2019 growth in lending volumes compared to FY 2018 is expected to be driven
primarily by the Medium Amount Credit Contract (MACC) product which was launched in FY 2017 and experienced growth during FY 2018.
Working capital requirements are factored into the modelling based on historic requirements for each CGU, and vary in line with earnings growth.
Capital investment, required to run the business (i.e. replacement and non-expansionary capital expenditure) has been included based on
budgeted amounts 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 3.4) and other intangible assets (note
3.6) is assessed using the impairment testing as outlined in this note.
Impact of regulations
The Personal Finance business operates in a regulated industry. The impairment testing for this business segment is based on management’s
expectation of performance, taking into account applicable legislative requirements at the date of the impairment testing, being 30 June
2018. Any material change to legislation impacting this business in future periods may have a significant positive or negative impact on future
performance and may result in an impairment.
The following key assumptions were used in the impairment testing:
Assumption
Personal finance
Store operations
2019 budget revenue growth / (reduction)
2019 budget expense growth / (reduction)
Revenue growth rate > 1 year
Expense growth rate > 1 year
Terminal growth rate > 5 years
Pre-tax discount rate applied to cash flows
13%
17%
(1%) – 5%
(1%) – 6%
2.5%
15.8%
(0%)
(2%)
3% – 4%
2%
2.5%
15.8%
Bad debt rates have been forecast based on historic average rates and are adjusted in future periods to move towards industry and historical
averages for individual products experienced by the Group. This projection reflects the benefits of the enhanced credit assessment processes
which have been implemented, and consequent anticipated lower bad debt rates.
For the year ended 30 June 2017 the key assumptions used included:
•
2018 growth rates for revenue and expenses in Personal finance of -7% and -5% respectively, in the following years growth rates ranged
from +1% to +5% for revenue and -2% to +2% for expenses;
•
2018 growth rates for revenue and expenses in Store operations of -3% and -5% respectively, in the following years growth rates ranged
from +1% to +3% for revenue and +2% to +3% for expenses;
• Pre-tax discount rates ranging from 14.9% to 16.0% and terminal growth rates of 2.5%.
94 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Impairment sensitivity disclosures
Based on the impairment testing completed for all CGUs, management believe that any reasonably possible change in the key assumptions on
which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of each CGU as at 30 June
2018.
Reasonably possible changes are considered in the context of regulatory requirements that have been enacted or substantively enacted at the
date of the impairment testing, or where the outcome of future changes can reasonably be modelled at the date of impairment testing.
With this in mind, potential future legislative changes not yet enacted or substantively enacted may significantly impact the Group’s operations,
should they be introduced in future periods.
As disclosed in note 3.5 of the 30 June 2017 annual report, on 28 November 2016, the Minister for Revenue and Financial Services issued
a media release in response to the Final Report of the Small Amount Credit Contract (SACC) Law Review advising that the Government
supports most of the recommendations, in part or in full, of the Final Report. One of the recommendations is to extend the SACC protected
earnings amount (PEA) requirement to all consumers, and lowering it to 10 per cent of the consumer’s net income. The Company is continuing
discussions with the Government around these recommendations, with no changes to the applicable SACC legislation having currently
been enacted.
Consequently, there is significant uncertainty with respect to the timing of enacting any legislative change, as well as the final scope and form of
any eventual change, if any.
The recoverable value of both the Personal finance and Store operations businesses may be impacted by potential future legislative changes given
the impact on both the Group’s personal loan and cash advance operations. Refer to note 2.5 for further information on the Group’s operations.
Whilst ultimately the Group’s business operations could potentially be adjusted to mitigate the impact of these changes, the likely impact of the
legislation if enacted in its current proposed form from 1 November 2019, based on the current profile of the loan book and with reasonably
possible changes to other key assumptions being taken into account, may result in an impairment within a range of $45 million to $55 million
(2017:$35 million to $48 million).
As outlined above, this estimate is subject to significant variability due to both the ultimate form and enactment date of the legislation, both of
which are uncertain, as well as the profile of the loan book when any applicable legislative changes were to come into effect.
Additionally, at both the date of impairment testing and the date of this report there is no certainty that any change to applicable legislation will
be made or the timing of any such change.
3.6 Other intangible assets
Allocation of other intangible assets to CGUs
Other intangible assets are allocated to their respective CGU and tested for impairment when impairment indicators are identified. Refer to note
3.5 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 CGUs.
No impairment has been recognised in the year ended 30 June 2018 (2017: nil).
Cash Converters International Limited – Annual Report 2018 | 95
3.6 Other intangible assets (continued)
The allocation of other intangible assets to CGUs is as follows:
Franchise operations (excluding UK)
Franchise operations (UK)
Personal finance
Store operations
Vehicle financing
Categories of other intangible assets
Cost
Balance at 1 July 2016
Additions
Transfers from plant & equipment
Disposals
Foreign currency exchange differences
Balance at 30 June 2017
Additions
Disposals
Foreign currency exchange differences
Balance at 30 June 2018
Amortisation and impairment
Balance at 1 July 2016
Disposals
Amortisation expense
Foreign currency exchange differences
Balance at 30 June 2017
Disposals
Amortisation expense
Foreign currency exchange differences
Balance at 30 June 2018
As at 30 June 2017
As at 30 June 2018
96 | Cash Converters International Limited – Annual Report 2018
2018
$’000
2017
$’000
6,213
2,939
14,100
6,241
657
30,150
9,771
2,805
8,491
4,673
1,247
26,987
Reacquired
Trade names
Software
Total
rights
$’000
& customer
relationships
$’000
$’000
$’000
7,699)
16,868)
–)
–)
–)
(61)
7,638)
–)
(80)
46)
–)
–)
–)
–)
16,868)
–)
(18)
–)
14,520)
6,305)
1,020)
(2,719)
4)
19,130)
7,458)
(21)
42)
39,087)
6,305)
1,020)
(2,719)
(57)
43,636)
7,458)
(119)
88)
7,604)
16,850)
26,609)
51,063)
3,986)
–)
542)
(12)
4,516)
(80)
513)
12)
4,961)
3,122)
2,643)
7,387)
–)
964)
–)
8,351)
(18)
379)
–)
8,712)
8,517)
8,138)
3,680)
(2,109)
2,211)
–)
3,782)
(14)
3,472)
–)
7,240)
15,348)
19,369)
15,053)
(2,109)
3,717)
(12)
16,649)
(112)
4,365)
12)
20,913)
26,987)
30,150)
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Accounting policies
Reacquired rights and Customer relationships acquired through business combinations are recognised at fair value at acquisition date less
accumulated amortisation and impairment.
Trade names relating to repurchased sub-master licenses both overseas and in Australia are recognised at cost less accumulated amortisation.
Software development expenditure is recognised as an asset when it is possible that future economic benefits attributable to the asset will flow.
Software assets are recognised at cost less accumulated amortisation.
Intangible assets are amortised as follows:
Asset
Reacquired rights
Customer relationships
Trade names
Software
Amortisation period
The remaining life of each franchise agreement as at the acquisition date
Useful life of 5 years based on historic average customer relationships
Useful life which is not more than 100 years
Useful life of between 5 and 8 years based on historic experience
Key estimate – useful lives of other intangible assets
The Company 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 other intangible assets requires the entity to make significant estimates based on both past performance and
expectations of future performance.
3.7 Trade and other payables
Current
Trade payables
Accruals
2018
$’000
2017
$’000
3,691
15,794
19,485
2,495
18,793
21,288
The Group 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.
3.8 Provisions
Current
Employee benefits
Fringe benefits tax
Onerous lease contracts
Other
Non-current
Employee benefits
Onerous lease contracts
(i)
(i)
5,666
36
864
6
6,572
817
1,034
1,851
5,834
168
1,055
7
7,064
790
1,627
2,417
(i) The provision for onerous lease contracts relates to the Group’s previously discontinued UK operations
Cash Converters International Limited – Annual Report 2018 | 97
3.8 Provisions (continued)
Accounting policies
Provisions are recognised when the Group 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 cash flows estimated to
settle the present obligation, its carrying amount is the present value of those cash flows.
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.
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and personal
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.
(4) Capital structure and financing costs
In this section
This section outlines how the Group manages its capital structure and related financing costs, including its balance sheet liquidity and
access to capital markets.
The Board determines the appropriate capital structure of the Group, specifically how much is raised from shareholders (equity) and how
much is borrowed from financial institutions and capital markets (debt), in order to finance the Group’s activities both now and in the future.
The Board considers the Group’s capital structure and its dividend policy at least twice a year ahead of announcing results, in the context
of its ability to continue as a going concern, to execute the strategy and to deliver its business plan.
4.1 Cash and cash equivalents
Cash on hand
Cash at bank
2018
$’000
2017
$’000
2,700
137,291
139,991
2,991
77,580
80,571
Cash at bank includes restricted cash of $4.495 million (2017: $15.101 million) that is held in accounts controlled by the CCPF Receivables
Trust No 1 that was established to operate the Company’s securitisation facility with Fortress Finance. The facility prescribes that cash
deposited in this account can only be used to fund new principal advances. Surplus funds at the end of the period are redistributed in
keeping with the terms of the securitisation facility. Cash at bank includes a further $5.730 million (2017: $5.482 million) on deposit as
security for banking facilities.
98 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
4.2 Borrowings
Current
Securitisation facility
Loans – vehicle finance
Bonds
Hire purchase and lease liabilities
Non-current
Securitisation facility
Loans – vehicle finance
Bonds
2018
$’000
2017
$’000
79,393
–
59,958
–
44,426
1,799
–
78
139,351
46,303
18,996
–
–
18,996
–
1,229
59,705
60,934
(i)
(ii)
(iii)
(i)
(ii)
(iii)
(i) The securitisation facility represents a liability owed by CCPF Receivables Trust No 1, a consolidated subsidiary established as part of the
borrowing arrangement with the Fortress Investment Group. This liability is secured against eligible receivables which have been assigned
to the Trust. Collections from Trust receivables are used to pay interest of the securitisation facility, with the remainder remitted to the
Group twice per month. During the period the Company secured an amendment to the facility. As part of the amendment, the eligibility of
receivables to act as security was extended to include Medium Amount Loans issued by Cash Converters Personal Finance and secured
vehicle loans provided by Green Light Auto. (Under the original facility only Small Amount Credit Contracts were eligible.) Receivables have
maturities of up to 5 years and the facility has accordingly been presented as current and non-current liabilities in line with the maturities of
the underlying receivables. The facility limit was also increased under the amendment from $100 million to a total facility of $150 million.
The amendment also extended the term to another three years with an option to extend for a further two years. In the ordinary course of
business, the consolidated entity currently expects to utilise this facility until at least 10 November 2020.
(ii) Loans – Vehicle Finance represented a vehicle leasing facility with Fleet Partners for the provision of high quality fully maintained vehicles for
the use of Green Light Auto’s customers. The underlying financing from Fleet Partners was repaid in November 2017.
(iii) Represents a September 2013 issue of $60 million of senior unsecured 7.95% notes which mature in September 2018 with FIIG Securities
Limited. Direct borrowing costs have been capitalised and offset against the liability. As the maturity date now falls within
12 months, the liability is reflected as a current liability on the statement of financial position.
Reconciliation of liabilities arising from financing activities
Securitisation facility
Loans – vehicle finance
Bonds
Lease liabilities
2017
Cash flows
$’000
$’000
44,426
3,028
59,705
78
54,000)
(3,028)
–)
(78)
Total liabilities from financing activities
107,237
50,894
Non-cash
changes
Borrowing
costs
$’000
(37)
–)
253)
–)
216)
2018
$’000
98,389
–
59,958
–
158,347
Cash Converters International Limited – Annual Report 2018 | 99
4.2 Borrowings (continued)
Accounting policies
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.
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.
Financing arrangements
Unrestricted access was available at balance date to the following lines of credit:
Total facilities
Securitisation facilities
Bond
Used at balance date
Securitisation facilities
Bond
Unused at balance date
Securitisation facilities
2018
$’000
2017
$’000
150,000
60,000
210,000
99,500
60,000
159,500
100,000
60,000
160,000
45,500
60,000
105,500
50,500
54,500
Refer to note 4.3 for further information in relation to financial instruments.
Loan covenants and review events
The Group has borrowing facilities which are subject to various covenants and review events. The securitisation has various eligibility criteria
which the receivables of the Group must meet to be funded under the facility. Under the bond facility, amongst other covenants, the Group
must maintain sufficient interest cover in the event of new financial indebtedness being incurred and requires dividends only be paid out of
available profits. During the reporting period there have been no events that would cause these covenants to be breached.
100 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
4.3 Financial risk factors
The Group’s activities expose the Group to a variety of financial risks: market risks (including currency risk and interest rate risk), credit
risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on financial performance.
Financial risk and capital management is carried out in accordance with policies approved by the Board. The Board reviews and approves
written principles of overall risk management, as well as written policies covering specific areas such as managing capital, mitigating interest
rates, liquidity, foreign exchange and credit risk. The Audit and Risk Committee assists the Board in monitoring the implementation of risk
management policies
(a) Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade and other receivables
Personal loan receivables
Financial liabilities
Trade and other payables
Borrowings
2018
$’000
2017
$’000
139,991
28,261
151,724
319,976
19,485
158,347
177,832
80,571
31,051
101,970
213,592
21,288
107,237
128,525
The Group has no material financial assets or liabilities that are held at fair value.
(b) Financial risk management objectives
The Group’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 Group. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes. The Group’s activities expose it primarily to the financial risks of changes in foreign
currency exchange rates and interest rates.
(c) Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. There has been
no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk from the previous period.
(d) Foreign currency risk management
The Group 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 to translate transactions into the reporting currency. There are no foreign
currency denominated monetary assets or monetary liabilities in the Group at the reporting date (2017: nil) other than in the functional currency
of the operating entity.
Cash Converters International Limited – Annual Report 2018 | 101
4.3 Financial risk factors (continued)
(e) Interest rate risk management
The Company and the Group 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. Loans issued by the Group are at fixed rates. The risk is managed by the Group by monitoring
interest rates.
The Company and the Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk
management section of this note.
Interest rate sensitivity analysis
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 $74 thousand (2017: increase/decrease by approximately $61 thousand).
(f) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group
measures credit risk on a fair value basis. The Group 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 Group 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 and Green Light Auto which may be both secured and unsecured loans. Credit risk is present in relation to all unsecured loans
made which is managed within an agreed corporate policy on customer acceptance and ongoing review of recoverability.
(g) Liquidity risk management
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 Group’s short, medium and long-term funding and liquidity management requirements.
The Group 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 4.2 is a listing of
additional undrawn facilities that the Company / Group has at its disposal to further reduce liquidity risk.
Liquidity and interest risk tables
Financial liabilities
The following table details the Group’s remaining contractual maturity for its financial liabilities. The table has been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both
interest and principal cash flows.
To the extent that interest flows are at floating rates, 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 Group may be required to pay.
102 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Weighted
average
effective
interest rate
1 year
or less
1 to 5
years
More than
5 years
Total
%
$’000
$’000
$’000
$’000
0.00
7.95
8.72
0.00
7.59
7.93
7.67
19,485
60,752
79,393
159,630
21,288
83
1,936
44,426
67,733
–
–
18,997
18,997
–
–
66,565
–
66,565
–
–
–
–
–
–
–
–
–
19,485
60,752
98,390
178,627
21,288
83
68,501
44,426
134,298
2018
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
2017
Non-interest bearing
Finance lease liability – fixed rate
Fixed interest rate instruments
Variable interest rate instruments
Financial assets
The following table details the Group’s expected maturity for its financial assets. The table below has 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
/ Group anticipates that the cash flow will occur in a different period.
Weighted
average
effective
interest rate
1 year
or less
1 to 5
years
More than
5 years
Total
%
$’000
$’000
$’000
$’000
0.00
94.1
1.65
0.00
105.39
2.10
30,540
255,260
84,605
370,405
35,032
179,223
33,224
247,479
–
68,677
–
68,677
–
46,452
–
46,452
–
–
–
–
–
–
–
–
30,540
323,937
84,605
439,082
35,032
225,675
33,224
293,931
2018
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
2017
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
The amounts included above for variable interest rate instruments for both assets and liabilities are subject to change if actual rates differ
from those applied in the above average calculations.
Cash Converters International Limited – Annual Report 2018 | 103
4.3 Financial risk factors (continued)
(h) Fair value of financial instruments
The fair value of the Group’s financial assets and liabilities are determined on the following basis:
Financial assets and financial liabilities that are measured at fair value on a recurring basis
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 or 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 2018 and 30 June 2017, the Group has no material financial assets and liabilities that are measured on a recurring basis at fair value.
Financial assets and financial liabilities that are not measured at fair value on a recurring basis (but where fair value disclosures are required)
At 30 June 2018 and 30 June 2017, 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.
4.4 Issued capital
Balance at beginning of year
Issued during the year
Dividend reinvestment plan
Shares issued on exercise of performance rights
Entitlement offer
Share issue costs
Balance at end of year
2018
Number
2017
Number
2018
$’000
2017
$’000
493,047,424
484,976,037
210,203)
207,540
–
8,071,387
102,166
123,288,356
–
–
–
–
616,437,946
493,047,424
–)
98)
39,452)
(1,039)
248,714)
2,663
–
–
–
210,203
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 par value concept in relation to 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.
104 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
(5) Group structure
In this section
This section provides information to assist users understand how the Group structure affects the financial position and performance
of the Group as a whole. The Group includes entities that are classified as associates, which are accounted for using the equity method.
In this section of the notes there is information about:
1.
Changes to the structure that occurred during the prior year as a result of business combinations or the disposal of a
discontinued operation;
2.
Investments in associates;
3. Composition of the Group; and
4. Parent entity financial information.
5.1 Investment in associates
Balances of the investments in associates and joint ventures are as follows:
Balance at beginning of year
Net profit for year
Foreign exchange adjustment in value of investment
Balance at end of year
2018
$’000
2017
$’000
4,607)
846)
(171)
5,282)
4,295)
314))
(2)
4,607)
Associates are those entities over which the Company has significant influence, but not control or joint control, over the financial and operating
policies. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not control or joint
control over those policies.
The financial statements include the Company’s share of the total recognised gains and losses of associates on an equity accounted basis,
from the date that significant influence commences until the date that significant influence ceases. If the Company’s share of losses exceeds
its interest in an associate, their carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent the
Company has incurred legal or constructive obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the
associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
During the year, the Company held an investment in the Cash Converters Holdings Limited Partnership, the master franchisor in New Zealand.
The Company holds a 25% equity interest (ownership and voting interest) in all aspects of the New Zealand enterprise, including corporate
stores, franchise contracts and financial services.
Cash Converters International Limited – Annual Report 2018 | 105
5.2 Controlled entities
(a) Composition of the Group
Controlled entities of Cash Converters International Limited:
Name of entity
Country of
incorporation
BAK Property Pty Ltd (1)
Cash Converters (Cash Advance) Pty Ltd (1) (2)
Cash Converters Finance Corporation Limited (3)
Cash Converters (NZ) Pty Ltd
Cash Converters Personal Finance Pty Ltd (1) (2)
Cash Converters Pty Ltd (1) (2)
Cash Converters (Stores) Pty Ltd (1) (2)
Cash Converters UK Holdings PLC
Cash Converters USA, Inc (3)
Cash Converters USA Limited (3)
Finance Administrators of Australia Pty Ltd (1) (2)
Green Light Auto Group Pty Limited (1) (2)
Mon-E Pty Ltd (1) (2)
Safrock Finance Corporation (QLD) Pty Ltd (1) (2)
Safrock Finance Corporation WA Pty Ltd (1) (2)
CCPF Receivables Trust No 1
Australia
Australia
Australia
Australia
Australia
Australia
Australia
UK
USA
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ownership interest
2018
2017
100%
100%
100%
100%
64.33%
64.33%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.285%
99.285%
99.285%
99.285%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(1) These companies are parties to the Deed of Cross Guarantee and members of the Closed Group as at 30 June 2018.
(2) These companies are members of the tax consolidated group.
(3) Non-controlling interest is not considered material in these subsidiaries.
(b) Deed of cross guarantee
Cash Converters International Limited and certain wholly-owned companies (the Closed Group), identified in (a) above, are parties to a Deed
of Cross Guarantee (the Deed). The effect of the Deed is that members of the Closed Group guarantee to each creditor payment in full of any
debt in the event of winding up of any of the members under certain provisions of the Corporations Act 2001. ASIC Corporations Instrument
2016/785, issued on 28 September 2016, provides relief to parties to the Deed from the Corporations Act 2001 requirements for preparation,
audit and lodgement of financial reports and directors’ reports, subject to certain conditions as set out therein.
Pursuant to the requirements of this Corporations Instrument, a summarised consolidated Statement of Profit or Loss and Other Comprehensive
Income for the year ended 30 June 2018 and consolidated Statement of Financial Position as at 30 June 2018, comprising the members of the
Closed Group after eliminating all transactions between members are set out on the following pages.
106 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Summarised statement of profit or loss and comprehensive income
2018
$’000
2017
$’000
Profit / (loss) before income tax
Income tax benefit / (expense)
Total comprehensive income
Summary of movements in Closed Group’s retained earnings
Retained earnings at beginning of year
Transfer reserve balance
Net profit / (loss)
Dividends paid or provided for
Retained earnings at end of year
Statement of financial position
Current assets
Cash and cash equivalents
Trade receivables
Loan receivables
Inventories
Prepayments
Total current assets
Non-current assets
Trade and other receivables
Loan receivables
Plant and equipment
Deferred tax assets
Goodwill
Other intangible assets
Prepayments
Investments in associates
Other financial assets
Total non-current assets
Total assets
28,908)
(8,768)
20,140)
83,022)
754)
20,140)
–)
103,916)
131,541)
19,675)
118,962)
20,673)
6,261)
297,112)
18,130)
32,762)
8,964)
5,864)
106,967)
27,900)
1,498)
5,282)
30,250)
237,617)
26,513)
(7,580)
18,933)
84,748)
(15,809)
18,933)
(4,850)
83,022)
74,645)
5,243)
87,933)
20,899)
5,305)
194,025)
33,364)
14,037)
10,230)
10,927)
107,009)
25,276)
–)
4,607)
30,250)
235,700)
534,729)
429,725)
Cash Converters International Limited – Annual Report 2018 | 107
5.2 Controlled entities (continued)
Current liabilities
Trade and other payables
Borrowings
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
5.3 Parent entity disclosures
2018
$’000
2017
$’000
15,719
139,351
5,709
466
161,245
18,996
817
19,813
17,091
46,303
6,009
3,633
73,036
60,934
790
61,724
181,058
134,760
353,671
294,965
248,714
1,041
103,916
353,671
210,203
1,740
83,022
294,965
The financial information of the parent entity, Cash Converters International Limited has been prepared on the same basis as the
consolidated financial report.
(a) Statement of financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
108 | Cash Converters International Limited – Annual Report 2018
2
315,385
315,387
60,466
–
60,466
254,921
35
276,315
276,350
–
60,000
60,000
216,350
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Equity
Issued capital
Reserves
Retained earnings
Total equity
(b) Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
2018
$’000
2017
$’000
248,714
210,203
1,177
5,030
1,871
4,276
254,921
216,350
–
–
–
–
–
–
(c) Guarantees entered into by parent entity in relation to the debts of its subsidiaries
Cross guarantees have been provided by the parent entity and its controlled entities as listed in note 5.2.
Guarantee provided under the deed of cross guarantee (1)
2,307
2,199
(1) Cash Converters International Limited has provided a cross guarantee to HSBC for a BACS facility provided to CCUK.
(6) Other items
In this section
This section includes additional information not disclosed elsewhere in the report but required to be disclosed to comply with the
Accounting Standards, the Corporations Act 2001 or the Corporations Regulations.
6.1 Contingent liabilities
In the course of its normal business the Group 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 involve 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.
On 31 July 2015, the Company was served with a statement of claim lodged with the New South Wales Registry of the Federal Court of
Australia commencing 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.
On 27 April 2016, the Company was served with a statement of claim lodged with the New South Wales Registry of the Federal Court of
Australia commencing a class action claim on behalf of borrowers resident in Queensland who took out cash advance loans during the period
from 28 April 2010 to 30 June 2013.
Cash Converters International Limited – Annual Report 2018 | 109
6.1 Contingent liabilities (continued)
Both these proceedings relate to the brokerage fee charged to customers. The brokerage fee system has not been used since 30 June 2013.
Cash Converters is vigorously defending these proceedings, with trial listed for October 2018 and therefore no provision has been made.
Given the current stage of the proceedings, the financial impact of either class action on Cash Converters cannot be reliably and accurately
determined at this time. However, if Cash Converters does not successfully defend either or both of the proceedings, Cash Converters would
likely be required to make a significant payment by way of damages or settlement, which could have a material adverse impact on the financial
performance and position of Cash Converters.
The directors are not aware of any other material contingent liabilities in existence as at 30 June 2018 requiring disclosure in the financial
statements.
6.2 Commitments
Operating leases
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 Group exercises its option to renew. The
Group 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
One to five years
Later than five years
Capital expenditure
As at 30 June 2018, capital expenditure commitments were nil (2017: nil).
Other contractual commitments
Within one year
One to five years
6.3 Related party disclosures
2018
$’000
2017
$’000
10,593
25,969
3,105
39,667
10,164
24,664
5,133
39,961
246
256
502
535
502
1,037
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.
During the year an amount of $120,000 (2017: $120,000) was paid to an entity related to the beneficial owner of EZCORP Inc, the Company’s
largest shareholder for consulting services.
In June 2018, Brodie Cumins was appointed to the role of Franchise Network Manager, reporting to the CEO. The position became vacant
upon the resignation of the previous incumbent. Brodie Cumins is the son of Executive Deputy Chairman Peter Cumins, who had no
involvement or influence over the appointment of Brodie Cumins in the role. Brodie Cumins has worked for Cash Converters in various role
since 1998 and his appointment is based on his knowledge and experience in the Cash Converters business.
110 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
Other than share-based payments (as disclosed in note 6.5) and shareholdings of Key Management Personnel (KMP) (as disclosed in the
remuneration report), the parent, its subsidiaries, associates and KMP made no other related party transactions during the reporting period.
6.4 Key management personnel disclosures
Details of directors and other members of KMP of Cash Converters International Limited during the year are:
• Mr Stuart Grimshaw (Non-Executive Chairman)
• Mr Peter Cumins (Executive Deputy Chairman)
• Ms Ellen Comerford (Non-Executive Director)
• Mr Kevin Dundo (Non-Executive Director)
• Mr Lachlan Given (Non-Executive Director)
• Ms Andrea Waters (Non-Executive Director)
• Mr Mark Reid (Chief Executive Officer)
• Mr Sam Budiselik (Chief Operating Officer, became KMP 3 July 2017)
• Mr Nathan Carbone (Chief Risk Officer)
• Mr Ben Cox (General Manager Corporate Distribution, became KMP 27 May 2018)
• Ms Myrrhine Cutten (Chief Human Resources Officer, became KMP 3 July 2017)
• Mr Brad Edwards (General Counsel and Company Secretary)
• Mr Martyn Jenkins (Chief Financial Officer)
• Ms Alice Manners (Chief Manager Digital and Marketing, ceased to be KMP 31 December 2017)
• Mr Shane Prior (Chief Operating Officer – Stores, resigned 4 July 2018)
The aggregate compensation of the KMP of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Termination benefits
6.5 Share-based payments
Cash Converters rights plan
2018
$
2017
$
5,421,732
4,584,113
197,321
11,435
252,571
99,218
5,982,277
208,644
165,520
1,315,143
600,150
6,873,570
The Cash Converters rights plan, which was approved by shareholders on 18 November 2015, allows the directors of the Company to issue
performance rights which will vest into ordinary shares in the Company upon the achievement of certain vesting conditions. As at 30 June
2018, the shareholders had approved the issue of 15,920,500 performance rights under the Company’s previous rights plan, approved by
shareholders on 30 November 2010 and 17,694,134 performance rights under the new rights plan, to the then managing director (now
Executive Deputy Chairman) and the Company’s senior management team in various tranches with each tranche containing 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 3,461,288 performance rights were granted in Tranches 21 and 22 to senior executives of the Company.
Cash Converters International Limited – Annual Report 2018 | 111
NOTES TO THE
FINANCIAL STATEMENTS
For the year ended 30 June 2018
—
6.5 Share-based payments (continued)
The following arrangements were in existence during the current reporting period:
Tranche
Grant date
Number of
Grant date fair
Exercise price
Expiry date
rights
value
12
13
14
15
16
17
18
19
20
21
22
25 Sep 2014
18 Nov 2015
18 Nov 2015
28 Jan 2016
28 Jan 2016
23 Nov 2016
23 Nov 2016
12 Dec 2016
12 Dec 2016
14 Feb 2018
14 Feb 2018
102,166
1,865,000
1,865,000
1,232,224
1,232,224
2,286,460
2,286,460
973,843
973,843
1,730,644
1,730,644
$0.96
$0.23
$0.41
$0.26
$0.45
$0.20
$0.31
$0.17
$0.29
$0.22
$0.33
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
1 Jul 2017
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2018
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2020
30 Jun 2020
Fair value of performance rights granted during the year
The weighted average fair value of the performance rights granted during the financial year is $0.28 (2017: $0.25). 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
Option pricing model
Grant date share price
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free interest rate
Tranche 21
Tranche 22
14 Feb 2018
14 Feb 2018
Monte Carlo
$0.365
$0.00
50%
Binomial
$0.365
$0.00
50%
2.38 years
2.38 years
4.00%
1.95%
4.00%
1.95%
Movement in performance rights during the year
The following table illustrates the number of, and movements in, performance rights during the year. The performance rights were issued at
no charge, and the weighted average exercise price is nil. No rights were exercisable at the end of the current year.
Outstanding at beginning of year
Granted during year
Forfeited / lapsed during year
Exercised during year
Outstanding at end of year
112 | Cash Converters International Limited – Annual Report 2018
2018
Number
12,755,380)
3,461,288)
2017
Number
6,758,319)
7,598,693)
(6,294,996)
(1,601,632)
(102,166)
–)
9,819,506)
12,755,380)
Share options exercised during the year
Tranche
Year ended 30 June 2018
12
Year ended 30 June 2017
Share options forfeited / lapsed during the year
Tranche
Year ended 30 June 2018
13
14
15
16
19
20
Year ended 30 June 2017
12
15
16
19
20
Grant date
Number
exercised
Exercise date
Share price at
exercise date
25 Sep 2014
102,166
14 Nov 2017
$0.35
–
Grant date
Number
lapsed
18 Nov 2015
18 Nov 2015
28 Jan 2016
28 Jan 2016
12 Dec 2016
12 Dec 2016
25 Sep 2014
28 Jan 2016
28 Jan 2016
12 Dec 2016
12 Dec 2016
1,865,000
1,865,000
1,232,224
1,232,224
50,274
50,274
6,294,996
22,000
219,852
219,852
569,964
569,964
1,601,632
Share options outstanding at year end
The total number of options outstanding at 30 June 2018 was 9,819,506 (2017: 12,755,380).
Tranche
Grant date
Number of
17
18
19
20
21
22
23 Nov 2016
23 Nov 2016
12 Dec 2016
12 Dec 2016
14 Feb 2018
14 Feb 2018
rights
2,286,460
2,286,460
892,649
892,649
1,730,644
1,730,644
9,819,506
Grant date
fair value
Exercise price
Expiry date
$0.20
$0.31
$0.17
$0.29
$0.22
$0.33
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2019
30 Jun 2020
30 Jun 2020
The weighted average remaining contractual life for the performance rights outstanding at 30 June 2018 was 1.4 years (2017: 1.5 years).
Cash Converters International Limited – Annual Report 2018 | 113
6.5 Share-based payments (continued)
Accounting policies
The Group provides benefits to executives of the Group in the form of share-based payment transactions, whereby KMP render services
in exchange for options (equity-based transactions). These performance rights are indeterminate rights and confer the right (following valid
exercise) to the value of an ordinary Share in the Company at the time, either settled in Shares that may be issued or acquired on-market, or
settled in the form of cash, at the discretion of the Board (a feature intended to ensure appropriate outcomes in the case of terminations).
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).
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 vesting is conditional upon a market condition and awards do not ultimately vest, amounts previously charged to the share-based
payment reserve are reversed directly to retained earnings, and not to profit and loss.
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 dilutive earnings per share.
114 | Cash Converters International Limited – Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2018 —
6.6 Auditor’s remuneration
Auditor of the parent entity
Audit / review of the financial report
Taxation services
Independent expert in relation to Enforceable Undertaking
Investigating accountant’s report
Other non-audit services
Related practice of the parent entity auditor
Audit
Taxation services
2018
$
2017
$
406,050
95,249
90,800
81,140
50,000
45,557
26,987
795,783
402,000
23,680
276,100
–
85,950
49,553
14,110
851,393
The auditor of Cash Converters International Limited is Deloitte Touche Tohmatsu.
6.7 Events subsequent to the end of the year
On 23 August 2018 the Company announced that Ms Ellen Comerford had submitted her resignation as a Director effective
30 September 2018.
On 27 August 2018 the Company announced that Mr Mark Reid has submitted his resignation as Chief Executive Officer with immediate effect.
Chief Operating Officer, Mr Sam Budiselik has been appointed as Interim Chief Executive Officer whilst the Board conduct an executive search
for a permanent replacement for Mr Reid.
There has not been any matter or circumstance other than that referred to in the financial statements or notes thereto, that has arisen since the
end of the financial year, that has significantly affected or may significantly affect the operations of the Group.
Cash Converters International Limited – Annual Report 2018 | 115
DIRECTORS’
DECLARATION
For the year ended 30 June 2018
—
The directors declare that:
a)
in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable;
b)
in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in
note 1 to the financial statements;
c)
in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including
compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; and
d)
the directors have been given the declarations required by s295A of the Corporations Act 2001.
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 5.2 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 s295(5) of the Corporations Act 2001.
On behalf of the directors
Stuart Grimshaw
Director
Perth, Western Australia
27 August 2018
116 | Cash Converters International Limited – Annual Report 2018
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2, Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
The Board of Directors
Cash Converters International Limited
Level 18
37 St Georges Terrace
Perth WA 6000
27 August 2018
Dear Directors
Cash Converters International Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Cash Converters International Limited.
As lead audit partner for the audit of the financial statements of Cash Converters International
Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
David Newman
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
Cash Converters International Limited – Annual Report 2018 | 117
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2, Brookfield Place
Deloitte Touche Tohmatsu
123 St Georges Terrace
ABN 74 490 121 060
Perth WA 6000
Tower 2, Brookfield Place
GPO Box A46
123 St Georges Terrace
Perth WA 6837 Australia
Perth WA 6000
Tel: +61 8 9365 7000
GPO Box A46
Fax: +61 8 9365 7001
Perth WA 6837 Australia
www.deloitte.com.au
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
Independent Auditor’s Report to the members
of Cash Converters International Limited
Independent Auditor’s Report to the members
of Cash Converters International Limited
Report on the Audit of the Financial Report
Opinion
Report on the Audit of the Financial Report
We have audited the financial report of Cash Converters International Limited (the “Company”) and
Opinion
its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as
at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the
We have audited the financial report of Cash Converters International Limited (the “Company”) and
consolidated statement of changes in equity and the consolidated statement of cash flows for the
its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as
year then ended, and notes to the financial statements, including a summary of significant
at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the
accounting policies, and the directors’ declaration.
consolidated statement of changes in equity and the consolidated statement of cash flows for the
year then ended, and notes to the financial statements, including a summary of significant
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
accounting policies, and the directors’ declaration.
Act 2001, including:
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its
(i)
Act 2001, including:
financial performance for the year then ended; and
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its
complying with Australian Accounting Standards and the Corporations Regulations 2001.
financial performance for the year then ended; and
Basis for Opinion
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Basis for Opinion
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
independence requirements of the Corporations Act 2001 and the ethical requirements of the
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Report section of our report. We are independent of the Group in accordance with the auditor
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
independence requirements of the Corporations Act 2001 and the ethical requirements of the
also fulfilled our other ethical responsibilities in accordance with the Code.
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
We confirm that the independence declaration required by the Corporations Act 2001, which has
also fulfilled our other ethical responsibilities in accordance with the Code.
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
at the time of this auditor’s report.
for our opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
Key Audit Matters
for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance
Key Audit Matters
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
Key audit matters are those matters that, in our professional judgement, were of most significance
do not provide a separate opinion on these matters.
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
118 | Cash Converters International Limited – Annual Report 2018
Key audit matter
How the scope of our audit responded to
the Key Audit Matter
Carrying value of non-current assets
As disclosed in Notes 3.5 and 3.6, the
carrying value of goodwill and other
intangible assets as at 30 June 2018 relating
to the personal finance and store operations
was $104.7 million and $22.6 million
respectively.
The assessment of the recoverable value of
these assets requires significant judgement
in respect of assumptions such as discount
rates, forecast loan volumes and forecast
bad debt levels.
Our procedures included, but were not limited
to:
obtaining an understanding of the key
controls management has in place in
relation to the estimate of the recoverable
amount of the personal finance and store
operations;
comparing the forecasts used in calculating
the recoverable amount to the Board
approved business plan;
evaluating the forecasts used in calculating
the recoverable amount by reference to
recent performance of the business and
assessing historical forecasting accuracy;
in conjunction with our valuation experts
we assessed and challenged the
assumptions and methodologies used, in
particular:
the discount rate against that of
comparable companies;
forecast loan volumes for personal
loans against recent actual levels and
related trending;
forecast bad debt levels for personal
loans;
forecast retail and pawn broking
revenue;
In relation to the assumptions applied
above, where possible we corroborated
market related assumptions by reference
to external data.
evaluating management’s consideration of
the impact of potential legislative changes
on future personal loan volumes;
sample testing management’s models for
mathematical accuracy;
applying sensitivities to the forecast cash
flows including growth in the number of
loans and evolution of bad debt rates to
reflect uncertainty with respect to the
impact of:
recent performance of CC stores
the early stage of growth of the
Medium Amount Credit Contracts
loan book.
assessing the appropriateness of the
disclosures in the financial statements.
Cash Converters International Limited – Annual Report 2018 | 119
Key audit matter
How the scope of our audit responded to
the Key Audit Matter
Allowance for impairment losses –
personal loan receivables
As disclosed in Note 3.2, the carrying value
of personal loan receivables as at 30 June
2018 was $113.3 million, net of allowances
for impairment losses of $18.5 million.
The assessment of the recoverable value of
personal loans requires significant
judgement in respect of assumptions such as
default rates in making an estimate of the
recoverability of loans, on either a specific or
collective basis.
Contingent liabilities
As disclosed in Note 6.1, the Company is
subject to two class actions in relation to
historic lending practices in Queensland
associated with personal loans and cash
advance loans. These are classified as
contingent liabilities in accordance with the
relevant accounting standards.
Our procedures included, but were not limited
to:
evaluating the key controls management
have in place in relation to the estimate of
the recoverable value of personal loans;
challenging the assumptions and
methodology used to determine both the
specific and collective allowances;
evaluating forecast default rates against
historically observed levels;
performing a look back test of the loans
that were written off in the current financial
year by aging category, to build an
expectation of the allowance as at 30 June
2018 by comparable aging category; and
assessing the appropriateness of the
disclosures in the financial statements.
Our procedures included, but were not limited
to:
holding discussions with Group Internal
Legal Counsel, Management and the
Directors;
reviewing minutes of meetings of the board
of directors;
obtaining copies of pleadings;
holding discussions with external legal
counsel to gain an understanding of the
current status of the class actions; and
assessing the appropriateness of the
disclosures in the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
120 | Cash Converters International Limited – Annual Report 2018
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of
the financial report that gives a true and fair view and is free from material misstatement, whether
due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
intentional omissions,
involve collusion,
fraud may
from error, as
misrepresentations, or the override of internal control.
forgery,
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial report.
We are responsible for the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
Cash Converters International Limited – Annual Report 2018 | 121
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 29 to 62 of the Directors’ Report for
the year ended 30 June 2018.
In our opinion, the Remuneration Report of Cash Converters International Limited, for the year
ended 30 June 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
David Newman
Partner
Chartered Accountants
Perth, 27 August 2018
122 | Cash Converters International Limited – Annual Report 2018
Cash Converters International Limited – Annual Report 2018 | 123
cashconverters.com
Continue reading text version or see original annual report in PDF
format above