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2020 ReportPeers and competitors of Clean Harbors:
Bank Polska Kasa OpiekiCollection House Limited
ABN 74 010 230 716
Annual Report
2020
HEAD OFFICE:
Level 12, 100 Skyring Terrace, Newstead QLD 4006
T: +61 7 3292 1000 | F: +61 7 3832 0222
Collection House
acknowledges the Aboriginal
and Torres Strait Islander peoples
of this nation. We acknowledge
the traditional custodians of the
lands on which our company is
located and where we conduct
our business and pay our respects
to their Elders and ancestors past,
present and emerging.
Collection House
Limited (ASX: CLH)
is Australia’s leading end-to-
end receivables management
company. We provide
solutions to organisations
and individuals that span the
entire credit management
lifecycle and beyond.
With 786 staff in offices across Brisbane, Sydney,
Victoria and New Zealand, and 135 in the
Philippines, the Collection House Group offers
stakeholders a range of professional, ethical and
effective products and services.
We enjoy strong business relationships with
major Australian and international banks, financial
institutions, large corporations, local Councils,
public utilities, SMEs and Government agencies.
Our ongoing success is a result of the breadth
of our service offering, our deeply ingrained
approach to ethical debt recovery, and our
commitment to technology to continually
evolve our service and capabilities.
Contents
2 Chairman’s Report
4 Chief Executive Officer’s Report
8 Board of Directors
10 Executive Leadership Team
12 Corporate Governance
13 Directors’ Report
36 Auditor’s Independence Declaration
37 Income Statement
38 Statement of Comprehensive Income
39 Balance Sheet
40 Statement of Changes in Equity
41 Statement of Cash Flows
42 Notes to the Financial Statements
90 Directors’ Declaration
91 Independent Auditor’s Report
95 Shareholder Information
97 Corporate Directory
Notice of Annual General Meeting
The AGM of Collection House Limited will be held on 22 January 2021. Further information
can be found on our website at www.collectionhouse.com.au/annualgeneralmeeting
1
Collection House Limited Annual Report 2020 Chairman’s Report
“ Our new approach is
positioning the Company
well for the remainder
of the pandemic and
beyond, as the needs and
expectations of consumers
continue to evolve.”
Leigh Berkley
Chairman
My fellow shareholders,
This has been a year of unprecedented challenges for
Collection House, its customers, clients, staff and for many
of our shareholders and the wider community. Your Board,
Management Team and all our colleagues have worked
tirelessly to help our customers and clients through the
impact of bushfires and the COVID-19 pandemic. In addition
, undertaking an organisation-wide process to change the
ways we work, and securing a recapitalisation transaction, as
announced this month, will support the Company’s revised
strategy going forward.
Management and their teams across Australia, New Zealand
and the Philippines have proven remarkably resilient and
innovative in adapting to these challenges, under the
experienced leadership of our new Chief Executive Officer,
Doug McAlpine. Collection House was one of the very first
organisations to institute full working from home for all
our people, with seamless processes and systems for our
customers. The Company also listened to feedback from its
clients, customers and wider stakeholder groups, and made
important changes to its collection strategies, focused primarily
on delivering fair customer outcomes.
The Company’s economic performance for the period was
affected by the wider economic effects of the bushfires in
late 2019, and then particularly by the COVID-19 pandemic
from March 2020, during which many of our banking and
other clients rightly suspended their debt sale activity. But at
the same time, the Company needed to refinance its senior
lenders, and continue to enhance the way we interact with
customers, particularly our policies and procedures for legal
action and bankruptcy. These factors led to a significant
change programme across the entire business, with material
write downs to our purchased debt ledger portfolios (PDLs),
resulting in a restructured cost base for a more sustainable
business going forward. Sadly, our capital position together
with the Standstill Agreement with our senior lenders also
precluded the payment of dividends. We are painfully aware of
the effect of this suspension of dividends combined with the
suspension of trading in the Company’s shares for a protracted
period this year.
However, operational performance and customer payment
arrangements have held up well even during the pandemic,
and we have initiated numerous ways of helping those
customers who have been affected by the pandemic or the
bush fires, including payment moratoriums, suspending the
initiation of litigation, and not a single bankruptcy proceeding
has been filed over the last 12 months. More importantly,
our culture and how we treat our customers has now been
completely reviewed and updated, so that we always go
through the individual circumstances of every customer before
coming to an affordable arrangement. We are now assisting a
number of larger clients with hardship and resource shortfalls,
which has helped to mitigate the fall in new PDL transactions
coming to market.
Recapitalisation
The purpose of the recapitalisation process was to allow
the Company to refinance its existing senior debt facilities.
Finalisation of the recapitalisation process was therefore critical
for the Company’s stability.
The sale of the Company’s existing PDL portfolios as recently
announced, was an important milestone to give the Company
certainty as to its ongoing capital position. During an extensive
recapitalisation process involving more than 80 potential
bidders worldwide, the Board assessed a wide range of options
with Management and our advisors. We remain confident that
the recent transaction delivered the best available outcome for
our shareholders, staff, colleagues, clients and customers alike.
As a Board, we have been acutely aware throughout the
recapitalisation process of the frustration felt by shareholders
as a result of the suspension of the Company’s shares, and
we have fought hard to complete the refinancing as quickly
as possible, while seeking to maintain shareholder value.
The difficulties of completing on-site due diligence with
2
Collection House Limited Annual Report 2020 international counterparties during the pandemic created
significant hurdles to completing a deal. The successful
transaction was a very welcome development, creating the
fairest viable outcomes for our former customers, our ongoing
clients and our shareholders.
The Company’s existing senior lenders remain supportive,
and will provide a revised debt facility to the Company going
forward. We also intend to secure an ongoing debt purchasing
partnership in the near future, so we can recommence our PDL
purchasing activities when the debt sale market returns fully in
Australia and New Zealand.
I would like to thank all those involved in the refinancing
for their hard work and dedication at a difficult time. The
Board, Doug and the Executive Leadership Team have worked
exceptionally well with our advisors, Flagstaff, to achieve
the best possible deal. Our senior lenders have remained
supportive throughout, and all parties have shared our desire
to complete a mutually beneficial transaction, and have worked
constructively with us to resolve any issues arising during the
negotiations.
Customer Centric Approach
Under new leadership, the Company has undertaken a
Strategic Review to position itself for a successful future, built
on a foundation of delivering fair and affordable outcomes,
tailored to the individual circumstances of each customer.
In implementing our Strategic Review, we have responded to
the guidance that has emerged from the Financial Services
Royal Commission, and listened to constructive feedback from
colleagues, clients, customers and other stakeholders. I was
privileged to work closely with Management while the Review
took place, and saw firsthand the commitment, enthusiasm
and sound ideas created. The key impact of our Strategic
Review is a more measured collections process, focused on
delivering the right outcomes for all our customers, through
a deeper understanding of their individual circumstances. This
is being achieved through the upskilling of our people, the use
of technology to improve the customer experience, and lower
reliance on litigation.
Our new approach is positioning the Company well for the
remainder of the pandemic and beyond, as the needs and
expectations of consumers continue to evolve.
Performance & Dividend
Along with the Board and Management, I sincerely regret that
CLH shares remained in suspension for most of 2020, and
that we were unable to pay a dividend for FY2020. We have
kept the situation under constant review as you would expect,
but believe these steps were necessary in order to position
the Company favourably to complete the refinancing process,
and to protect the negotiations taking place.
The business reported a loss of $145.1 million after raising
provisions against the carrying value of the Company’s PDL
assets of $238.9 million. The underlying operating results
before impairment and non-recurring costs associated with
restructuring activities is $16.2 million.
The result is significantly lower than the previous corresponding
period and was adversely impacted by the above impairment
adjustment to the PDL assets linked to the subsequent PDL
asset sale value announced, the change in PDL collections
strategy referred to earlier, as well as the wider economic
effects of the bushfires and COVID-19 which influenced service
fee income and cash collections from the Company’s PDL
assets. New debt purchasing opportunities were also impacted
during the twelve months due to the refinancing process as
well as a more conservative approach to debt sales applied by
banks and other clients during the COVID-19 period.
The Board
During the year, the Board welcomed the appointment of
Doug McAlpine as the Company’s new Chief Executive Officer,
replacing Anthony Rivas, former Chief Executive Officer
and Managing Director. Mr McAlpine has already made a
strong contribution to the business, playing a key role in the
recapitalisation, providing better outcomes for our people,
customers, clients and other stakeholders, as we continue to
react to these unprecedented times for our sector and for the
economy as a whole.
To assist with the recapitalisation and the other challenges
faced by the Company this year, the Board has met at least
weekly with Doug and Management to make decisions on the
refinancing, receive updates, and to offer additional guidance
and support to achieve the best possible outcomes.
A Board evaluation review was undertaken since year end,
which showed a good level of requisite skills, experience and
commitment within the Board. We will continue to ensure the
Board is fit for purpose as we face the challenges of future
growth and a return to profitability.
During the year, Sandra Birkensleigh has played a pivotal
role as Chair of the Audit and Risk Management Committee.
She has worked closely with Management and the Board to
ensure appropriate decisions were made on risk management,
compliance and corporate governance. Sandra will stand for
re-election by rotation at this year’s AGM, to be held online on
22nd January 2021. I would personally ask all shareholders to
support Sandra’s re-election, as she is doing a splendid job in
difficult circumstances, as is unanimously acknowledged and
supported by the Board and Management.
Outlook
The year ended 30 June 2020 has been the most challenging
in the Company’s history, implementing significant change
necessitated by a range of internal and external factors.
The whole Company has worked extremely hard to respond
appropriately throughout, and the business has proved
remarkably resilient during the pandemic. The Company’s
people have performed with distinction, managing significant
commercial and personal disruption with minimal impact to
clients and customer service.
Having now concluded the recapitalisation and cost reductions,
and with the prospect of growth ahead in Collection Services
and a new PDL partnership, I firmly believe the steps we
are taking are positioning the Company well to benefit
shareholders into the future. We will continue to learn from
the past, while remaining proactive and innovative in these
unprecedented times for our sector and for the economy
as a whole.
Leigh Berkley
Chairman
3
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Information Chief Executive Officer’s Report
“ In all of our customer
interactions, our objective
is to understand and help
them rehabilitate their
financial and associated
circumstances, setting
them on the road to
greater financial control.”
Doug McAlpine
CEO
Overview
During the financial year ended 30 June 2020 Collection
House Limited commenced a process of substantial and radical
organisational change, focussed on strengthening the quality
of service provided to clients and customers. The Strategic
Review which commenced in November 2019, identified that
among other things, we needed to demonstrate a greater level
of compassion when dealing with customers, particularly in
the Company’s purchased debt business. Management and the
Board translated specific change objectives into a wider project
to reimagine the end-to-end operation of the business from
the perspective of greater customer centricity.
The challenges of fundamental organisational change have
been further complicated by a disrupted environment for
customers, clients and employees caused by COVID-19 and the
need to simultaneously achieve a refinancing of the Group’s
senior debt facility on an accelerated timetable. The Company
has learned a number of lessons over the last year, but none
more important than the capability and resilience of its people.
In a context of significant uncertainty and rapid change, they
have continued to service our clients and customers with
distinction and holistically embrace the change objectives
that we have set for the organisation. Underlying operational
execution and service standards have been maintained and
in most cases significantly enhanced. Formal and informal
feedback from the client and customer base indicates that,
together, we are moving the business in the right direction.
The refinancing outcome announced in December 2020
brings an end to a difficult chapter in the Company’s history.
The comprehensive refinancing process undertaken by the
Company, identified that the disposal of a material portion of
the Company’s Australian purchased debt ledger assets was
the most effective refinancing option. This decision was not
taken lightly, and although it came with a substantial short
term reduction in shareholder value, the transaction provided
the best structural outcome upon which to start rebuilding
long term value.
Management is confident that the customer centric
repositioning of the Company’s operating model will ensure
that it remains competitive and relevant in what we expect to
be an environment of ongoing change and challenge in the
wider financial services sector in the coming years. Evolution of
customer credit preferences and redistribution of market share
away from traditional credit products presents both challenge
and opportunity. Management is confident that it is well
advanced in building a platform of long term sustainability
and profitability.
A transformed capital structure
At the time of the 31 December 2019 half-year review, and as
an outcome of the Strategic Review, the Company’s decision
to adopt a more conservative collection approach in its
purchased debt business resulted in a material adjustment to
the accounting value of the company’s purchased debt assets.
As previously announced, this resulted in the Company being
required to urgently implement an appropriate restructuring
solution in conjunction with its existing lenders.
The Company commenced a comprehensive refinancing
process which has continued for the majority of the calendar
year 2020. This process saw the Company explore investment
partnerships with a large number of domestic and international
4
Collection House Limited Annual Report 2020 counterparties to refinance the existing asset base and
commit to fund future growth. Due to uncertainties in global
credit markets, caused at least in part by COVID-19, agreeing
acceptable commercial terms for this refinancing objective
became extremely challenging and significantly elongated
the process. Ongoing delays created a variety of undesirable
outcomes, including prolonged suspension of trading in
the Company’s shares, temporary discontinuation of the
Company’s dividend payment and the implementation of other
restrictions, which hampered growth during the year.
The refinancing outcome achieved subsequent to balance
date saw the accounting value of the Company’s purchased
debt assets at 30 June 2020 reduced to the value realised
from the refinancing transaction. The transaction provides
the Company with a stable short term capital structure
upon which to grow its core collection services business
over the coming years. The Company simultaneously retains
the flexibility to pursue growth in the purchased debt space
through a new partnering model which will see a significantly
lower level of the Company’s balance sheet put at risk moving
forward. The Company expects to finalise that new partnering
arrangement in the near future.
Enhanced focus on the customer
Collection House has worked diligently during the year to
shift its strategic direction and deliver more customer focused
outcomes. Changes to the regulatory and competitive
environment and evolving customer expectations have created
the need for a more flexible collections model which is more
closely aligned with debt originators’ customer experience
objectives. We have already made significant changes to
systems, policies, processes and procedures around our day to
day collection practices, particularly in respect of supporting
our customers experiencing vulnerability and hardship. The
reliance on legal collections has reduced, with the Company
suspending its use of litigation during the pandemic and
no bankruptcy proceedings have been initiated in the last
12 months. We have also re-evaluated our recruitment
strategy and launched a comprehensive refresh to our
training, coaching and development approach.
There is more work to be done in the coming year to deliver
on our vision of an industry leading, customer centric
collections approach, but the foundations for permanently
embedding that change are now in place.
In all of our customer interactions, our objective is to
understand and help them rehabilitate their financial and
associated circumstances, setting them on the road to
greater financial control. We continue to invest in improving
our capability in this important area, and working more
closely with the community advocacy sector, which allows
us to better respond to each customer’s circumstances and
implement best practice in every engagement.
Financial Performance
The final accounting loss for the year ended 30 June 2020 is
$145.1 million after raising provisions against the carrying value
of the Company’s PDL assets of $238.9 million. The underlying
operating results before impairment and non-recurring costs
associated with restructuring activities is $16.2 million.
The business generated strong net operating cash flow for
the year of $65.3 million but the majority of this cash went
to satisfying purchased debt forward flow commitments and
the remainder to debt reduction, which has continued post
year end. Gross performance from the Company’s PDL assets
was down on prior year, consistent with overall industry trends
observed during the COVID-19 period. New debt purchasing
opportunities were also limited during the twelve months,
reflecting a more conservative approach to debt sales applied
by banks and other clients during the COVID-19 period,
but also a level of conservatism applied by the Company in
response to its underlying capital position.
Contingent collections revenue and margin contribution was
also lower than the previous corresponding period, again
impacted by the wider economic effects of COVID-19 which
influenced service fee income and cash collections from the
Company’s PDL assets.
Although the Company’s economic performance for the
period was subdued, the Company has executed significant
strategic change initiatives across the entire business, which
will position the business for sustainable growth moving
forward. Post year end and in conjunction with the findings of
the Strategic Review, the Company undertook a comprehensive
review of its direct and overhead cost structures, resulting in
a significant reduction to the Company’s direct and overhead
cost structure. However, post the refinancing transaction, the
Company’s retained cost base must be carefully managed
and matched to the expected growth in revenues. The wider
financing arrangements implemented in conjunction with the
sale transaction provide the Company with the working capital
to comfortably manage costs through that rebuilding phase.
International markets
COVID-19 impacted our operations in New Zealand and the
Philippines, but the Company’s flexible systems and pro-active
management approach to the crisis saw resources efficiently
re-deployed through remote working arrangements. Pleasingly
the New Zealand market has recovered well and we are
starting to see an increase in opportunities in the contingent
collections space. The integrated business in New Zealand with
contingent and purchased debt portfolios are excluded from
the sale transaction.
The Philippines operation remains strategically important to the
Company’s overall service delivery model, and our experienced
and capable team continues to service international clients
from that location.
5
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Information Chief Executive Officer’s Report
continued
Ongoing investment in digital strategy
and technology platform
The Company’s ability to maintain high quality engagement
with clients and customers during an unprecedented
rolling lock-down justifies the ongoing investment in
its information systems. The Company will continue to
develop its core systems, which represent a key areas of
competitive advantage for us across the whole collections
cycle. Importantly, however, we must continue to evolve our
systems with a recognition of evolving client and customer
expectations and the need to deliver agile, cost effective
platforms of engagement. A contemporary omni-channel
customer engagement approach remains a core element
of our collection strategy, but with a focus on ensuring we
are always creating a deeper human connection with our
customers.
As we look to restart PDL purchasing activities in the new
year, we are also strengthening our data analytics approach
and capability to provide greater competitive advantage in
the contingent collection space. A more data and analytics
led approach will allow us to create deeper client and
customer engagement across the business, and will also
be the foundation for achieving a lower sustainable cost
to collect.
Enhanced governance and compliance
We will continue to maintain a culture built upon strong
governance and compliance principles to ensure we are
afforded the social license to operate. Direct feedback from
clients and customers, and themes identified from the Financial
Services Royal Commission, highlight the inter-relationship
between a sustainable business model and the objective of
ensuring the customer is always treated fairly. We will continue
to evolve our governance and compliance systems, policies and
procedures to build improved transparency and trust with our
customers, clients and third party stakeholders.
Outlook
Following completion of the refinancing transaction, the
Company has largely eliminated the financial risk associated
with its historical purchased debt assets, substantially reduced
its debt levels, and greatly simplified its business model. This
simplification allows the Company to focus on providing the
highest standard of collection services to our clients through
a values aligned, customer centric collections approach.
The reshaped business is well positioned to respond to
short term volatility in the credit sector while simultaneously
affording it the flexibility to pursue growth strategies
in the contingent collection and purchased debt areas
where appropriate.
6
Collection House Limited Annual Report 2020 The Company retains its best in class capabilities of people,
systems and processes, allowing it to provide end-to-end
receivables management services to clients and customers
under either contingent collections or purchased debt
frameworks.
The Company is in advanced discussions with a number of
counterparties around the implementation of a long term
partnership to allow it to continue to participate in the
purchased debt market in Australia and New Zealand.
Creation of long term shareholder value
The events of the last year, while in part the result of external
factors, are largely the outcome of historical management
strategies which no longer match the changing credit
landscape in the Company’s operating markets. Management
recognises that there is a significant amount of work to
restore shareholder confidence and shareholder value which
has been damaged as a result of the refinancing outcome.
It is the Company’s view that there are significant opportunities
for a collection services company that is well managed,
focussed on the customer and is appropriately capitalised.
Management acknowledges that shareholders are justifiably
frustrated by the extended period of suspension but highlights
that it was operating under a range of confidentiality
constraints while it was negotiating the transaction.
Management has been working closely with the Board to
prepare for the next stage of the Company’s journey, and
we are confident of demonstrating the efficacy of a new
customer focussed strategy through growth and restoration
of shareholder value over coming financial periods.
Doug McAlpine
Chief Executive Officer
7
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Information Board of Directors
Leigh Berkley
Independent, Chairman
Experience
Having qualified as a Chartered Accountant,
Mr Berkley has more than 30 years’ experience
in the collections and debt purchase industry,
is a past President of the Credit Services
Association (CSA) in the UK and assisted the
Australian Collectors & Debt Buyers Association
(ACDBA) develop their Code of Practice.
Having been granted Australian residency last
year, Leigh stepped down from his role as
Director of External Affairs and Development of
Arrow Global Group Plc, one of the UK’s largest
consumer debt purchasers, in which he engaged
with government and regulators, trade bodies
and consumer advice organisations.
Prior to this, he was the CEO and main
shareholder of Tessera Credit Group, a debt
purchaser and collection agency, which he
led for over 16 years before successfully
negotiating a sale of its assets to Arrow Global
in December 2014.
Leigh was Vice President of the European trade
body FENCA where he led the development of
a Code of Conduct for GDPR for the Collections
industry across Europe, and has been a regular
presenter and industry advocate at conferences
and trade body forums around the world. Leigh
was also the 2019 President of the International
Collectors Group and a Trustee of the Fair Life
Charity, and is an Ambassador and former
Director of the Money Advice Liaison Group
in the UK.
Mr Berkley was appointed to the Board of
Collection House Limited on 1 July 2016.
Mr Berkley was appointed Chairman of
Collection House Limited on 29 November 2017.
Special responsibilities
Chair of the PDL Investment Committee
Interest in shares
112,866 ordinary shares in CLH
Michael Knox
Independent, Non-executive Director
Experience
Mr Knox was an Australian Trade Commissioner
serving in Saudi Arabia and Indonesia. He joined
Morgans (now Morgans Financial Limited) in
Sydney in 1988. He was Chief Institutional
Options Dealer until moving to Brisbane in 1990
as Economist and Strategist. He joined the Board
of Morgan Stockbroking in 1996. He became
Director of Strategy and Chief Economist in 1998.
Michael remained on the Board of Morgans
until 2012.
Michael has served on many Queensland
Government advisory committees. He was
Chairman of the Queensland Food Industry
Strategy Committee in 1992, a Member of
the Consultative Committee of the Ipswich
Development Board in 1993, a Member of the
Queensland Tourism Strategy Committee in
1994 and a Member of the Ministerial Advisory
Committee on Economic Development in 1997.
From 2003 to 2012, he was Chairman of the
Advisory Committee of School of Economics
and Finance at the Queensland University of
Technology. He has been a Governor of the
American Chamber of Commerce from 1997
to 2007. In 2008, Michael joined the Board of
The City of Brisbane Investment Corporation
Pty Ltd. Michael remained on the Board until
2016. Michael was the President of the Economic
Society of Australia (Qld) Inc from 2009 to 2013.
Mr Knox was appointed to the Board of
Collection House Limited on 24 March 2017.
Special responsibilities
Nil
Interest in shares
80,000 ordinary shares in CLH
See pages 18 to 19 for further information on the Board of Directors.
8
Collection House Limited Annual Report 2020 Catherine McDowell
Independent, Non-executive Director
Experience
Catherine McDowell has more than 30 years’
experience in the international investment and
financial services industry in senior executive and
advisory roles, predominantly with Barclays Bank,
and more recently with ANZ.
She has more than 15 years of Board
experience with not for profit, listed and non-
listed companies. Her current roles include
Independent Director for the Todd Family Office,
New Zealand and Independent Director of the
AMP Superannuation Board, and Chair of the
Risk Committee
Previously, as Managing Director of Barclays
International she oversaw a substantial
international wealth business before moving
to New Zealand in 2005.
Catherine was the Managing Director at ANZ
and the National Bank Private Banking and
Wealth business (New Zealand).
She subsequently moved to Australia to build the
Private Bank and Trust business while managing
E-Trade. During her career Catherine spent
10 years in New York, 15 years in London and
8 years in New Zealand and Australia.
Catherine has a Ba Hons, is a Fellow of the
Institute of Company Directors, New Zealand,
a Graduate of the Australian Institute of
Company Directors, and an Affiliate of the
Governance Institute of Australia.
Catherine was appointed to the Board of
Collection House on 17 September 2018
Special responsibilities
Chair of the Remuneration and Nomination
Committee
Interest in shares
No ordinary shares in CLH
Sandra Birkensleigh
Independent, Non-executive Director
Experience
Sandra Birkensleigh is a Non-Executive Director of
MLC Limited, Chair of the Audit Committee and
a member of the Risk Committee and Disclosure
Committee.
Sandra is also a non-executive Director of Auswide
Bank, Chair of their Audit Committee and member
of the Risk and Remuneration committees. She is
a Non-Executive Director of 7 Eleven, and Chair
of their Audit and Risk committee, and a Non-
executive Director of Horizon Oil Limited, Chair of
their Audit Committee and a member of the Risk
and Remuneration and Nomination Committees.
Sandra is also an independent member of the Audit
Committee for the Reserve Bank of Australia, a
Council Member and Chair of the Audit and Risk
Committee of the University of the Sunshine Coast
and the Chair of the Financial Services Committee
for the Institute of Internal Auditors Australia.
She is also a Non-executive Director of the National
Disability Insurance Agency and Chair of the Audit
and Risk Committees and member of the People
and Remuneration Committee. She is a member
of the Investment Committee for the Public Trustee
of Queensland. Sandra also sits on the boards
of the Tasmanian Finance Corporation (Tascorp)
and is Chair of the Audit Committee. She was
recently appointed as Chair of the Financial Services
Committee for the Institute of Internal Auditors
of Australia.
Previously, Sandra held the role of Senior Partner
of PwC until February 2013 and was the Global
Head of Governance Risk and Compliance Services
for PwC for five years. Sandra has a Bachelor of
Commerce from University of New South Wales,
is a Chartered Accountant, a Graduate of the
Australian Institute of Company Directors and
a Certified Compliance Professional (Fellow).
Sandra was appointed to the Board of Collection
House on 17 September 2018.
Special responsibilities
Chair of the Audit and Risk Management
Committee
Interest in shares
No ordinary shares in CLH
9
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Information Executive Leadership Team
Doug McAlpine
Chief Executive Officer
Jonathon Idas
Chief Legal Officer and
Company Secretary
Anand Adusumilli
Chief Data Scientist
Denica Saunders
Chief Operating Officer
Appointed: November 2019
Appointed: September 2017
Appointed: July 2017
Appointed: July 2018
Anand joined the Group
on 26 July 2017, bringing
over 15 years’ experience
in the field of data science
and predictive analytics
for the financial services
domain, primarily focussed
on accounts receivables and
debt collection.
Working with the US market
leader in the debt collection
industry for the last 12 years,
he has vast experience in
building pricing models,
forecasting models, and
optimisation models for
operations in the financial
services sector.
He has a proven track record
in bridging strong symbiotic
relationships between
analytics and operations
that are quintessential to be
successful in our business.
Denica joined the group
in July 2015, following
an extensive career in the
financial services industry and
operational management.
Denica has worked in senior
roles leading large-scale
change programs specialising
in business transformation,
contact centre optimisation
for global organisations,
industry, peak bodies, Local
and Federal Government
agencies.
Denica leads our operational
teams across Australia, New
Zealand and the Philippines.
Drawing on over 15 years
leadership experience at
both the operational and
executive level, Denica is
instrumental in shaping and
executing CLH’s operational
strategy, delivering best-
in-class solutions for our
clients and customers.
Doug was previously with
Silver Chef Limited where he
served most recently as the
EGM of Australia and New
Zealand and prior to that,
CFO. Doug has previously
held similar roles in the
resources, property and
general investment sectors.
In addition to strong financial
and commercial capability,
Doug has a solid grounding
in receivables financing
and extensive experience
working with the professional
investment community.
Doug began his career
at Ernst & Young. He is a
Chartered Accountant with
twenty years of accounting
and finance experience,
fifteen of which have been
as CFO with listed public
companies in Australia.
Jonathon Idas was appointed
as Chief Legal Officer (“CLO”)
on 6 September 2017. On
10 November 2020, he was
appointed as the Company
Secretary.
Jonathon has more than
17 years’ experience as
a solicitor in Australian
and the United Kingdom
previously being the CLO
for Australian Receivables
Limited and Forbes Dowling
Lawyers Limited.
As CLO of Australian
Receivables Limited, Jonathon
successfully acquired
Turnbull Bowles Lawyers,
strengthening firm’s position
and expanding legal services,
client engagement and
productivity.
As a solicitor in the United
Kingdom his focus was
helping clients navigate
successfully through the
global financial crisis, acting
on large scale litigation
and pursuing cross boarder
insolvency matters.
Since joining the Company,
he has had oversight of all
legal matters, corporate
governance, compliance,
and securities law.
10
Collection House Limited Annual Report 2020
Nathan Johnston
Chief Technology Officer
Stephen Parrish
Chief People Officer
Lynda Morris
Chief Financial Officer
Appointed: January 2020
Appointed: January 2020
Appointed: January 2020
Steve joined the Group on
14 January 2019, bringing
a wealth of experience in
leadership, culture, and
employee experience. As an
experienced HR leader, Steve
has led people projects across
diverse client groups resulting
in positive culture reforms.
Prior to this role Steve has
more than 10 years of
experience in the industry
working in organisations such
as Foxtel, ACTE Group and
the Department of Justice
and Attorney-General.
Nathan joined the group in
March 2019, having worked
in Information Technology
for over 25 years for both
large organisations and small
businesses within Australia
and the United States.
Nathan has also worked as
a Software Engineer and
Technical Architect, designing
and building systems for a
variety of companies and
industries. He has managed
highly productive software
engineering teams for over
20 years, including offshore
development teams in the
Philippines for Australian-
based clients.
Along with Nathan’s wide
variety of experience, he
is also passionate about
bringing the best state-of-
the-art technology into the
organisation – to support
our staff in supporting our
customers and clients.
Lynda joined the group in
January 2004 following her
extensive career in financial
services inclusive of her ten
years in public practice with
3 years at Hall Chadwick.
Working as Group
Management Accountant
and her later appointment
in 2015 as Financial Planning
and Analysis Manager, Lynda
has continued to support
the integrity of business
performance reporting,
forecasting and financial
modelling for over 16 years.
Lynda was appointed Chief
Financial Officer in January
2020 following a successful
career with the group
evidencing capabilities to
provide the business a futurist
mind with a key focus on
growth and development.
Lynda continues to lead with
a strategic mindset, planning
and executing trackable
business goals through
collaborative work ensuring
success, honesty and
integrity are core qualities
that determine the health
of the company.
11
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Information
Corporate Governance
Collection House Limited’s
Board (the Board) and
its Senior Executives are
committed to conducting
the business of the Company
in an ethical manner that
demonstrates the highest
standard of good corporate
governance and fosters a
culture that values ethical
behaviour and integrity.
Board Composition
As at 30 June 2020, the Board comprised four Independent
Non-Executive Directors.
On 1 July 2019, the Board comprised of five Directors
(including the Chair), four of whom were Non-Executive
Directors.
During the reporting period, Anthony Rivas, former Managing
Director and Chief Executive Officer resigned (24 November
2019). On and from 25 November 2019, Doug McAlpine was
appointed as the Chief Executive Officer.
The Board considers its current members to have an
appropriate mix of skills that enable the Board to discharge
its responsibilities, and deliver the Company’s strategy
and corporate objectives.
The Board
keeps our
governance
system under
regular review
to ensure that it
adopts changes
in law and
demonstrates
best practice
developments
in corporate
governance.
Chief
Executive
Officer
Executive
Leadership
Team
12
Board Committees
The Board is assisted in discharging its duties with the
assistance of the following Committees, each with its own
Charter stipulating its functions, powers and delegations:
– Audit and Risk Management Committee
– PDL Investment Committee
– Remuneration and Nomination Committee
Communication with Shareholders
Collection House Limited uses a range of methods to
communicate with shareholders, including written and
electronic communications. Shareholders are able to make
enquiries with the Group at any time through the Investor
Enquiries page on the Group’s website.
The Corporate Governance Statement
is available online
The Company’s listing on the Australian Securities Exchange
means it must comply with the Corporations Act 2001, the
ASX Listing Rules and other Australian laws.
As part of its Compliance, Collection House Limited (the
Group) is required to disclose how it has applied the
recommendations contained in the ASX Corporate Governance
Council’s Principles and Recommendations – 4th Edition (the
Principles and Recommendations) during the financial year
ending 30 June 2020, explaining any departures therefrom.
The Group has, unless otherwise stated, followed the Principles
and Recommendations throughout the year.
More information about Collection House Limited’s Board and
Management, corporate governance policies, procedures and
practices is available in the Corporate Governance Statement
available on the website at www.collectionhouse.com.au under
the heading Investors – Corporate Governance.
Board of
Directors
Board
Committees
Independent
Assurance
& Advice
Audit & Risk
Management
Remuneration
& Nominations
PDL
Investment
Collection House Limited Annual Report 2020 Directors’ Report
The Directors present their report on the consolidated entity (referred to hereafter as the Company or the Group) consisting
of Collection House Limited and the entities it controlled for the financial year ended 30 June 2020.
Directors
The following persons were Directors of the Group during the whole of the financial period and up to the date of this report,
unless stated otherwise:
– Leigh Berkley - Chairman
– Michael Knox
– Sandra Birkensleigh
– Catherine McDowell
– Anthony Rivas (resigned 24 November 2019)
See pages 8 to 9 for profile information on the Directors.
Principal activities
The Company has two reportable segments: Purchased Debt Ledgers (PDLs), and Collection Services.
The principal activities of the Group were the provision of debt collection services and the purchase of consumer debt. There were
no significant changes in the nature of the activities of the Group during the year.
Overview of Group operations and financial results
Revenue
Net Profit after tax for the year
(Loss)/Earnings per share
30 June 2020
$’000
30 June 2019
$’000
Change
%
151,647
(145,070)
(103.2)
161,057
30,690
22.3
-6
-573
-563
The Group’s financial results were lower than the previous corresponding period and were adversely impacted by a change in
strategy relating to collection methods and legal process, and the wider economic effects of COVID-19, which impacted service
fee income and cash collections from the Group’s PDL assets. These impacts as well as the subsequent sale in December 2020 of
it’s Australian PDL assets led to a material impairment being booked against the Group’s PDL asset value. New debt purchasing
opportunities were also limited during the twelve months, in line with a more conservative approach to debt sales applied by
clients during the COVID-19 period. Although the Group’s economic performance for the period was subdued, the Group has
executed significant strategic change initiatives across the entire business, which will position the business for sustainable growth
moving forward.
13
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020 Key financial results – by segment – Audited ($’000)
Collection Services
Purchased Debt
Ledgers (PDLs)
Consolidated
30 June 2020
$ ‘000
30 June 2019
$ ‘000
30 June 2020
$ ‘000
30 June 2019
$ ‘000
30 June 2020
$ ‘000
30 June 2019
$ ‘000
Revenue
Sales
Interest and other income
Total segment revenue
Intersegment elimination
Consolidated revenue
Results
Segment result
Purchased Debt Ledgers: Impairment
Interest expense and borrowing costs
Unallocated revenue less unallocated
expenses
Profit before tax
Taxation
Net Profit After Tax (NPAT)
65,113
67,604
–
–
65,113
67,604
–
86,746
86,534
–
93,660
93,660
65,113
86,746
67,604
93,660
151,859
161,264
(212)
(207)
65,113
67,604
86,746
93,660
151,647
161,057
4,824
–
9,264
41,318
52,090
46,142
61,354
–
(238,890)
–
(238,890)
–
(9,751)
(7,658)
(4,551)
(10,093)
(207,050)
61,980
(145,070)
43,603
(12,913)
30,690
Purchased Debt Ledger (PDL) Segment
The PDL business reported revenue of $86.7 million, down 7.4 percent on the previous corresponding period. While cash receipts
from the Lion Finance customer base were adversely impacted by COVID-19, significant changes have been made to improve the
effectiveness and sustainability of our operational collection strategy. In particular, this included a reduction in legal activity which
was a critical action identified from the Strategic Review undertaken by the Company following the change in Chief Executive
Officer in November 2019.
Changes in collection strategy and a conservative approach to the phasing of collections associated with the COVID impacts over
the next 12 to 18 months have resulted in a change to the quantum and timing of future cash flow from the Company’s PDL assets.
This led to an impairment being booked against the Group’s PDL asset value In accordance with the requirements of AASB 9, with
the Company recognising a $127.4 million pre-tax adjustment to the value of its PDL assets to reflect the net present value impact
of the above matters. In addition, the company has subsequently reached agreement in December 2020 to sell all of it’s Australian
PDL assets and as a result has recognised an additional pre-tax impairment to the value of its PDL assets of $111.5m. This reflects
in total a $238.9m pre-tax impairment to it’s PDL assets during the year.
The Company will continue to own and manage it’s New Zealand PDL assets.
Collection Services Segment
Collection Services revenue was down 3.7 percent on prior year. This was due to a variety of factors including changes in the
Company’s client base and clients acting more conservatively around the outsourcing of receivables management subsequent to
quarter three of the financial year. New service opportunities have arisen during Q4 however, particularly in respect of supporting
clients around customers exhibiting signs of vulnerability and hardship. Notwithstanding the difficult economic conditions, the
Company used the period to refine its client and customer service offerings and carefully re-evaluate its cost model. The Company
is well positioned to support new and existing clients to manage their customers in what the Company expects will be a continually
challenging operating environment.
Cost Structure
Direct collection costs exhibited a decrease year on year, reflective of the reduction in litigation. Employee costs were up on the
prior year mainly linked to the addition of resources to support significant PDL investment in FY19. Maintaining a competitive
cost to collect in both the Collection Services and Lion Finance business units remains of paramount strategic importance to the
Company and a comprehensive cost review program has been commenced as a follow-on action arising from the Strategic Review.
14
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Actions from the Strategic Review
The Strategic Review identified that in addition to implementing an appropriate financing solution to support future growth,
the Company would benefit from:
– refining its value proposition by ensuring that delivering the right customer outcome was the guiding principle which
underpinned all organisational activities;
– continuing to enhance its governance framework to provide the highest level of assurance around ethical behaviour and
regulatory compliance to its clients and customers;
– simplifying its business activities to focus on being the first choice in receivables management services through superior insight,
innovation and customer care
Key drivers of this revised strategy was wider financial services industry feedback arising from the Royal Commission, coupled with
a strong desire to do the right thing for our customers going forward.
In the last six months, our client and customer engagement approach has fundamentally changed, particularly in the Lion Finance
business, and feedback from customers and third party stakeholder groups has been extremely positive. The Company continues to
re-evaluate all aspects of its business from the perspective of the customer and anticipates that this approach will create a deeper
level of engagement with new and existing clients moving forward, particularly as the financial services sector comes to terms with
the long term economic and social impacts of COVID-19.
Capital Management
The Group’s total assets at 30 June 2020 were $338.6 million, down 28% on prior year. The decrease in total asset was mainly
driven by the impairment to the Group’s PDL assets. After the impairment adjustment to the Group’s PDL assets in December 2019,
the Group was unable to meet certain financial covenants that resulted in the reclassification of total Borrowings to current liability,
which meant the Group is currently reporting a net current deficiency of $38.9 million as at 30 June 2020.
As disclosed in Note 18, on 9 April 2020, the Group entered into a Standstill Agreement with its Senior Lenders. This Standstill
Agreement (with subsequent amendments and extensions) confirmed, subject to the Group’s compliance with its terms and
conditions including the revised financial ratios and covenants, that the Group’s lenders would not take any action during the
period to 23 December 2020 (the standstill period) in relation to any potential or existing defaults that occurred under the facilities
prior to or during the standstill period. The Group has been actively engaged in a recapitalisation process since the Standstill
Agreement was entered into with the Group’s lenders. This was previously announced to the market and a number of updates have
been provided since then.
As disclosed in Note 32, on 23 December 2020, the Group entered into a sale agreement with Credit Corp Group to acquire a
significant portion of its Australian PDL assets at a value of $160m. The Group has also reached agreement with its lenders where
it will apply the sale proceeds to the repayment of the majority of its existing facilities and they will then provide ongoing funding
facilities for the remaining $62m. This will consist of:
– a $20m Term Loan Facility (Facility A) with a term of three years, cash interest, and fixed quarterly prepayments;
– an approximate $42m Term Loan Facility (Facility B) with a term of three years, capitalising interest, and cash sweep payments
at times when the Group’s month-end cash balance is above a level agreed with its lenders. The final amount will be
determined as a part of the settlement process of the PDL Sales Transaction.
– a Bank Guarantee Facility of $8.6m.
– agreed covenant ratios.
Credit Corp Group is also providing a short-term loan of $15m with a maturity of two years, capitalising interest and two agreed
repayment milestones.
The Group continues to generate strong operational cash flow in the FY21 year some of which has been applied to further
debt reduction, and has reached an recapitalisation outcome that is both acceptable to its existing lenders while simultaneously
providing a capital solution which will support the Company’s revised strategy and future growth.
People and Culture
The Company is focused on running its business within a framework of values which commits us to make a contribution across
a range of stakeholders, including shareholders, clients, customers, employees and the wider community. During FY20, we
formalised strategies for better supporting our employees and our customers, reducing our environmental impact and creating
more meaningful engagement with wider community initiatives. The Company recognises that its social license to operate is
dependent on continually displaying a culture of transparency and integrity which its clients, customers and the wider community
can rely upon. The Group takes these obligations seriously and has comprehensive policies and procedures in place to ensure these
high standards of behaviour are achieved.
15
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report Technology and Innovation
The Company reaffirms its strategy of becoming an industry leader in the development and implementation of technology
solutions which improve employee, client and customer experience, but also generate operating efficiencies. The Group continues
to invest each year in the improvement to C5, its proprietary collection and customer management platform. A number of clients
have also adopted our newly developed Customer Portal and Business Services offerings, which will contribute to efficiencies
moving forward.
Outlook
Following completion of the refinancing transaction, the Company has largely eliminated the financial risk associated with its
historical purchased debt assets, substantially reduced its debt levels, and greatly simplified its business model. This simplification
allows the Company to focus on providing the highest standard of collection services to our clients through a values aligned,
customer centric collections approach.
The Company simultaneously retains the flexibility to retain growth in the purchased debt space through a new partnering model
which will see a significantly lower level of the Company’s balance sheet put at risk moving forward. The Company expects to
finalise that new partnering arrangement in the near future.
The reshaped business is well positioned to respond to short term volatility in the credit sector while simultaneously affording it the
flexibility to pursue growth strategies in the contingent collection and purchased debt areas where appropriate.
The Company retains its best in class capabilities of people, systems and processes, allowing it to provide end-to-end receivables
management services to clients and customers under either contingent collections or purchased debt frameworks.
Key Risks
Our key risks are:
– Impacts of COVID-19 and related market issues on Company performance.
– Changes to regulations governing our activities or breaching of compliance obligations
– Failure to retain existing and acquire new agency clients
– Overpaying on PDL investments
– Failing to collect PDLs in accordance with our pricing models Availability of appropriately priced capital to support the
Company’s growth objectives
– Disruption to systems and operation due to cyber breach or privacy breaches
– Failure to maintain appropriate level of investment in information systems to improve customer experience
The Audit and Risk Management Committee provides Board oversight to the management of risk mitigation strategies that
are implemented for the Group.
Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Declared and paid during the year 2019
Final 2019 ordinary
Interim 2020 ordinary
Cents per
share
Total amount
$’000
Date of
payment
4.1
Nil
5,764
25 October 2019
Nil
Nil
16
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report After balance date, no dividends were proposed by the Directors. As at 9 April 2020, the Group entered into a standstill agreement
(SA) with its lenders. The Group’s ability to declare and pay dividends remained restricted while the Standstill Agreement with its
existing lenders was in place. The Group’s ability to recommence an appropriate dividend payment policy is governed by the new
arrangements with it’s lenders and is primarily linked to it’s ongoing financial performance and available cash after meeting it’s
loan obligations.
Declared after end of year
Final 2020 ordinary
Cents per
share
Total amount
$’000
Nil
Nil
Date of
payment
Nil
Significant changes in the state of affairs
The change in collection strategy and change to the anticipated quantum and timing of future cash flow from the Company’s PDL
assets was a significant change leading to the impairment of it’s PDL asset value as noted above
The company has concluded it’s recapitalisation process in December 2020. This has resulted in the sale of it’s Australian based PDL
assets with the proceeds applied to pay down the majority of it’s bank debt and the existing lenders providing a new loan facility
for the difference. As a result of this, the company has chosen to recognise an additional impairment to the value of its PDL assets
as noted above.
There were no other significant changes in the state of affairs of the Group during the financial year.
Matters subsequent to the end of the financial year
To date, the effects of the COVID-19 crisis have been well managed, but the future impacts of the virus are still somewhat
uncertain. This uncertainty weighs on consumer behaviour, and business and government actions, which has had and will continue
to have economic consequences. While the expectations around duration and impact of the crisis is improving but still unclear, the
Group is relatively well-positioned within the overall Australian economy with some return to normalcy being shown by clients, and
assisted amongst other things by the support from on-going government measures.
The Company has been activily engaged in a recapitalisation process since February 2020 when a Standstill agreement was
entered into with the Company’s lenders. This was previously announced to the market and a number of updates have been
provided since then. Under the Standstill Agreement, the Company’s existing lenders have agreed to a standstill in respect of the
Company’s existing facilities until 23 December 2020 (unless otherwise extended by agreement) while the Company undertakes
the recapitalisation process. The Company has now reached agreement with Credit Corp Group to acquire a significant portion of
it’s PDL assets at a value of $160m and has in-principle approval from it’s Lenders and the ASX to proceed. The company has also
reached agreement with its lenders where it will apply the sale proceeds to the repayment of its existing facilities and they will then
provide ongoing funding facilities of approximately $62m. The buyer is also providing a short term loan of $15m. The company
does retain a portion of it’s PDL assets and remains an active participant in the PDL asset acquisition market.
The sale of the PDL assets has been transacted at a value that is substantially different to the Company’s book value. Given its
material nature, the timing of the accounts finalisation and consideration of Accounting Standard requirements, the Company has
decided to reflect the estimated impact into it’s June 20 accounts which has lead to an additional impairment against it’s PDL asset
value of $111.5m ($78.1m after tax). Hence total impairment against PDL assets for the FY20 year will be $238.9m. The final impact
of the sale will be reflected in the actual month of sale (December 2020) and therefore in the December 2020 half year results.
Other than the matters discussed above, no matter or circumstance has arisen since 30 June 2020 that has significantly affected, or
may significantly affect:
(a)
(b)
(c)
the Group’s operations in future financial years, or
the results of those operations in future financial years, or
the Group’s state of affairs in future financial years.
Environmental regulation
The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of
a state or territory.
17
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report Information on directors
Leigh Berkley
Independent, Chairman
Experience
Having qualified as a Chartered Accountant, Mr Berkley has more than 30 years’ experience in the
collections and debt purchase industry, is a past President of the Credit Services Association (CSA)
in the UK and assisted the Australian Collectors & Debt Buyers Association (ACDBA) develop their
Code of Practice.
Having been granted Australian residency last year, Leigh stepped down from his role as Director
of External Affairs and Development of Arrow Global Group Plc, one of the UK’s largest consumer
debt purchasers, in which he engaged with government and regulators, trade bodies and consumer
advice organisations.
Prior to this, he was the CEO and main shareholder of Tessera Credit Group, a debt purchaser and
collection agency, which he led for over 16 years before successfully negotiating a sale of its assets
to Arrow Global in December 2014.
Leigh was Vice President of the European trade body FENCA where he led the development of
a Code of Conduct for GDPR for the Collections industry across Europe, and has been a regular
presenter and industry advocate at conferences and trade body forums around the world. Leigh was
also the 2019 President of the International Collectors Group and a Trustee of the Fair Life Charity,
and is an Ambassador and former Director of the Money Advice Liaison Group in the UK.
Mr Berkley was appointed to the Board of Collection House Limited on 1 July 2016.
Mr Berkley was appointed Chairman of Collection House Limited on 29 November 2017.
Special responsibilities
Chair of the PDL Investment Committee
Interest in shares
112,866 ordinary shares in CLH
Michael Knox
Independent, Non-executive Director
Experience
Mr Knox was an Australian Trade Commissioner serving in Saudi Arabia and Indonesia. He joined
Morgans (now Morgans Financial Limited) in Sydney in 1988. He was Chief Institutional Options
Dealer until moving to Brisbane in 1990 as Economist and Strategist. He joined the Board of Morgan
Stockbroking in 1996. He became Director of Strategy and Chief Economist in 1998. Michael
remained on the Board of Morgans until 2012.
Michael has served on many Queensland Government advisory committees. He was Chairman of the
Queensland Food Industry Strategy Committee in 1992, a Member of the Consultative Committee of
the Ipswich Development Board in 1993, a Member of the Queensland Tourism Strategy Committee
in 1994 and a Member of the Ministerial Advisory Committee on Economic Development in 1997.
From 2003 to 2012, he was Chairman of the Advisory Committee of School of Economics and
Finance at the Queensland University of Technology. He has been a Governor of the American
Chamber of Commerce from 1997 to 2007. In 2008, Michael joined the Board of The City of
Brisbane Investment Corporation Pty Ltd. Michael remained on the Board until 2016. Michael was
the President of the Economic Society of Australia (Qld) Inc from 2009 to 2013.
Mr Knox was appointed to the Board of Collection House Limited on 24 March 2017.
Special responsibilities
Nil
Interest in shares
80,000 ordinary shares in CLH
18
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Catherine McDowell
Independent, Non-executive Director
Experience
Catherine McDowell has more than 30 years’ experience in the international investment and
financial services industry in senior executive and advisory roles, predominantly with Barclays Bank,
and more recently with ANZ.
She has more than 15 years of Board experience with not for profit, listed and non-listed companies.
Her current roles include Independent Director for the Todd Family Office, New Zealand and
Independent Director of the AMP Superannuation Board, and Chair of the Risk Committee
Previously, as Managing Director of Barclays International she oversaw a substantial international
wealth business before moving to New Zealand in 2005.
Catherine was the Managing Director at ANZ and the National Bank Private Banking and Wealth
business (New Zealand).
She subsequently moved to Australia to build the Private Bank and Trust business while managing
E-Trade. During her career Catherine spent 10 years in New York, 15 years in London and 8 years in
New Zealand and Australia.
Catherine has a Ba Hons, is a Fellow of the Institute of Company Directors, New Zealand, a Graduate
of the Australian Institute of Company Directors, and an Affiliate of the Governance Institute of
Australia.
Catherine was appointed to the Board of Collection House on 17 September 2018
Special responsibilities
Chair of the Remuneration and Nomination Committee
Interest in shares
No ordinary shares in CLH.
Sandra Birkensleigh
Independent, Non-executive Director
Experience
Sandra Birkensleigh is a Non-Executive Director of MLC Limited, Chair of the Audit Committee and
a member of the Risk Committee and Disclosure Committee.
Sandra is also a non-executive Director of Auswide Bank, Chair of their Audit Committee and
member of the Risk and Remuneration committees. She is a Non-Executive Director of 7 Eleven,
and Chair of their Audit and Risk committee, and a Non-executive Director of Horizon Oil Limited,
Chair of their Audit Committee and a member of the Risk and Remuneration and Nomination
Committees.
Sandra is also an independent member of the Audit Committee for the Reserve Bank of Australia, a
Council Member and Chair of the Audit and Risk Committee of the University of the Sunshine Coast
and the Chair of the Financial Services Committee for the Institute of Internal Auditors Australia.
She is also a Non-executive Director of the National Disability Insurance Agency and Chair of the
Audit and Risk Committees and member of the People and Remuneration Committee. She is a
member of the Investment Committee for the Public Trustee of Queensland. Sandra also sits on the
boards of the Tasmanian Finance Corporation (Tascorp) and is Chair of the Audit Committee. She
was recently appointed as Chair of the Financial Services Committee for the Institute of Internal
Auditors of Australia.
Previously, Sandra held the role of Senior Partner of PwC until February 2013 and was the Global
Head of Governance Risk and Compliance Services for PwC for five years. Sandra has a Bachelor
of Commerce from University of New South Wales, is a Chartered Accountant, a Graduate of the
Australian Institute of Company Directors and a Certified Compliance Professional (Fellow)
Sandra was appointed to the Board of Collection House on 17 September 2018
Special responsibilities
Chair of the Audit and Risk Management Committee
Interest in shares
No ordinary shares in CLH
19
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report Company Secretary
Jonathon Idas was appointed as Chief Legal Officer (“CLO”) on 6 September 2017. On 10 November 2020, he was appointed
as the Company Secretary.
Jonathon has more than 17 years’ experience as a solicitor in Australian and the United Kingdom previously being the CLO
for Australian Receivables Limited and Forbes Dowling Lawyers Limited.
As CLO of Australian Receivables Limited, Jonathon successfully acquired Turnbull Bowles Lawyers, strengthening firm’s position
and expanding legal services, client engagement and productivity.
As a solicitor in the United Kingdom his focus was helping clients navigate successfully through the global financial crisis, acting
on large scale litigation and pursuing cross boarder insolvency matters.
Since joining the Company, he has had oversight of all legal matters, corporate governance, compliance.
Meetings of Directors
The number of meetings of the Group’s Board of Directors and of each board committee held during the year ended 30 June 2020,
and the number of meetings attended by each Director were:
2020
Leigh Berkley
Michael Knox
Anthony Rivas
Sandra Birkensleigh
Catherine McDowell
Meetings of committees
Directors
Audit and Risk
Management
PDL Investment
Remuneration and
Nomination
Attended
Held
Attended
Held
Attended
Held
Attended
Held
10
10
2
10
9
10
10
10
10
10
5
5
2
5
4
5
5
5
5
5
5
2
–
2
2
5
5
5
5
5
4
4
1
4
4
4
4
4
4
4
In addition, since the onset of Covid-19, the Board has met frequently as required by teleconference with the CEO and members
of the Executive Leadership Team and external advisors.
20
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Remuneration Report – AUDITED
This Remuneration Report outlines the overall remuneration strategy, framework and practices adopted by the Group for FY20 for
Non-Executive Directors (NEDs), the Chief Executive Officer and other Key Management Personnel (KMP). It has been prepared in
accordance with the requirements of the Corporations Act 2001 (Cth), as amended (the Act) and its regulations. The information
provided in this Remuneration Report has been audited as required by Section 308(3C) of the Act. The Remuneration Report
contains the following sections:
A
B
C
D
E
F
G
H
I
J
Directors and other Key Management Personnel disclosed in this report
Remuneration governance
Executive remuneration policy and framework
Relationship between remuneration and the Group’s performance
Non-executive Director remuneration policy
Details of remuneration of Directors and Key Management Personnel
Service agreements
Share-based compensation
Equity instruments held by Key Management Personnel
Additional information
Director and Executive Remuneration
A Directors and other Key Management Personnel disclosed in this report
The key management personnel include those who have the authority and responsibility, directly or indirectly, to plan, direct
and control the major activities of the Group.
The Group’s Directors and key management personnel for FY20
Board of Directors
Leigh Berkley
Michael Knox
Chairman (Non-Executive)
Director (Non-Executive)
Sandra Birkensleigh
Director (Non-Executive)
Catherine McDowell
Director (Non-Executive)
Anthony Rivas
Managing Director and Chief Executive Officer (CEO) (resigned 24 November 2019)
Executive Leadership Team (ELT)
Anthony Rivas
Chief Executive Officer (CEO) (resigned 24 November 2019)
Doug McAlpine
Chief Executive Officer (CEO) (appointed 25 November 2019)
Chief Financial Officer (appointed 1 July 2019 and resigned 1 January 2020)
Company Secretary (appointed 1 July 2019 and resigned 10 November 2020)
Lynda Morris
Chief Financial Officer (CFO) (appointed 1 January 2020)
Anand Adusumilli
Chief Data Scientist
Jonathon Idas
Chief Legal Officer
Company Secretary (appointed 10 November 2020)
Denica Saunders
Chief Operating Officer (COO)
Stephen Parrish
Chief People Officer (appointed 1 January 2020)
Nathan Johnston
Chief Technology Officer (appointed 1 January 2020)
21
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report B Remuneration governance
Overall remuneration strategy, framework and practices adopted by the Group are governed by the Board and the Remuneration
and Nomination Committee. These functions include consideration of the following:
– How the remuneration policies are applied to members of the ELT
– The basis of short and long-term performance-based incentive payments for members of the ELT
– The appropriate fees for NEDs.
Fundamental to all arrangements is that all KMP (Key Management Personnel) must contribute to the achievement of short and
long-term objectives, enhance shareholder value, avoid unnecessary or excessive risk taking and discourage behaviour that is
contrary to the Group’s values.
Details of the short and long-term incentive schemes are set out below in the Section C: ‘Executive Remuneration Policy and
Framework’ section of the Remuneration Report.
The objectives of the Group’s remuneration policies are to ensure remuneration packages for KMP reflect their duties,
responsibilities and level of performance – as well as to ensure all KMP are motivated to pursue the long-term growth and success
of the Group.
In determining the remuneration of all KMP, the Board aims to ensure that the remuneration policies and framework:
– Are fair and competitive and align with the long-term interests of the Group
– Incentivise all KMP to pursue the short and long-term growth and success of the Group within an appropriate risk control
framework
– Are competitive and reasonable, enabling the Group to attract and retain key talent, knowledge and experience
– Are aligned to the Group’s strategic and business objectives and the creation of shareholder value
– Have a transparent reward structure with a risk proposition that is linked to the achievement of pre-determined performance
targets.
Use of external advisors
In performing its role, the Remuneration and Nominations Committee may directly commission and receive information, advice and
recommendations from independent, external advisers. This is done to ensure the Group’s remuneration packages are appropriate,
reflect industry standards and help achieve the objectives of the Group’s remuneration strategy. During the period, the Group
engaged a consultant, Mercer Consulting (Australia) Pty Ltd, for remuneration benchmarking purposes in relation to the Group’s
overall remuneration packages, inclusive of KMP’s remuneration packages. The total fees for the period were $30,000, however,
this was not a remuneration recommendation for the purposes of the Corporations Act 2001 (Cth).
Securities Trading Policy
The trading of shares issued to eligible employees under any of the Group’s employee equity plans was subject to, and conditional
upon, compliance with the Group’s Securities Trading Policy. Members of the ELT are prohibited from entering into any hedging
arrangements over unvested performance rights under the Group’s Performance Rights Plan (PRP). The Group would consider
a breach of this policy as misconduct, which may lead to disciplinary action and potentially dismissal.
C Executive remuneration policy and framework
The Group’s executive remuneration strategy is designed to attract, motivate and retain high performing individuals and align the
interests of executives with shareholders.
The Remuneration and Nomination Committee and the Board reviews the remuneration packages for members of the ELT annually
by reference to individual performance against key individual and team objectives, the Group’s consolidated results and market
data. The performance review of the CEO is undertaken by the Chair of the Board who then makes a recommendation to the
Board. The performance review of the other members of the ELT is undertaken by the CEO and approved by the Board.
The Group aims to reward members of the ELT with a level of remuneration commensurate with their responsibilities and position
within the Group, and their ability to influence shareholder value creation. The remuneration framework links rewards with the
strategic objectives and performance of the Group.
22
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report The ELT pay and reward framework has three components:
– Total fixed remuneration (TFR) including superannuation and benefits
– Short-term incentives (STIs), paid in cash or shares
– Long-term incentives (LTIs) through participation in the Performance Rights Plan (PRP), which has been approved by the Board.
The combination of these components amount to the total remuneration package or total employment cost for members of the ELT
including the CEO.
Total fixed remuneration
Structured as a total employment cost package, the total fixed remuneration (TFR) may be delivered as a combination of cash
and prescribed non-financial benefits at the discretion of the ELT member. Members of the ELT are offered a competitive TFR that
comprises the cash salary, superannuation and non-monetary benefits. The TFR for ELT members is reviewed annually to ensure
the pay is in line with the role, experience and performance and remains competitive with the market. Group and individual
performance are considered during the annual remuneration review. The TFR is usually fixed for a 12-month period with any
changes effective from 1 September each financial year. An ELT member’s remuneration is also reviewed upon any change
of duties.
Retirement benefits for ELT
There are no additional retirement benefits made available to members of the ELT, other than those required by statute or by law
and under the shareholder approved performance rights plans.
Short-term incentives (STIs)
To ensure that remuneration for members of the ELT are aligned to the Group’s performance, a portion of their remuneration,
in line with their ability to influence results, is performance based and, therefore, ‘at risk’.
ELT members have the opportunity to earn an annual STI if pre-defined targets are achieved. The CEO had a target STI opportunity
of 60 percent of TFR, which is cash-based. Other ELT personnel each have a cash-based STI opportunity of up to 25 percent of TFR.
STIs for the ELT in FY20 were based on scorecard measures and weightings. The CEO key performance objective targets were set
by the Board at the beginning of the financial year and aligned to the Group’s strategic and business objectives, as outlined below.
The STIs for other members of the ELT are recommended by the CEO to the Board based on the ELT meeting financial and non-
financial target performance objectives set by the CEO. Management were cogniscent of the pressures on the Company during the
year and recommended that the STI payments should be forfeited.
When normally applied, there is a high degree of alignment between the Company strategy and the ELT’s STI performance
objective targets. The financial performance objectives (EPS and Net Profit After Tax) are the same for all Senior Executives,
providing a common objective for the ELT. The non-financial ELTs have a high degree of variability between technology projects,
people and culture, and processes that reflect the individual roles, and include measures such as achieving strategic outcomes,
developing people and culture, growth, business development, differentiation, innovation, digital development and other key
initiatives during the financial year.
Each executive has a high degree of clarity on their individual performance objectives and priorities, as established by their
scorecard. They also have an understanding of the inter-relationship of their individual performance objectives to the objectives
of the other members of the ELT.
23
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report CEO STI targets for FY20 and FY19
Payment of the STI is discretionary and subject to the requirement to achieve a minimum of 5% growth in EPS in a financial year, as
well as the achievement of the individual personal objectives outlined below:
Performance category
Metrics
Financial
Non-Financial
– Earnings per share (EPS)
–
–
–
Leadership
Innovative Solutions implemented
Improvement of Corporate Culture
Weighting
(%)
40
20
10
30
A summary of the actual STI Financial outcomes achieved is included in Section D.
Deferred Shares – CEO short-term incentive scheme
In FY20, the new CEO short-term incentive (STI) scheme excluded the issuance of deferred shares and contains only the cash
component.
Under the FY17-19 Group’s short-term incentive (STI) scheme, the CEO was entitled to receive 60% of his annual STI achieved
in cash, and 40% in the form of rights to deferred shares of Collection House Limited, issuable at the end of his contract period,
subject to him being employed by the Group at the end of the contract period.
The FY17-19 CEO short-term incentive (STI) scheme was fully vested (244,789 shares) in FY20. The deferred shares awarded were
ultimately sold during FY20.
Cessation of employment
For resignation or termination for cause, any STI is forfeited, unless otherwise determined by the Board.
For any other reason, the Board may award STI on a pro-rata basis taking into account time and the current level of performance
against performance hurdles.
Long-term incentives (LTIs)
LTIs are awarded to the Group’s ELT by way of performance rights via the Performance Rights Plan (PRP). The LTI program has the
objective of delivering long-term shareholder value by incentivising members of the ELT to achieve sustained financial performance
over a three-year period (with no opportunity to retest).
Annual grants of performance rights are proposed to be made to the Group’s ELT under the PRP. The number of performance rights
granted is calculated based on the weighted average share price over the five trading days before the grant date. Sections H and I
provide details of performance rights granted, vested, exercised and lapsed during the year.
Performance rights were awarded to various eligible employees pursuant to the PRP, at a nil exercise price and subject to a three-
year tenure hurdle. This is contingent on the achievement of certain financial performance hurdles, which are approved by the
Board each financial period.
The performance rights will not vest unless the Group’s financial performance meet these hurdles. The Board set these hurdles to
ensure that the ELT and eligible employees were focused on the delivery of increased shareholder value through the achievement of
the short and long-term goals of the Group. Participants in the PRP do not receive distributions or dividends on unvested LTI grants.
FY20 Performance Rights Awarded
In recognition of the COVID-19 and recapitalisation issues the Board did not grant any unlisted FY20 performance rights during the
current year under the PRP to the ELT and other eligible employees.
24
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report FY19 Performance Rights Awarded
For the FY19 performance rights the Board chose Earnings Per Share (EPS) as the key financial measurement as EPS growth will
ensure that long-term shareholder value is achieved. The hurdles and the proportion of performance rights that will vest as a
percentage if the target is achieved, are outlined below:
Performance Hurdles – Compound EPS Growth
0% – 5.00%
5.01% – 7.50%
7.51% – 10.00%
More than 10.01%
% of Pool
Nil
33.33%
66.66%
100%
For the period, 383,333 unlisted performance rights over ordinary shares in the Company under the PRP to the ELT and other
eligible employees were forfeited. The performance rights will not vest (and therefore be incapable of being exercised) based on
certain vesting conditions and performance hurdles as at 30 June 2021 as highlighted above.
The FY19 performance rights were issued in FY20 as these performance rights were approved by the board in FY20.
A summary of the actual LTI Financial outcomes achieved is included in Section D.
Cessation of employment
For ‘uncontrollable events’ (including death, serious injury and disability and forced early retirement, retrenchment or redundancy),
any LTI that is capable of becoming exercisable if performance hurdles are met at the next test date will become vested
performance rights. The Board, at its discretion, may determine the extent to which any other unvested performance rights, that
have not lapsed, will become vested performance rights.
For any other reason, all unvested LTI awards will lapse immediately, unless otherwise determined by the Board.
Change of control
Where a proposal is publicly announced in relation to the Group which the Board reasonably believes may lead to a change in
control event, all unvested LTI awards that have not lapsed, will vest and become exercisable.
Clawback
The Group will reduce, cancel or clawback any performance-based remuneration in the event of serious misconduct or a material
misstatement of the Group’s financial statements.
Discretion
The Board has absolute discretion in relation to payments under both the STI and LTI schemes.
D Relationship between remuneration and the Group’s performance
Group performance and its link to LTI
The overall level of reward for members of the ELT takes into account the performance of the Group over a number of years, with
greater emphasis given to the current and previous year. Details of the relationship between the remuneration policy and Group’s
performance over the last five years is detailed below.
Net profit after tax ($m)
Dividends declared (franked)
Share price commenced
Share price ended
2016
$18.6
2017
$17.4
2018
$26.1
2019
$30.7
7.8 cents
7.8 cents
7.8 cents
8.2 cents
$2.23
$1.10
$1.10
$1.16
$1.16
$1.49
$1.49
$1.21
2020
$(145.1)
Nil
$1.21
$1.08
Basic Earnings/(Loss) Per Share
14.0 cents
12.8 cents
19.2 cents
22.3 cents
(103.2) cents
25
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report Details of remuneration: cash bonuses and performance rights
For each cash bonus and grant of performance rights included in the table on page 34 the percentage of the available bonus or
grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet
the service and performance criteria, is set out below. Other than the deferred payment shares, no part of the STI is payable in
future years. No performance rights will vest unless the vesting conditions are met, hence the minimum value of the performance
rights yet to vest is nil. The maximum value of the performance rights in the options reserve has been determined as the fair value
of the performance rights at grant date.
Cash bonus
Deferred Payment
Shares
Performance rights
Awarded
%
Forfeited
%
Awarded
%
Forfeited
%
Financial
year
granted
Vested
%
Forfeited
%
Financial
years in
which
performance
rights may
be vested
(subject
to certain
qualifying
hurdles)
Lapsed
%
Maximum
total
value of
performance
rights in
options
reserve
–
100%
75%
80%
80%
25%
20%
20%
–
75%
80%
80%
–
25%
20%
20%
2020
2019
2018
2017
–
–
–
–
–
–
34% 66%**
Anthony
Rivas*
(resigned
25 November
2019)
Doug
McAlpine
(appointed
1 July 2019)
Lynda Morris
(appointed
1 January
2020)
Anand
Adusumilli
–
100%
–
–
75%
80%
100%
100%
25%
20%
Jonathon Idas
–
100%
80%
80%
20%
20%
–
100%
90%
10%
–
100%
–
100%
Denica
Saunders
Stephen
Parrish
(appointed
1 January
2020)
Nathan
Johnston
(appointed
1 January
2020)
–
–
–
–
–
–
–
–
–
–
–
–
–
2020*
–
–
–
–
–
–
–
–
–
2020*
2020*
2019
2018
2020*
2019
2018
2020*
2019
–
–
–
–
–
100%
100%
–
– 100%***
–
–
100%
–
– 100%***
–
–
100%
–
–
2020*
–
100%
–
2020*
–
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2020
2022
2022
2022
–
2021
2022
–
2021
2022
–
2022
2022
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
*
FY19 Performance rights (LTI) were not approved by the Board at the date of FY19 report. The FY19 Performance rights (LTI) were issued in
FY20.
** The forfeiture occurred in FY19 and disclosed in FY19 annual report
***
The performance rights will not vest (and therefore be incapable of being exercised) based on certain vesting conditions and performance
hurdles
26
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report E Non-Executive Director remuneration policy
Non-Executive Director’s (“NEDs”) fees are determined within an aggregate Directors’ fee pool limit, which is periodically
recommended for approval by shareholders. NEDs do not receive share options or performance rights. The maximum aggregate
fee pool and the fee structure is reviewed annually against fees paid to NEDs of comparable companies. The Board considers advice
from external advisors when undertaking the annual review process.
The maximum annual aggregate NED fee pool limit is $900,000 per annum, as approved by shareholders at the Group’s Annual
General Meeting as at 25 October 2013. The FY20 aggregate total NED fees distribution is $673,500 (including superannuation).
Payments are allowed for additional responsibilities for the Chair of each Board Committee. Fees and payments to NED reflect the
demands that are made on, and the responsibilities of, the Directors.
The table below summarises the NED fees for FY20 (exclusive of superannuation):
FEES
Base fees
Chair
Other Non-Executive Directors
Additional fees
Audit and Risk Management Committee Chair
Audit and Risk Management Committee Member
Remuneration and Nomination Committee Chair
Remuneration and Nomination Committee Member
PDL Investment Committee Chair
PDL Investment Committee Member
FY20
FY19*
$175,000
$175,000
$95,000
$95,000
$25,000
$25,000
$Nil
$Nil
$25,000
$25,000
$Nil
$Nil
$25,000
$25,000
$Nil
$Nil
*
Change in Directors’ remuneration was effective as at 1/1/2019.
For further information in relation to Directors’ remuneration, including fees paid in accordance with statutory rules and applicable
accounting standards, refer to Section F below.
Note that the changes in the NED fee structure do not require an increase in the Directors’ fee pool limit.
Retirement allowances for Directors
There are no retirement allowances paid to Non-Executive Directors.
27
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report F Details of remuneration of Directors and Key Management Personnel
Amounts of remuneration
Details of the remuneration of Directors and all other key management personnel (as defined in AASB 124 Related Party
Disclosures) of the Group are set out below.
Short-term
Post-
employment
Other long
term
Share-based
payments
Salary
and fees
STI Cash
bonus
Non-
monetary
benefits
Super-
annuation
benefits
Total
Annual
and long
service
leave
Termination
benefits
Rights
Total
Proportion of
remuneration
performance
related
In Dollars
Non-Executive Directors
Leigh Berkley
Chairman
Michael Knox
Non-Executive
Director
Sandra Birkensleigh
Non-Executive
Director
Catherine McDowell
Non-Executive
Director
2020
284,151*
2019
194,098
2020
95,731
2019
92,500
2020
120,923
2019
90,288
2020
120,923
2019
90,288
–
–
–
–
–
–
–
–
136 284,287
19,561
12,569
206,667
7,213
9,095
8,788
95,731
92,500
120,923
11,488
90,288
8,577
120,923
11,488
90,288
8,577
–
–
–
–
–
–
–
–
–
–
–
–
303,848
213,880
104,826
101,288
132,411
98,865
132,411
98,865
*
within Salary and fees, Mr Berkley received $90,000 for his contribution to the project to improve the effectiveness and sustainability of the
PDL operational collection strategy.
Short-term
Post-
employment
Other long
term
Share-based payments
In Dollars
Salary
and fees
STI Cash
bonus
Non-
monetary
benefits
Super-
annuation
benefits
Annual
and long
service
leave
Total
Termination
benefits
Rights*
Deferred
Shares
Total
Executive Director and other Key Management Personnel
2020
198,728
–
3,615 202,343
18,879
–
117,619
–
–
338,841
2019
484,921
173,870
33,569
692,360
46,067
26,067
– 431,490
115,913 1,311,897
Proportion of
remuneration
performance
related
–
55%
2020
471,154
–
4,882
476,036
44,760
35,653
–
–
–
556,449
–
2020
111,692
–
2,441
114,133
10,611
9,713
2020 296,058
–
7,858
303,916
28,126
7,780
2019
279,567
59,027
9,034
347,628
26,559
14,683
–
–
–
–
–
8,892
–
134,457
–
–
339,822
397,762
–
–
17%
Anthony Rivas
Managing
Director/Chief
Executive Officer
(resigned
25 November 2019)
Doug McAlpine
Chief Executive
Officer
(appointed
25 November 2019)
Company Secretary
(appointed 1 July
2019 and resigned
10 November 2020)
Chief Financial
Officer
(appointed 1 July
2019 and resigned
1 January 2020)
Lynda Morris
Chief Financial
Officer
(appointed
1 January 2020)
Anand Adusumilli
Chief Data
Scientist
28
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Short-term
Post-
employment
Other long
term
Share-based payments
Salary
and fees
STI Cash
bonus
Non-
monetary
benefits
Super-
annuation
benefits
Annual
and long
service
leave
Total
Termination
benefits
Rights*
Deferred
Shares
2020
302,187
–
9,998
312,185
28,708
9,395
2019
278,439
61,200
4,902
344,541
26,452
–
2020
318,904
–
4,882
323,786
30,296
2,795
2019
287,644
70,833
4,705
363,182
27,326
13,299
2020
121,846
–
2,441
124,287
11,575
2020
111,692
–
2,441
114,133
10,611
–
–
–
–
–
–
–
–
–
9,000
–
–
–
–
Proportion of
remuneration
performance
related
–
18%
–
18%
–
–
Total
350,288
379,993
356,877
403,807
135,862
–
–
–
–
–
–
124,744
In Dollars
Jonathon Idas
Chief Legal
Officer
Company
Secretary
(appointed
10 November 2020)
Denica Saunders
Chief Operating
Officer
Stephen Parrish
Chief People
Officer
(appointed
1 January 2020)
Nathan Johnston
Chief Technology
Officer
(appointed
1 January 2020)
-
*
For recently appointed ELT, the remuneration information provided in the table relates to the period from the date of appointment as ELT to
30 June 2020, unless otherwise stated.
FY19 Performance rights (LTI) were not approved by the Board at the date of FY19 report. The FY19 Performance rights (LTI) were issued in
FY20.
G Service agreements
Remuneration and other terms of employment for the CEO and other Key Management Personnel are also formalised in service
agreements. Except for the CEO who has a six month notice period, all contracts with members of the ELT may be terminated early
by either party with three months’ notice. The Company, at its full discretion, may make a payment in lieu of the notice period,
either partially or in full. Major provisions of the agreements relating to remuneration are set out below.
Doug McAlpine
CEO
(appointed 25 November 2019)
CFO
(appointed 1 July 2019 and resigned
1 January 2020)
Company Secretary
(appointed 1 July 2019 and resigned
10 November 2020)
Lynda Morris
CFO
(appointed 1 January 2020)
Annual fixed remuneration
$520,796 inclusive of superannuation and non-monetary
benefits for FY20
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited.
Performance rights
No at risk FY20 performance rights were granted in FY20
Annual fixed remuneration*
$124,744 inclusive of superannuation and non-monetary
benefits for FY20.
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited.
Performance rights
No at risk FY20 performance rights were granted in FY20
29
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report
Anand Adusumilli
Chief Data Scientist
Annual fixed remuneration
$332,042 inclusive of superannuation and non-monetary
benefits for FY20
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited,
actual in relation to FY19 was $59,027
Performance rights
No at risk FY20 performance rights were granted in FY20
26,194 at risk FY19 performance rights, that were
approved, granted and forfeited during FY20
17,599 at risk FY18 performance rights were forfeited
during FY20
Jonathon Idas
Chief Legal Officer
Company Secretary
(appointed 10 November 2020)
Annual fixed remuneration
$340,893 inclusive of superannuation and non-monetary
benefits for FY20
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited,
actual in relation to FY19 was $61,200
Performance rights
No at risk FY20 performance rights were granted in FY20
26,194 at risk FY19 performance rights, that were
approved, granted and forfeited during FY20
17,772 at risk FY18 performance rights were forfeited
during FY20
Denica Saunders
Chief Operating Officer
Annual fixed remuneration
$354,082 inclusive of superannuation and non-monetary
benefits for FY20
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited,
actual in relation to FY19 was $56,666
Performance rights
No at risk FY20 performance rights were granted in FY20
39,291 at risk FY19 performance rights, that were
approved, granted and forfeited during FY20
18,989 at risk FY18 performance rights were forfeited
during FY20
Stephen Parrish
Chief People Officer
(appointed 1 January 2020)
Nathan Johnston
Chief Technology Officer
(appointed 1 January 2020)
Annual fixed remuneration*
$135,862 inclusive of superannuation and non-monetary
benefits for FY20.
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited.
Performance rights
No at risk FY20 performance rights were granted in FY20
Annual fixed remuneration*
$124,744 inclusive of superannuation and non-monetary
benefits for FY20.
Performance cash bonus
The STI opportunity in relation to FY20 was forfeited.
Performance rights
No at risk FY20 performance rights were granted in FY20
*
Amount has been pro-rated to show the remuneration package starting from the date of appointment.
30
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report H Share-based compensation
Performance rights
Performance rights have been granted to certain eligible employees under the Company’s Performance Rights Plan (PRP).
Performance rights granted under the PRP carry no dividend or voting rights. When exercisable, each performance right is
convertible into one ordinary share of Collection House Limited.
Details of performance rights over ordinary shares in the Group provided as remuneration to members of the ELT are set out below.
Name
Anthony Rivas
(resigned 25 November 2019)
Doug McAlpine
(appointed 1 July 2019)
Lynda Morris
(appointed 1 January 2020)
Anand Adusumilli
Jonathon Idas
Denica Saunders
Stephen Parrish
(appointed 1 January 2020)
Nathan Johnston
(appointed 1 January 2020)
Number of performance
rights granted/issued
during the year
Number of performance
rights vested/issuable
during the year
2020*
2019
2020
2019
–
–
–
26,194
26,194
39,291
–
–
– 1,000,000**
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
*
**
FY19 Performance rights (LTI) were not approved by the Board at the date of FY19 report. The FY19 Performance rights (LTI) were issued in
FY20.
This is in relation to PR2017 Performance rights that were vested in FY20.
The assessed fair value at grant date of performance rights compensation granted to members of the ELT has been calculated using
the five day volume weighted average price (VWAP) of one ordinary share over the five days preceding the grant. The expense is
recognised over the vesting period. The expense for each relevant financial year will require an assessment at each reporting date of
the probability that each performance hurdle will be achieved.
31
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report Equity instruments held by key management personnel
I
Performance rights
Details of performance rights over ordinary shares in the Company provided as remuneration to each Director of Collection House
Limited and other key management personnel of the Group, are set out below.
2020
Name
Anthony Rivas
(resigned
25 November 2019)
Doug McAlpine
(appointed 1 July
2019)
Lynda Morris
(appointed 1 January
2020)
Anand Adusumilli
Jonathon Idas
Denica Saunders
Stephen Parrish
(appointed 1 January
2020)
Nathan Johnston
(appointed 1 January
2020)
Balance at
start of the
year
1,000,000
–
–
17,599
17,722
–
–
–
Granted as
compensation*
Vested
Lapsed/
Forfeited
Balance at
end of the
year
Vested and
issuable
Un-vested
–
–
–
26,194
26,194
39,291
–
–
(1,000,000)
–
–
–
–
–
–
–
–
–
–
(43,793)
(43,916)
(39,291)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
*
FY19 Performance rights (LTI) were not approved by the Board at the date of FY19 report. The FY19 Performance rights (LTI) were issued
in FY20.
32
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Share holdings
The number of shares in the Company held during the financial year by each Director of Collection House Limited and other key
management personnel of the Group, including their personally related parties, are set out below.
2020
Non-Executive Directors
Category
Leigh Berkley
Michael Knox
Sandra Birkensleigh
Catherine McDowell
2020
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Executive Director and other key
management personnel
Category
Balance at
start of the
year
71,200
60,000
–
–
Other
changes
during
the year
41,666
20,000
–
–
Balance at
the end of
the year
112,866
80,000
–
–
Balance at
start of the
year
Other
changes
during
the year
Balance at
the end of
the year
Anthony Rivas
(resigned 25 November 2019)
Doug McAlpine
(appointed 1 July 2019)
Lynda Morris
(appointed 1 January 2020)
Anand Adusumilli
Jonathon Idas
Denica Saunders
Stephen Parrish
(appointed 1 January 2020)
Nathan Johnston
(appointed 1 January 2020)
Ordinary Shares
Deferred payment shares
6,690
(6,690)
244,789
(244,789)
–
–
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
–
–
–
–
–
–
–
8,547
8,547
23,482
23,482
–
–
–
–
24,003
24,003
–
–
–
–
33
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report J Additional information
Loans to Directors and Executives
There were no loans to Directors or members of the ELT during FY20.
Shares under performance rights
LTIs are provided to certain eligible employees via the PRP. Total un-issued ordinary shares of the Group under performance rights
at the date of this report are detailed below.
Performance rights
PRP
PRP*
PRP**
Date
rights
effective
Number
of rights
granted/to
be issued
Issue
price of
shares
No of
unvested
shares and
vested but
not yet
issued shares
under rights
Expiry date
1/7/17
1/7/19
Nil
341,071
398,068
Nil
Nil
Nil
Nil
Nil
Nil
Nil
30 September 2020
30 September 2021
Nil
*
FY19 Performance rights (LTI) were not approved by the Board at the date of FY19 report. The FY19 Performance rights (LTI) were issued
in FY20.
** No FY20 Performance rights were recommended.
*** PR2018 & PR2019 rights were forfeited.
Additional information – Unaudited
Insurance of officers
During the financial year the Group paid premiums in respect of Directors’ and Officers’ liability and legal expenses and insurance.
This was for current and former Directors and Officers, including senior executives of the Group and Directors, Senior Executives
and Secretaries of its controlled entities.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against
the Directors or Officers in their capacity as Directors or Officers of entities in the Group, and any other payments arising from
liabilities incurred by the Directors or Officers in connection with such proceedings. This does not include such liabilities that arise
from conduct involving a wilful breach of duty by the Directors or Officers or the improper use by the Directors or Officers of their
position or of information to gain advantage for themselves or someone else or to cause detriment to the Group.
Proceedings
On 15 March 2019, the Group was provided with a copy of a claim and statement of claim, which had been filed in the Supreme
Court of Queensland on the same date. The claim for damages is for $2,800,000 and proceedings are still being defended by the
Group.
No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the
Corporations Act 2001.
Non-audit services
During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of financial
statements.
The Board has considered the non-audit services provided during the year by the auditor, and the Audit and Risk Management
Committee is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
– all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed
by the Audit and Risk Management Committee to ensure they do not impact the integrity and objectivity of the auditor
– the non-audit services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Processional Accountants, as they did not involve reviewing or auditing the auditor’s own work,
acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks
and rewards.
34
Collection House Limited Annual Report 2020for the year ended 30 June 2020Directors’ Report Details of the amounts paid and payable to Group’s auditor, KPMG, are set out below.
Services other than audit and review of financial statements:
Audit and review of financial statements
Other regulatory audit services
Trust account audits
Loan covenant compliance
Other services
Taxation compliance services
Total paid or payable to KPMG
2020
$
411,547
68,520
3,200
267,760
751,027
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 36.
Rounding of amounts
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191, issued by the
Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ report. Amounts in
the Directors’ report have been rounded off in accordance with that Corporations’ Instrument to the nearest thousand dollars, or in
certain cases, to the nearest dollar.
This report is made in accordance with a resolution of Directors.
Collection House Limited
Leigh Berkley
Chairman
23 December 2020
35
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Directors’ Report
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Collection House Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Collection House Limited
for the financial year ended 30 June 2020 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPM_INI_01
KPMG
Scott Guse
Partner
Brisbane
23 December 2020
KPMG, an Australian partnership and a member firm of the KPMG global
organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the
independent member firms of the KPMG global organization.
Liability limited by a scheme
approved under Professional
Standards Legislation.
36
Collection House Limited Annual Report 2020for the year ended 30 June 2020 Income Statement
Interest Income
Commission
Other revenue
Revenue from continuing operations
Direct collection costs
Employee expenses
Impairment – Purchase Debt Ledgers
Depreciation and amortisation expense
Rental and Lease expenses
Restructuring expenses
Other expenses
Finance costs
Profit/(Loss) before income tax
Income tax benefit/(expense)
Profit/(Loss) from continuing operations
Profit/(Loss) for the year attributable to equity holders of Collection House
Limited
Notes
5
6
10
6
6
6
7
Consolidated
30 June
2020
$’000
79,261
63,938
8,448
30 June
2019*
$’000
75,419
67,232
18,406
151,647
161,057
(22,739)
(25,968)
(57,426)
(57,100)
(238,890)
(10,409)
(983)
(63)
(18,436)
(9,751)
(207,050)
61,980
(145,070)
–
(4,624)
(8,189)
(775)
(13,140)
(7,658)
43,603
(12,913)
30,690
(145,070)
30,690
Cents
Cents
Earnings/(Loss) per share for profit attributable to the equity holders of the
Company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
29
29
(103.2)
(103.2)
22.3
22.0
The above income statement should be read in conjunction with the accompanying notes.
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
37
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020 Statement of Comprehensive Income
Profit/(Loss) for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Fair Value adjustment – Equity instrument
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of income tax
Notes
12
21(a)
Total comprehensive income for the year attributable to equity holders of
Collection House Limited
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
(145,070)
30,690
(2,542)
–
(147,612)
–
(642)
(642)
(147,612)
30,048
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
38
Collection House Limited Annual Report 2020for the year ended 30 June 2020 Balance Sheet
ASSETS
Current assets
Cash and cash equivalents
Receivables
Purchased debt ledgers
Other assets
Total current assets
Non-current assets
Purchased debt ledgers
Equity investments
Property, plant and equipment
Intangible assets
Deferred Tax Assets
Receivables
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Borrowings
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
Total equity
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
Notes
8
9
10
11
10
12
13
14
19
9
15
18
16
17
18
19
16
17
9,656
13,311
172,541
222
195,730
12,187
4,868
28,297
33,011
63,732
740
142,835
338,565
13,212
214,857
(5,383)
4,419
7,525
1,596
12,871
52,466
167
67,100
357,837
8,500
2,710
33,842
–
558
403,447
470,547
14,609
14,667
3,782
3,810
1,937
234,630
38,805
–
–
142
30,674
30,816
265,446
73,119
195,933
1,505
103
5,053
202,594
241,399
229,148
20
21(a)
21(b)
119,567
116,413
(4,179)
(42,269)
73,119
365
112,370
229,148
The above balance sheet should be read in conjunction with the accompanying notes.
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application.
39
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationas at 30 June 2020 Statement of Changes in Equity
Consolidated
Notes
Balance at 1 July 2018
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Contributions of equity net of transaction costs
Acquisition of treasury shares
Withdrawal of treasury shares
Employee share rights-value of employee services
Dividends provided for or paid
Balance at 30 June 2019
Balance at 1 July 2019*
Adjustment on application of AASB 16
Adjusted balance at 1 July 2019
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Contributions of equity net of transaction costs
Share Issuance of treasury shares
Withdrawal of treasury shares
Acquisition of deferred shares
Employee Share Plan – FY20
Release of deferred shares
Release of Performance Rights Plan
Employee share rights-value of employee services
Dividends provided for or paid
Balance at 30 June 2020
20
21
22
20
21
21
21
21
21
22
Attributable to owners of
Collection House Limited
Contributed
equity
$’000
113,727
–
–
–
2,882
(300)
104
–
–
2,686
116,413
116,413
–
116,413
Reserves
$’000
157
–
(642)
(642)
–
–
–
850
–
850
365
365
–
365
Retained
earnings
$’000
92,693
30,690
Total
equity
$’000
206,577
30,690
–
(642)
30,690
30,048
–
–
–
–
(11,013)
(11,013)
112,370
112,370
2,882
(300)
104
850
(11,013)
(7,477)
229,148
229,148
(3,805)
(3,805)
108,565
225,343
–
–
–
–
(145,070)
(145,070)
(2,542)
–
(2,542)
(2,542)
(145,070)
(147,612)
1,571
197
167
(315)
(197)
315
1,416
–
–
3,154
119,567
–
(167)
–
197
(315)
(1,416)
(301)
–
(2,002)
(4,179)
–
–
–
–
–
–
–
(5,764)
(5,764)
(42,269)
1,571
197
–
(315)
–
–
–
(301)
(5,764)
(4,612)
73,119
The above statement of changes in equity should be read in conjunction with the accompanying notes.
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
40
Collection House Limited Annual Report 2020for the year ended 30 June 2020for the year ended 30 June 2020 Statement of Cash Flows
Cash flows from operating activities
Receipts from customers and debtors (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Income taxes paid
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
Notes
182,660
213,402
(107,606)
(115,625)
75,054
97,777
(9,705)
(10,956)
Net cash inflow (outflow) from operating activities
31
65,349
86,821
Cash flows from investing activities
Payments for property, plant and equipment
Payment for leasehold improvements
Payments for purchased debt ledgers
Receipts from sale of investment
Payment for equity instrument
Payments for intangible assets
Net cash (outflow) inflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of lease liabilities**
Borrowing costs
Interest paid
Dividends paid to Company's shareholders
Proceeds from issues of shares and other equity securities
Purchase of treasury shares
Net cash (outflow) inflow from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Cash at bank and on hand
Cash and cash equivalent at end of year
(762)
(188)
(1,086)
(714)
(40,049)
(132,633)
492
–
(2,032)
–
(8,500)
(2,901)
(42,539)
(145,834)
16,546
78,702
(12,292)
(5,707)
(1,351)
(7,559)
(5,764)
1,253
–
(837)
–
(1,591)
(5,618)
(11,013)
2,882
(300)
(14,874)
62,225
7,936
1,596
124
9,656
9,656
9,656
3,212
(2,092)
476
1,596
1,596
1,596
22
8
The above statement of cash flows should be read in conjunction with the accompanying notes.
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
** The Group has classified:
–
–
–
cash payments for the principal portion of lease payments as financing activities
cash payments for the interest portion as operating activities
short-term lease payments and payments for leases of low value assets are not included in the measurement of the lease liability within
operating activities
41
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020 Notes to the Financial Statements
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
(a) Basis of preparation
These financial statements are for the consolidated entity
consisting of Collection House Limited (the Company) and its
subsidiaries (the Group). Collection House Limited is a public
company incorporated and domiciled in Australia.
The financial statements were authorised for issue on
23 December 2020 by the Directors of the Company.
These general purpose financial statements have been
prepared in accordance with Australian Accounting Standards
and interpretations issued by the Australian Accounting
Standards Board and the Corporations Act 2001. Collection
House Limited is a for-profit entity for the purpose of
preparing the financial statements.
(i) Compliance with IFRS
The consolidated financial statements of the Collection
House Limited Group also comply with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
(ii) New and amended standards adopted by the Group
This is the first set of the Group’s annual financial statements
in which AASB 16 Leases has been applied. Changes to
significant accounting policies are described in Note 1(aa).
(iii) Historical cost convention
These financial statements have been prepared under the
historical cost convention, as modified by the revaluation
of financial assets, financial assets and liabilities (including
derivative instruments) at fair value through profit or loss,
and certain classes of property, plant and equipment.
(iv) Critical accounting estimates
The preparation of financial statements requires the use
of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 2.
(v) Going Concern: Net current asset deficiency and
future recapitalisation
Notwithstanding the Group recorded a deficiency in net
current assets of $38.9 million as at 30 June 2020 the financial
statements have been prepared on a going concern basis as
the Directors believe the Group will be able to pay its debts as
and when they fall due and payable.
The Directors note that the net current asset deficiency arises
mainly due to:
– the reclassification of the Group’s total Borrowings to a
current liability as a result of the Group being unable to
comply with a number of financial covenants after the
impairment to its PDL assets in December 2019: and
– the subsequent event recognition of the further
impairment to it’s PDL assets related to the PDL sale
transaction which has reclassified a greater proportion of
the remaining PDL value ($172.5m) as current.
As disclosed in Note 18, on 9 April 2020 the Group entered
into a Standstill Agreement with its Senior Lenders. This
Standstill Agreement confirms, subject to the Group’s
compliance with its terms and conditions including the revised
financial ratios and covenants, that the Group’s lenders
would not take any action during the period to 23 December
2020 (the standstill period) in relation to any potential or
existing defaults that occurred under the facilities prior to
the commencement of the standstill period. The Group has
been actively engaged in a recapitalisation process since
the Standstill Agreement was entered into with the Group’s
lenders. This was previously announced to the market and a
number of updates have been provided since then.
As disclosed in Note 32, on 23 December 2020, the Group
entered into a sale agreement with Credit Corp Group to
acquire a significant portion of the Group’s Australian PDL
assets at a value of $160m. The Group has also reached
agreement with its lenders where it will apply the sale
proceeds to the repayment of the majority of its existing
facilities and they will then provide an ongoing funding facility
for the remaining $62m. This will consist of:
– a $20m Term Loan Facility (Facility A) with a term of three
years, cash interest, and fixed quarterly prepayments;
– an approximate $42m Term Loan Facility (Facility B) with a
term of three years, capitalising interest, and cash sweep
payments at times when the Group’s month-end cash
balance is above a level agreed with its lenders. The final
amount will be determined as a part of the settlement
process of the PDL Sales Transaction.
– a Bank Guarantee Facility of $8.6m.
– agreed covenant ratios.
The buyer is also providing a short-term loan of $15m with
a maturity of two years, capitalising interest and two agreed
repayment milestones, the first repayment due in period to
30 June 2021, and the final repayment payable on maturity.
The Group does retain a portion of it’s PDL assets and remains
an active participant in the PDL asset acquisition market.
Now that the recapitalisation process has reached an outcome,
the Group’s ability to continue as a going concern is critically
dependent on implementing its strategic plan and meeting
its targets. The Directors believe that the Group will be able
to continue as a going concern based on cash flow forecasts
which indicate the Group is able to pay its debts as and when
they fall due under a range of risk adjusted scenarios.
42
Collection House Limited Annual Report 2020for the year ended 30 June 2020 1
Summary of significant accounting policies
(continued)
Key assumptions used in these cash flow forecasts and the
assessment of the Group’s ability to continue as a going
concern include:
– enhancing the commission collections side of the Group’s
business and retention of key clients;
– reducing costs to a sustainable level;
– close management of its financial position and
performance to ensure compliance with relevant financial
covenants imposed by its lenders under the terms of its
on-going funding facility;
– the performance of the PDL assets retained by the Group
remaining in line with the Group’s expectation of future
expected cash collections;
– managing any ongoing impact from economic uncertainty
as a result of COVID-19; and
– the progressive build-up of its PDL Asset book.
While the Directors are encouraged that the performance
of the Group’s continuing operations is improving from
experience during the second six months of the 2020 year
(and subsequent to year end), the improving but still existing
macro-economic challenges and uncertainties from COVID-19
may impact on the Group’s ability to execute its strategic plan
and achieve the key assumptions outlined above. As a result,
these conditions give rise to a material uncertainty that may
cast significant doubt over the Group’s ability to continue as a
going concern and be able to realise its assets and extinguish
its liabilities in the normal course of business at the stated
amounts in the financial statements.
(b) Principles of consolidation
(i) Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The acquisition method of accounting is used to account for
business combinations by the Group (refer to Note 1(aa)).
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by
the Group.
There are currently no non-controlling interests in the Group.
(c) Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Chief Executive Officer.
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which it operates (‘the
functional currency’). The consolidated financial statements
are presented in Australian dollars, which is Collection House
Limited’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised
in profit or loss, except when they are deferred in equity as
qualifying cash flow hedges and qualifying net investment
hedges or are attributable to part of the net investment in a
foreign operation.
Non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates at
the date when the fair value was determined. Translation
differences on assets and liabilities carried at fair value are
reported as part of the fair value gain or loss.
(iii) Group companies
The results and financial position of foreign operations that have
a functional currency different from the presentation currency
are translated into the presentation currency as follows:
– assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
– income and expenses for each income statement and
statement of comprehensive income are translated at
average exchange rates (unless this is not a reasonable
approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions), and
– all resulting exchange differences are recognised in other
comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated
as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or
any borrowings forming part of the net investment are repaid,
the associated exchange differences are reclassified to profit
or loss, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of
the foreign operation and translated at the closing rate.
43
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements Summary of significant accounting policies (continued)
1
(e) Revenue recognition
Revenue is recognised based on the consideration specified in the contract at the time when control over the good or service is
transferred to the customer i.e. when performance obligations are satisfied.
Revenue is recognised for the major business activities as follows:
Interest income – Purchased Debt Ledgers (PDL’s)
(i)
Interest income is recognised using the application of the credit-adjusted effective interest rate (“EIR”) to the amortised cost of the
PDLs under AASB 9 Financial Instruments. Interest is shown net of any adjustments to the carrying amount of PDLs as a result of
changes in estimated cash flows. The EIR is the rate that discounts estimated future cash receipts of the PDLs to the net carrying
amount (i.e. the price paid to acquire the asset).
(ii) Call option income – reflects the revenue the company earns by selling the right to purchase future collections
of an eligible portfolio of PDLs to a third party.
Revenue is recognised for accounting purposes when a call option contract is signed, as from the date the third party receives a
substantial portion of the cash flows and the Group has no future rights or entitlement to the collections on that portfolio.
(iii) Rendering of services – commission revenue
Revenue from rendering services is recognised based on the below conditions:-
Category
Rendering of services:
Commission Revenue
Nature and timing of satisfaction of Performance
Obligations
Revenue Recognition
The Group receives commissions for the provision of debt
collection services. Commission structures are based on
contract terms and include;
– Percentage based on the value of collections;
– Fees for collection activities;
– Fees for full time equivalents (FTE); and
– Fees for other collection related services.
The Group is also entitled to receive performance incentives,
bonuses and rebates for various contracts.
Where activities are performed by third parties, and are
on-charged to the customer at cost or with a margin, the
Group recognises revenue for these services as the Principal.
Income is recognised over time with
the relevant measure of progress
being the collections output at the
end of each period.
Re-estimation of variable
consideration is completed at each
reporting date.
(iv) Sale of non-current assets
The net gain or loss on disposal of non-current assets is included as either income or an expense at the date control of the asset
passes to the buyer, usually when an unconditional contract of sale is signed.
The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the
net proceeds on disposal.
Sale of PDL assets is considered to be infrequent, thus classified as other revenue. The Group’s business model for PDL assets is to
receive the contractual cash flows and not to sell.
(v) Dividends
Revenue from dividends and distributions from controlled entities is recognised by the Parent Entity when they are declared by the
controlled entities.
(f) Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and
to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
44
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date.
(f) Income tax (continued)
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not
accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using
tax rates (and laws) that have been enacted or substantially
enacted by the end of the reporting period and are expected to
apply when the related deferred income tax asset is realised or
the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those
temporary differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax
bases of investments in foreign operations where the company
is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not
reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right to offset and
intends either to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
Collection House Limited and its wholly-owned Australian
controlled entities have implemented the tax consolidation
legislation. As a consequence, these entities are taxed as a
single entity and the deferred tax assets and liabilities of these
entities are set off in the consolidated financial statements.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
(g) Leases
(i) As a Lessee
The Group leases many assets, including properties, vehicles
and IT equipment. As a lessee, the Group previously classified
leases as operating or finance leases based on its assessment
of whether the lease transferred substantially all of the risks
and rewards of the ownership. Under AASB 16, the Group
recognises right-of-use assets and lease liabilities for most
leases i.e. these leases are on-balance sheet. The Group has
elected not to recognise right-of-use assets and lease liabilities
for some short-term leases and leases for which the underlying
asset is a low value (e.g. IT equipment). The Group recognises
the lease payments associated with these leases as an expense
on a straight-line basis over the lease.
The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted
for any lease payments made at or before commencement
date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is
located, less any lease incentives received. The right-of-use
asset is subsequently measured at cost less any accumulated
depreciation and impairment losses, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate as the discount rate.
The lease liability is subsequently measured at amortised
cost using the effective interest method i.e. increased by
the interest cost on the lease liability and decreased by lease
payment made. It is remeasured when there is a change in
future lease payments arising from a change in an index or
rate, a change in the estimate of the amount expected to be
payable under a residual value guarantee, or as appropriate,
changes in the assessment of whether a purchase or extension
option is reasonably certain to be exercised or a termination
option is reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term
for some lease contracts in which it is a lessee that include
renewal options. The assessment of whether the Group is
reasonably certain to exercise such option impacts the lease
term, which significantly affects the amount of lease liabilities
and right-of-use assets recognised.
(ii) As a Lessor
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance or operating lease.
The Group sub-leases some of its premises. When the Group
is an intermediate lessor, it accounts for its interests in the
head lease and the sub-lease separately. It classifies the sub-
lease as a finance lease or as an operating lease with reference
to the right-of-use asset arising from the head lease, not with
reference to the underlying assets.
Refer to Note 1(aa) for further details.
(h) Business combinations
The acquisition method of accounting is used to account
for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration
transferred for the acquisition of a subsidiary comprises the
fair values of the assets transferred, the liabilities incurred and
the equity interests issued by the Group. The consideration
transferred also includes the fair value of any asset or liability
resulting from a contingent consideration arrangement and the
fair value of any pre-existing equity interest in the subsidiary.
Acquisition-related costs are expensed as incurred. Identifiable
assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair
values at the acquisition date.
45
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(h) Business combinations (continued)
The excess of the consideration transferred over the fair value
of the Group’s share of the net identifiable assets acquired is
recorded as goodwill. If this amount is less than the fair value
of the net identifiable assets of the subsidiary acquired and the
measurement of all amounts has been reviewed, the difference
is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate
used is the entity’s incremental borrowing rate, being the
rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
The recent amendment in AASB 3 Business Combinations
enables the acquirer to apply a concentration test, which
evaluates whether the majority of the fair value of assets
acquired is concentrated into a single identifiable asset or group
of assets. If this test is satisfied, the acquirer can elect to treat
the entire transaction as an asset acquisition and avoid the
accounting and disclosure obligations applicable to a business
acquisition.
Impairment of assets
(i)
Goodwill is not subject to amortisation and is tested annually
for impairment, or more frequently if events or changes in
circumstances indicate that it might be impaired. Other assets
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value-in-use. For the purposes
of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows
which are largely independent of the cash inflows from other
assets or groups of assets (cash-generating units).
(j) Cash and cash equivalents
For the purpose of presentation in the cash flow statement,
cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or
less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value,
and where applicable bank overdrafts. Where applicable, bank
overdrafts are shown within borrowings in current liabilities in
the consolidated balance sheet.
(k) Trade receivables
Trade receivables are recognised initially at fair value and
subsequently carried at amortised cost using the effective
interest method, less any impairment.
Recognition and derecognition
Regular way purchases and sales of financial assets are
recognised on trade-date i.e. the date on which the Group
commits to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from the
financial assets have expired or have been transferred and the
Group has transferred substantially all the risks and rewards
of ownership.
Impairment
Expected losses for trade receivables are measured as life-time
expected credit losses using the simplified method.
(l) Other financial assets
Classification
The Group classifies financial assets as subsequently measured
at either amortised cost or fair value on the basis of both the
Group’s business model for managing the financial assets and
the contractual cash flow characteristics of the financial asset.
The classification depends on the purpose for which the
financial assets were acquired. Management determines the
classification of its financial assets at initial recognition and
re-evaluates this designation at each reporting date.
(i)
Financial assets subsequently measured at
amortised cost - PDLs
Classification
PDLs have been included in this category of financial assets as
the Group’s business model for managing the PDLs and the
characteristics of the contractual cash flows of the financial
asset are consistent with this measurement approach.
PDLs are included as non-current assets, except for the amount
of the ledger that is expected to be realised within 12 months
of the balance sheet date, which is classified as a current asset.
Measurement
PDLs are initially recognised at cost, as cost reflects fair
value plus any incidental costs of acquisition and thereafter
measured at amortised cost using the credit-adjusted effective
interest method, less any impairment losses.
Impairment
The carrying amount of the PDLs is continuously reviewed
to ensure that the carrying amount is not impaired. Due to
the characteristics of the Group’s investment in PDLs, they
are considered as purchased or originated credit impaired
(“POCI”) assets under AASB 9. Where the carrying amount
exceeds the present value of the estimated future cash flows
discounted at the asset’s Credit Adjusted Effective Interest
Rate (“CAEIR”), the Group recognises an impairment loss.
Favourable changes in lifetime expected credit losses are
recognised as an impairment gain, even if the favourable
change is more than the amount previously recognised in
profit or loss.
PDL is made up of different segments based on detailed
customer level experience (historical performance),
customer status, type of debt, payment arrangements and
timing of cash flows received from customers. Different
assumptions are applied based on the type of segment,
resulting in different liquidation curves based on the type
of debt, which will impact the overall PDL asset valuation.
46
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
There is no movement between levels as compared to prior
financial year.
(l) Other financial assets (continued)
Once the total estimated future cash flows are determined
based on the Group’s strategy and macro-economic factors
such as the COVID-19 impacts, the asset’s Credit adjusted
Effective Interest Rate (“CAEIR”) will be applied to determine
the present value at reporting date. In addition, an overlay
will be applied to form the reflection of short to medium
term economic impacts i.e. COVID-19 uncertainties, market
volatility, unemployment, customer/Vendor market issues and
any other risk factors based on the nature of the segment
within the PDL asset.
(ii) Equity investments
At the initial recognition, the Group will measure a financial
asset at fair value with the transaction costs that are directly
attributable to the acquisition. The Group will make the
designation whether the investments meet fair value through
other comprehensive income (FVOCI) criteria based on the
strategic purpose to hold the equity investment for long term
rather than short term trading.
After subsequent recognition, any gains or losses on these
instruments are recognised in other comprehensive income
and not the profit and loss.
(m) Fair value estimation of financial assets and
liabilities
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure
purposes.
The fair value of financial instruments that are not traded in
an active market is determined using valuation techniques.
The Group uses estimated discounted cash flows to
determine fair value.
The Group measures fair values using the following fair
value hierarchy and valuation techniques, which reflect the
significance of the inputs used in making the measurements:
– Level 1: This category includes assets and liabilities for
which the valuation is determined from inputs based on
un-adjusted quoted market prices in active markets for
identical instruments;
– Level 2: This category includes assets and liabilities for
which the valuation is determined from inputs other than
quoted prices included within level 1, which are observable
either directly or indirectly. This includes the use of
discounted cash flow analysis, option pricing models and
other market accepted valuation models; and
– Level 3: This category includes assets and liabilities for
which the valuation includes inputs that are not based on
observable market data. This includes equity instruments
where there are no quoted market prices.
The fair value hierarchy classification of instruments:
– Purchased Debt Ledgers (PDL) – Level 2
– Borrowings – Level 2
– Equity instrument – Level 3
(n) Property, plant and equipment
All items of property, plant and equipment are initially
recorded at cost at the date of acquisition, being the fair value
of the consideration provided plus incidental costs directly
attributable to the acquisition. Subsequent costs are included
in the assets carrying amount, or recognised as a separate
asset as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the
Group, and the cost of the item can be measured reliably.
Where settlement of any part of cash consideration is
deferred, the amounts payable are recorded at their present
value, discounted at the rate applicable to the Company
if similar borrowings were obtained from an independent
financier under comparable terms and conditions.
The costs of assets constructed or internally generated by
the Group, other than goodwill, include the cost of materials
and direct labour. Directly attributable overheads and other
incidental costs are also capitalised to the asset. Borrowing
costs are capitalised to qualifying assets as set out in Note 1(r).
Expenditure, including that on internally generated assets, is
only recognised as an asset when the Group controls future
economic benefits as a result of the costs incurred, it is
probable that those future economic benefits will eventuate,
and the costs can be measured reliably. Costs attributable to
feasibility and alternative approach assessments are expensed
as incurred.
All assets are depreciated using the straight-line method over
their estimated useful lives taking into account estimated
residual values, with the exception of leased assets, which
are depreciated over the shorter of the lease term and their
useful lives.
Assets are depreciated or amortised from the date of
acquisition or, in respect of internally constructed assets, from
the time an asset is completed and held ready for use.
The estimated useful lives of property, plant and equipment
for current and comparative periods are as follows:
– Plant and equipment
– Computer equipment
– Leased plant and equipment
4-12 years
3-5 years
Term of Lease
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
When changes are made, adjustments are reflected prospectively
in current and future periods only.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount (Note 1(i)).
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit
or loss.
47
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(o) Intangible assets
(i) Goodwill
Goodwill is measured as described in Note 1(h). Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised but it is tested for impairment
annually, or more frequently if events or changes in
circumstances indicate that it might be impaired, and is carried
at cost less accumulated impairment losses. Gains and losses
on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in
which the goodwill arose, identified according to operating
segments (Note 4).
(ii) IT development and software
Costs incurred in developing products or systems and
costs incurred in acquiring software and licenses that will
contribute to future period financial benefits through revenue
generation and/or cost reduction are capitalised to software
and systems. Costs capitalised include external direct costs
of materials and service and direct payroll and payroll related
costs of employees’ time spent on the project. Amortisation
commences from the point at which the asset is ready for use,
and is calculated on a straight-line basis over periods generally
ranging from 2 to 10 years. Useful lives are reviewed at each
reporting date and adjusted if appropriate.
IT development costs include only those costs directly
attributable to the development phase and are only
recognised following completion of technical feasibility and
where the Group has an intention and ability to use the asset.
(iii) Customer contracts
The customer contracts were acquired as part of a business
combination. They are recognised at their fair value at the date
of acquisition and are subsequently amortised on a straight-
line basis over periods ranging from 2 to 10 years.
(iv) Other intangible assets
Licences and intellectual property are considered to have a
definite useful life and are carried at cost less accumulated
amortisation. All costs associated with the maintenance and
protection of these assets are expensed in the period consumed.
(p) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year which
are unpaid. The amounts are unsecured and are usually paid
within 30 days of recognition. Trade and other payables are
presented as current liabilities unless payment is not due
within 12 months from the reporting date.
(q) Borrowings
All borrowings are recognised at their principal amounts
subject to set off arrangements which represent the present
value of future cash flows associated with servicing the debt.
Where interest is payable in arrears the interest expense is
accrued over the period it becomes due and it is recorded at
the contracted rate as part of “Other payables”.
Where interest is paid in advance, the interest expense is
recorded as a part of “Prepayments” and released over the
period to maturity.
Borrowings are removed from the consolidated balance sheet
when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying
amount of a financial liability that has been extinguished
or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities assumed,
is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability
for at least 12 months after the reporting period.
(r) Borrowing costs
Borrowing costs incurred for the construction of any qualifying
asset are capitalised during the period of time that is required
to complete and prepare the asset for its intended use or sale.
Other borrowing costs are expensed.
Borrowing costs include interest, amortisation of discounts
or premiums relating to borrowings, amortisation of ancillary
costs incurred in connection with arrangement of borrowings,
foreign exchange losses net of any hedged amounts on
borrowings, including trade creditors and lease finance charges.
Ancillary costs incurred in connection with the arrangement
of borrowings are capitalised and amortised over the life of
the borrowings.
(s) Provisions
(i) Make good
The Group is required to restore the leased premises for a
number of its premises to their original condition at the end of
the respective lease terms. A provision has been recognised for
the estimated expenditure required to remove any leasehold
improvements. These costs have been capitalised as part of the
cost of leasehold improvements and are amortised over the
shorter of the term of the lease or the useful life of the assets.
(ii) Legal provisions
Provisions for legal claims are recognised when the Group
has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will
be required to settle the obligation and the amount has been
reliably estimated. Provisions are not recognised for future
operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined
by considering the class of obligations as a whole. A provision
is recognised even if the likelihood of an outflow with respect
to any one item included in the same class of obligations may
be small.
48
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(s) Provisions (continued)
(iii) Recognition and measurement
Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the present
obligation at the end of each reporting period. The discount
rate used to determine the present value is a pre-tax rate
that reflects current market assessments of the time value
of money and the risks specific to the liability. The increase
in the provision due to the passage of time is recognised as
interest expense.
(t) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits and annual leave expected to be settled within
12 months after the end of the period in which the employees
render the related service are recognised in respect of
employees’ services up to the end of the reporting period and
are measured at the amounts expected to be paid when the
liabilities are settled. The liability for annual leave is recognised
in the provision for employee benefits. All other short-term
employee benefit obligations are presented as payables.
(ii) Long-term employee benefit obligations
The liability for long service leave and annual leave which is
not expected to be settled within 12 months after the end of
the period in which the employees render the related service
is recognised in the provision for employee benefits and
measured as the present value of expected future payments
to be made in respect of services provided by employees up
to the end of the reporting period. Consideration is given
to expected future wage and salary levels, experience of
employee departures and periods of service. Expected future
payments are discounted using market yields at the end of the
reporting period on national government bonds with terms to
maturity and currency that match, as closely as possible, the
estimated future cash outflows.
The obligations are presented as current liabilities in the
consolidated balance sheet if the entity does not have an
unconditional right to defer settlement for at least twelve
months after the reporting date, regardless of when the actual
settlement is expected to occur.
(iii) Superannuation Plans
The Company and other controlled entities make statutory
contributions to several superannuation funds in accordance
with the directions of its employees. Contributions are
expensed in the period to which they relate.
(iv) Share-based payments
Share-based compensation benefits are provided via the
Collection House Limited Performance Rights Plan. Further
details are set out in Note 30.
The fair value of the performance rights granted under the
PRP was independently determined. The fair value at grant
date has been calculated using the five day volume weighted
average price (VWAP). The expense is recognised over the
vesting period. The expense for each relevant financial year
will require an assessment at each reporting date of the
probability that each performance hurdle will be achieved.
This probability factor will then be multiplied by the total
number of rights apportioned to each performance hurdle to
determine the number used in calculating the charge to profit
and loss. Further details are set out in Note 30.
(v) Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises termination benefits
when it is demonstrably committed to either terminating
the employment of current employees according to a
detailed formal plan without possibility of withdrawal or to
providing termination benefits as a result of an offer made to
encourage voluntary redundancy. Benefits falling due more
than 12 months after the end of the reporting period are
discounted to present value.
(u) Government grants – Grants related to income
Government grants are recognised when there is reasonable
assurance that the entity will comply with the conditions
attaching to them and the grants will be received. The Group
has received the Job Keeper payments to provide some relief
from the COVID-19 effects. The Job Keeper grant is related to
income, thus the payments are presented as part of profit or
loss, which are deducted in reporting the related expense i.e.
employment costs. Further details are set out in Note 6.
(v) Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from
the proceeds.
Where any Group entity purchases the Company’s equity
instruments, for example as the result of a share buy-back or
a share-based payment plan, the consideration paid, including
any directly attributable incremental costs (net of income
taxes) is deducted from equity attributable to the equity
holders of Collection House Limited as treasury shares until the
shares are cancelled or reissued. Where such ordinary shares
are subsequently reissued, any consideration received, net of
any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to
the equity holders of Collection House Limited.
(w) Dividends
Provision is made for the amount of any dividend declared,
being appropriately authorised and no longer at the discretion
of the entity, on or before the end of the reporting period but
not distributed at the end of the reporting period.
49
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(x) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
– the profit attributable to owners of the Company,
excluding any costs of servicing equity other than ordinary
shares
– by the weighted average number of ordinary shares
outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year and
excluding treasury shares (Note 29).
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account:
– the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares, and
– the weighted average number of additional ordinary
shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
(y) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the
amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is
recognised as part of the cost of acquisition of the asset
or as part of the expense.
Receivables and payables are stated inclusive of the amount
of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority
is included with other receivables or payables in the
consolidated balance sheet.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the
taxation authority, are presented as operating cash flows.
(z) Rounding of amounts
The Company is of a kind referred to in ASIC Corporations
Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to the ‘rounding off’ of
amounts in the financial statements. Amounts in the financial
statements have been rounded off in accordance with that
Corporations Instrument to the nearest thousand dollars,
or in certain cases, the nearest dollar.
(aa) New accounting standards and interpretations
The Group’s assessment of the impact of new standards and
interpretations is set out below.
The Group has adopted AASB 16 Leases from 1 July 2019.
A number of other new standards are effective from
1 July 2019 but they do not have a material effect on the
Group’s financial statements.
(i) AASB 16 Leases
AASB 16 introduced a single, on-balance sheet accounting
model for leases. As a result, the Group, as a lessee, has
recognised right-of-use assets representing its rights to use
the underlying assets and lease liabilities representing its
obligation to make lease payments. Lessor accounting remains
similar to previous accounting policies. The only exceptions
are short-term and low-value leases.
The Group has applied AASB 16 using the modified
retrospective approach, under which the ROU asset is
measured by recalculating as if AASB 16 had always been
applied and the cumulative effect of initial application is
recognised in retained earnings at 1 July 2019. Accordingly,
the comparative information presented for 2019 has not been
restated i.e. it is presented, as previously reported, under
AASB 117 and related interpretations. The details of the
changes in accounting policies are disclosed below.
Definition of a lease
The Group assessed whether a contract is or contains a lease
based on the definition of a lease. Under AASB 16, a contract
is or contains a lease if the contract conveys a right to control
the use of an identified asset for a period of time in exchange
for consideration.
As a lessee
The Group leases many assets, including properties, vehicles
and IT equipment. As a lessee, the Group previously classified
leases as operating or finance leases based on its assessment
of whether the lease transferred substantially all of the risks
and rewards of the ownership. Under AASB 16, the Group
recognises right-of-use assets and lease liabilities for most
leases i.e. these leases are on-balance sheet. The Group has
elected not to recognise right-of-use assets and lease liabilities
for some short-term leases and leases for which the underlying
asset is a low value (e.g. IT equipment). The Group recognises
the lease payments associated with these leases as an expense
on a straight-line basis over the lease.
Transition
The Group has undergone an assessment of the impact on its
consolidated financial statements. The Group will recognise
right-of-use assets in “property, plant and equipment” in the
consolidated financial statement and lease liabilities for the
operating lease agreements in other financial liabilities.
At transition, for leases classified as operating leases under
AASB17, lease liabilities were measured at the present value
of the remaining lease payments, discounted at the Group’s
incremental borrowing rate as at 1 July 2019.
Right-of-use assets are measured at either:
– Their carrying amount as if AASB 16 had been applied
since the commencement date, discounted using the
lessee’s incremental borrowing rate at the date of initial
application – the Group applied this approach for all
property leases; or
– An amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments.
50
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(aa) New accounting standards and interpretations
(continued)
The Group used the following practical expedients when
applying AASB 16 to leases previously classified as operating
leases under AASB 117.
– Applied the exemption not to recognise right-of-use
assets and liabilities for leases with low value and less than
12 months of lease terms.
– Used hindsight when determining the lease term if the
contract contains options to extend or terminate the lease.
Subleases
Significant accounting policies
The Group subleases some of its premises. The accounting
policies applicable to the Group as a lessor are not different
from those under AASB 117. However, the Group as an
intermediate lessor classifies the sublease as a finance lease
or as an operating lease with reference to the right-of-use
asset arising from the head lease, not with reference to the
underlying assets.
Transition
Under AASB 117, the head lease and sub-lease contracts were
classified as operating leases. On transition to AASB 16, the
head lease and sub-lease contracts remain as operating leases
thus the right-of-use asset and lease liability are recognised in
the balance sheet.
Impacts on financial statements
On transition to AASB 16, the Group recognised additional
right-of-use assets and additional lease liabilities, recognising
the difference in retained earnings. The impact on transition is
summarised below
At 1 July 2019
Right-of-use assets presented in Property, plant
and equipment
Deferred Tax
Retained Earnings
Reversal of Rent Incentive Pre-AASB 16
Lease Liabilities presented in Other financial
liabilities
Amount
($’000)
32,201
1,621
3,805
5,620
(43,247)
When measuring lease liabilities for leases that were classified
as operating leases, the Group discounted lease payments
using its incremental borrowing rate at 1 July 2019. The
weighted average rate applied is 4.43%.
In thousands of dollars
1 July 2019
Operating lease commitment at 30 June
2019 as disclosed in the Groups’ consolidated
financial statements
Additional operating lease recognised
Extension options reasonably established
Foreign exchange rate impact at reporting date
Change in Rent Incentive Treatment in
operating lease commitment notes
Lease liabilities recognised at 1 July 2019
40,169
861
(1,602)
(20)
3,839
43,247
Impacts for the period
As a result of applying AASB 16, in relation to the leases
that were previously classified as operating leases, the
Group recognised $25.5 million of right-of-use assets and
$37.6 million of lease liabilities as at 30 June 2020.
Also in relation to those leases under AASB 16, the Group
has recognised depreciation and interest costs, instead
of operating lease expense. During the twelve months
ended 30 June 2020, the Group recognised $5.5 million of
depreciation charges and $1.9 million of interest costs from
these leases presented in finance costs in Group’s income
statement.
(ab) Parent entity financial information
The financial information for the parent entity, Collection
House Limited, disclosed in Note 27 has been prepared on the
same basis as the consolidated financial statements, except as
set out below.
(i)
Investments in subsidiaries, associates and joint
venture entities
Investments in subsidiaries, associates and joint venture
entities are accounted for at cost in the financial statements of
Collection House Limited. Dividends received from associates
are recognised in the parent entity’s profit or loss, rather
than being deducted from the carrying amount of these
investments.
(ii) Tax consolidation legislation
Collection House Limited and its wholly-owned Australian
controlled entities have implemented the tax consolidation
legislation.
The head entity, Collection House Limited, and the controlled
entities in the tax consolidated group account for their own
current and deferred tax amounts. These tax amounts are
measured as if each entity in the tax consolidated group
continues to be a stand-alone taxpayer in its own right.
In addition to its own current and deferred tax amounts,
Collection House Limited also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from
unused tax losses and unused tax credits assumed from
controlled entities in the tax consolidated group.
51
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 1
Summary of significant accounting policies
(continued)
(ab) Parent entity financial information (continued)
The entities have also entered into a tax funding agreement
under which the wholly-owned entities fully compensate
Collection House Limited for any current tax payable assumed
and are compensated by Collection House Limited for any
current tax receivable and deferred tax assets relating to
unused tax losses or unused tax credits that are transferred
to Collection House Limited under the tax consolidation
legislation. The funding amounts are determined by reference
to the amounts recognised in the wholly-owned entities’
financial statements.
The amounts receivable/payable under the tax funding
agreement are due upon receipt of the funding advice from
the head entity, which is issued as soon as practicable after
the end of each financial year. The head entity may also
require payment of interim funding amounts to assist with its
obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements
with the tax consolidated entities are recognised as current
amounts receivable from or payable to other entities in the
group.
Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement
are recognised as a contribution to (or distribution from)
wholly-owned tax consolidated entities.
2 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that may have a financial impact
on the Group and that are believed to be reasonable under
the circumstances.
The Group has been impacted by both the societal and
economic impact of the COVID-19 virus. The longer term
impact of the COVID-19 pandemic on the Australian economy
and the Group remains uncertain. The severity of its impact
will depend on its duration, customer behaviour, the success
of the Government stimulus initiatives, and the general
Australian economic recovery. Thus, COVID-19 requires
focussed considerations and estimations, which has an impact
on the valuation of the Group’s assets and liabilities.
(a) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
(i) Estimated impairment of goodwill
Annually the Group tests whether goodwill has suffered any
impairment, in accordance with the accounting policy stated in
Note 1(o). The recoverable amounts of cash-generating units
have been determined based on value-in-use calculations.
These calculations require the use of assumptions. Refer to
Note 14 for details of these assumptions and the potential
impact of changes to the assumptions.
(ii) PDLs
PDLs are considered as purchased or originated credit impaired
(“POCI”) assets and are initially recognised at fair value plus
any directly attributable acquisition costs. Subsequent to
initial recognition, PDLs are measured at amortised cost using
the credit-adjusted effective interest method, less/plus any
impairment losses/gains. Management continue to monitor
the performance and key estimates used in determining
whether any objective evidence exists that a PDL may be
impaired. This includes:
– re-forecasting expected future cash flows every six
months. An impairment is recognised where actual
performance and re-forecast future cash flows deviate to
below the initial effective interest rate. Refer to Note 10
for further details.
– assessment of the credit-adjusted effective interest rate,
which is the implicit interest rate based on forecast
collections determined in the period of acquisition of an
individual PDL and equates to the Internal Rate of Return
(IRR) of the forecast cash flows without any consideration
of collection costs.
(iii) Estimated impairment of non-financial assets and
intangible assets other than goodwill
Annually the Group tests whether the non-financial assets
or intangible assets of the Group (other than goodwill) have
suffered any impairment, in accordance with the accounting
policy stated in Note 1(i). The recoverable amounts of
cash-generating units have been determined based on
value-in-use calculations. These calculations require the use
of assumptions.
(iv) Performance rights
The Group determines the amount to be posted to the
share based payments reserve based on management’s best
estimate of employees meeting their performance hurdles.
The value of performance rights could change if the number
of employees that meet their performance hurdles differs
significantly from managements estimate.
52
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 2
Critical accounting estimates and judgements
(continued)
(b) Critical judgements in applying the entity’s
accounting policies
(a) Market risk
Market risk is the risk that changes in market prices such
as foreign exchange rates and interest rates will affect the
Group’s income.
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures,
primarily with respect to the New Zealand (NZ) Dollar and the
Philippine Peso. Fluctuations in either of these currencies may
impact the Group’s results.
Foreign exchange risk arises from future commercial
transactions and recognised assets and liabilities denominated
in a currency that is not the entity’s functional currency.
Sensitivity
At 30 June 2020, had the Australian Dollar weakened/
strengthened by 10% against the NZ Dollar or the Philippine
Peso with all other variables held constant, the impact for the
year would have been immaterial to both profit for the year
and equity.
(ii) Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from long-term
borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. During 2020 and 2019,
the Group borrowings at variable rates were denominated in
Australian Dollars only.
All aspects of the financing arrangements, including interest
rate structuring are reviewed as required during the life of the
facility.
The Group analyses interest rate exposure in the context of
current economic conditions. Management monitors the
impact on profits of specific interest rate increases, and annual
budgets and ongoing forecasts are framed based upon Group
and market expectations of interest rate levels for the coming
year.
(iii) Equity Risk
The Group designated the investment in Volt Corporation Ltd
as equity securities at fair value through other comprehensive
income (FVOCI) because these equity securities represents
investments that the Group intends to hold for the long term
for strategic purposes. The fair value changes will impact other
comprehensive income and reserve. Fair value is currently
determined currently based on the valuation done by the
Company as Volt Corporation Ltd’s shares are not traded in
the active market at reporting period. More details can be
found in Note 12.
(i) Employee benefits
Management judgment is applied in determining the key
assumptions used in the calculation of long service leave at
balance date, including future increases in wages and salaries,
future on-cost rates, discount rates, and experience of employee
departures and period of service.
(ii) Useful lives of property, plant and equipment,
and intangible assets other than goodwill
The Group’s management determines the estimated useful
lives and related depreciation and amortisation charges for
property, plant and equipment at the time of acquisition.
As described in Note 1(n) useful lives are reviewed regularly
throughout the year for appropriateness.
(iii) Lease terms used in AASB 16
Management uses judgement when determining the lease
term if the contract contains options to extend or terminate
the lease.
(iii) Going Concern
The Directors, having consideration for the current state of
the Group’s operations, its cash flows, current progress with
the recapitalisation process and its ability to comply with the
Standstill Agreement, consider the Group will be able to pay
its debts as and when they fall due for the period of at least
12 months from the date of signing the Group’s full-year
financial statements for the period ended 30 June 2020. Refer
to Note 1(a) for more details.
3 Financial risk management
The Group’s financial assets and liabilities consist mainly
of PDLs, deposits with banks, trade and other receivables,
payables and borrowings.
The Group’s activities expose it to a variety of financial
risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk. The Group’s overall risk
management program focuses on the unpredictability of
financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. The Group
uses different methods to measure different types of risk to
which it is exposed. These methods include sensitivity analysis
in the case of interest rate and foreign exchange risks, and
aging analysis for credit risk. Risk management is carried out
by the Finance Team under policies approved by the Audit
and Risk Management Committee of the Board. Under
the authority of the Board of Directors the Audit and Risk
Management Committee ensures that the total risk exposure
of the Group is consistent with the Business Strategy and
within the risk tolerance of the Group. Regular risk reports are
tabled before the Audit and Risk Management Committee.
Within this framework, the Finance Team identifies, evaluates
and manages financial risks in close co-operation with the
Group’s operating units.
53
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 3 Financial risk management (continued)
(a) Market risk (continued)
As at the reporting date, the Group had the following variable rate borrowings:
Consolidated
Borrowings
Lease Liabilities
Net exposure to cash flow interest rate risk
30 June 2020
30 June 2019
Weighted
average
interest rate
%
3.3%
4.4%
Weighted
average
interest rate
%
Balance
$’000
3.8%
210,600
–
–
210,600
Balance
$’000
214,857
37,566
252,423
Sensitivity
At 30 June 2020, if interest rates had changed by +/-25 basis points from the year end rates with all other variables held constant,
post-tax profit for the year would have been $442,000 lower/higher (2019 - change of 25 bps: $369,000 lower/higher), mainly
as a result of higher/lower interest expense from net borrowings. Other components of equity would have been $442,000 lower/
higher (2019 - $369,000 lower/higher) mainly as a result of an increase/decrease in cash not required for interest payments. Other
financial assets and liabilities are not interest bearing and therefore are not subject to interest rate risk.
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.
Consolidated
30 June 2020
Borrowings
Lease Liabilities
Total increase/(decrease) in financial liabilities
Consolidated
30 June 2019
Borrowings
Lease Liabilities
Total increase/(decrease) in financial liabilities
Carrying
amount
$’000
214,857
37,566
Carrying
amount
$’000
210,600
–
Interest rate risk
–25 bps
+25 bps
Profit
$’000
376
66
442
Equity
$’000
376
66
442
Profit
$’000
(376)
(66)
(442)
Interest rate risk
–25 bps
+25 bps
Profit
$’000
369
–
369
Equity
$’000
369
–
369
Profit
$’000
(369)
(–)
(369)
Equity
$’000
(376)
(66)
(442)
Equity
$’000
(369)
(–)
(369)
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from cash and cash equivalents, as well as credit exposures to clients, including
outstanding receivables and committed transactions.
The carrying amount of financial assets represents the maximum credit exposure.
Cash and cash equivalents
Receivables*
Purchased debt ledgers
Other assets
Total financial assets
54
30 June
2020
$’000
9,656
13,311
30 June
2019
$’000
1,596
13,429
184,728
410,303
222
167
207,917
425,495
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 3 Financial risk management (continued)
(b) Credit risk (continued)
The fair value of the above financial assets at the end of reporting period are:
Cash and cash equivalents
Receivables*
Purchased debt ledgers
Other assets
Total financial assets
30 June
2020
$’000
9,656
13,311
30 June
2019
$’000
1,596
13,429
184,728
410,303
222
167
207,917
425,495
* The receivables include Job Keeper receivables of $2.8m
Credit risk in relation to PDLs is managed via managements’ approach in determining the initial purchase price to pay for a portfolio
of debt. At acquisition, the PDL is initially recognised at fair value at a portfolio level, being the transaction price and thereafter
at amortised cost, less any impairment losses. Most PDLs, by their nature are impaired on acquisition which is reflected in the fair
value at acquisition. Amortised cost is measured as the present value of forecast future of cash flows using the effective interest
rate method. The effective interest rate is calculated on initial recognition and reflects a constant periodic return on the carrying
value of the loans.
Management continuously monitor cash flows and the carrying value of the PDLs. An impairment is assessed on a regular basis by
management and is identified on a portfolio basis following evidence that the PDL is impaired. An impairment is recognised where
actual performance and re-forecast future cash flows deviate to below the initial effective interest rate. Re-forecast of future cash
flows can be caused by various factors including changes in customer expectations, changes in Management Collection strategy
and approach, or market impacts. During the year ended 30 June 2020, an impairment charge of $238.9 million was recognised
(30 June 2019: nil). All income from the recovery of PDLs has been recognised as interest. Ongoing credit risk is managed through
the application of a valuation model, which forecasts recoverability based on the historical experience and future predictions of the
company based on metrics such as recoverability, debt type, age, and customer status.
The Group has no significant concentrations of trade credit risk. The Group has policies in place to ensure that services are made to
customers with an appropriate credit history.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. Refer to Note 9 for further details.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset.
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount
of committed credit facilities to meet obligations when due. Due to the dynamic nature of the underlying businesses, the Finance
Team aims to maintain flexibility in funding by keeping committed credit lines available.
Management monitors rolling forecasts of the Group’s liquidity reserve (comprising the undrawn borrowing facilities below) and
cash and cash equivalents on the basis of expected cash flow. Cash flows are forecast on a day-to-day basis across the Group
to ensure that sufficient funds are available to meet requirements on the basis of expected cash flows In addition, the Group’s
liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary
to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt
financing plans.
Additional liquidity risk is portrayed by the net current asset deficiency that was driven by the reclassification of the Group’s
Borrowing to a current liability and a significant portion of it’s PDL asset to current assets. A standstill agreement with the Group’s
senior lenders was signed as at 9 April 2020. As a result, the Group’s lenders will not take any action during the standstill period
(to 23 December 2020) in relation to any potential or existing defaults. The recapitalisation process was completed on 23 December
2020 resulting in the repayment of a significant portion of the outstanding standstill related loan facilities, an agreed ongoing
new facility for the unpaid portion from the existing lenders, and a shorter term loan from the buyer of the sold PDL assets.
The Standstill agreement is now null and void having been replaced by the new borrowing agreement with the Lenders dated
23 December 2020.
55
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 3 Financial risk management (continued)
(c) Liquidity risk (continued)
Financing arrangements
Term debt facility
Group set off
Consolidated
30 June
2020
$’000
–
–
30 June
2019
$’000
14,400
12,500
At 30 June 2020, there are no undrawn borrowing facilities, with no group set off and term debt option available at the end of
reporting period.
The Group is required to keep the finance provider fully informed of relevant details of the Group as they arise.
Further details of the banking facility are set out in Note 18.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Contractual maturities of financial liabilities
At 30 June 2020
Notes
Less than
1 year
$’000
Between 1
and 5 years
$’000
Over 5 years
$’000
Total
contractual
cash flows
$’000
Non-derivatives
Non-interest bearing
Fixed rate
Variable rate
Total non-derivatives
At 30 June 2019
Non-derivatives
Non-interest bearing
Fixed rate
Variable rate
Total non-derivatives
15
17
18
13,212
7,525
214,857
235,594
–
30,341
–
30,341
Less than
1 year
$’000
Between 1
and 5 years
$’000
Notes
–
333
–
333
13,212
38,199
214,857
266,268
Over 5
years
$’000
Total
contractual
cash flows
$’000
15
17
18
14,609
–
1,937
5,053
14,667
31,213
195,933
200,986
–
–
–
–
14,609
6,990
210,600
232,199
4 Segment information
(a) Description of segments
Individual business segments are identified on the basis of grouping individual products or services subject to similar risks
and returns. The business segments reported are: Collection Services and Purchased Debt Ledgers. The Group has identified
its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer in assessing
performance and determining the allocation of resources.
The consolidated entity is organised on a global basis into the following divisions by product and service type.
Collection Services
The earning of commissions on the collection of debts for clients.
Purchased Debt Ledgers
The collection of debts from client ledgers acquired by the Group.
All other segments
All other segments includes unallocated revenue and expenses, intersegment eliminations, interest, borrowings, and income tax expenses.
56
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 4 Segment information (continued)
(b) Segment information provided to the Board
2020
Segment revenue
Sales
Intersegment sales
Total sales revenue
Interest and other income
Total segment revenue
Segment result
Segment result
Purchase Debt Ledger - Impairment
Interest expense and borrowing costs
Profit before income tax
Income tax expense
Profit for the year
Segment assets and liabilities
Segment assets
Segment liabilities
Other segment information
Collection
services
$’000
Purchased
debt ledgers
$’000
All other
segments
$’000
Consolidated
$’000
65,113
65,113
–
65,113
–
–
86,746
86,746
–
65,113
(212)
(212)
–
(212)
64,901
86,746
(212)
151,647
4,824
41,318
(4,551)
41,591
–
(238,890)
–
(238,890)
(9,751)
(9,751)
(207,050)
61,981
(145,070)
85,427
53,636
250,539
218,080
2,599
338,565
(868)
265,446
Acquisitions of property, plant and equipment, intangibles and other
non-current segment assets
3,606
39,059
–
42,665
Total acquisitions
Depreciation and amortisation expense
Total depreciation and amortisation
Other non-cash expenses
4,358
3,080
2,971
10,409
692
267,967
742
269,401
57
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 4 Segment information (continued)
(b) Segment information provided to the Board (continued)
2019*
Segment revenue
Sales
Intersegment sales
Total sales revenue
Interest and other income
Total segment revenue
Segment result
Segment result
Interest expense and borrowing costs
Profit before income tax
Income tax expense
Profit for the year
Segment assets and liabilities
Segment assets
Segment liabilities
Other segment information
Collection
services
$’000
Purchased
debt ledgers
$’000
All other
segments
$’000
Consolidated
$’000
67,604
67,604
–
67,604
–
–
93,660
93,660
9,264
52,090
–
(207)
(207)
–
(207)
(10,093)
(7,658)
67,604
(207)
67,397
93,660
161,057
51,261
(7,658)
43,603
(12,913)
30,690
56,423
30,598
416,862
211,720
(2,738)
(919)
470,547
241,399
Acquisitions of property, plant and equipment, intangibles and
other non-current segment assets
Depreciation and amortisation expense
Other non-cash expenses
4,627
2,229
241
139,033
1,624
80
–
771
1,346
143,660
4,624
1,667
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
(c) Geographical information
The consolidated entity operates in two main geographical areas, Australia and New Zealand.
Segment revenues from
sales to external customers
Segment assets
Acquisitions of property,
plant and equipment,
intangibles and other
non-current segment assets
30 June
2020
$’000
30 June
2019
$’000
30 June
2020
$’000
30 June
2019
$’000
30 June
2020
$’000
30 June
2019
$’000
136,054
148,913
325,238
447,845
34,248
116,058
14,880
713
11,595
549
9,546
3,781
20,208
2,494
8,347
26,688
70
914
151,647
161,057
338,565
470,547
42,665
143,660
Australia
New Zealand
Philippines
Segment revenues are allocated based on the country in which the customer is located. Segment assets and capital expenditure are
allocated based on where the assets are located.
58
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 4 Segment information (continued)
(c) Geographical information (continued)
(i) Accounting policies
Segment information is prepared in conformity with the accounting policies of the entity as disclosed in Note 1 (c) and AASB 8
Operating Segments.
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that
can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily
of operating cash, receivables, property, plant and equipment and goodwill and other intangible assets, net of related provisions.
While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly
by segments are allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other payables,
employee benefits and interest bearing liabilities. Segment assets and liabilities do not include income taxes.
Unallocated items mainly comprise interest or dividend-earning assets and revenue, interest bearing loans, borrowing costs and
corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for
more than one period.
(d) Other segment information
Fees for services provided between segments are carried out at arm’s length and are eliminated on consolidation. The revenue from
external parties reported to the chief operating decision maker is consistent with that in the income statement.
5 Revenue
Gain on sale of PDLs
Call option income
Sublease income
Other
Consolidated
30 June
2020
$’000
6,367
617
672
792
30 June
2019
$’000
14,500
3,409
237
260
Other Revenue from continuing operations
8,448
18,406
59
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 6 Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Leasehold improvements, plant and equipment
Total depreciation
Amortisation
Computer software
Customer contracts
Stamp Duty
Total amortisation
Total depreciation and amortisation
Finance expenses
Interest and finance charges paid/payable
Lease interest – AASB16
Finance costs expensed
Rental and Lease expenses
Lease expenses
Rent and outgoings
Rental and Lease expenses
Employee Expenses
Employee Expenses
Job Keeper Receipts**
Total expense relating to Employee Expenses
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
6,454
6,454
3,441
158
356
3,955
10,409
7,809
1,942
9,751
25
958
983
893
893
3,138
199
394
3,731
4,624
7,658
–
7,658
–
8,189
8,189
64,075
(6,649)
57,426
57,100
–
57,100
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is
not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note (1)
** The payments received from the ATO for the Job Keeper scheme are to be accounted for as a Government Grant. Grant-related income is
presented as part of profit or loss. The Job Keeper payments received are deducted in the reporting of the related expense, under employee
expenses.
60
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements
7
Income tax expense
Consolidated
30 June
2020
$’000
30 June
2019
$’000
(a) Income tax expense
Income tax expense – Profit/(Loss) from continuing operations
(61,980)
12,913
Income tax expense is attributable to:
Current tax
Deferred tax
Under (over) provided in previous years
Aggregate income tax expense
Deferred income tax (revenue) expense included in income tax expense comprises:
Decrease (increase) in deferred tax assets (Note 19)
(Decrease) increase in deferred tax liabilities (Note 19)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit/(Loss) from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2019 – 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Tax exempt (income) / loss
Adjustments for current tax of prior periods
Income tax expense
6
(62,065)
11,999
1,034
79
(120)
(61,980)
12,913
(58,444)
(3,621)
(62,065)
(456)
1,490
1,034
(207,050)
(62,115)
43,603
13,080
32
24
21
7
(62,059)
13,108
79
79
(195)
(195)
(61,980)
12,913
8 Cash and cash equivalents
(a) Reconciliation of cash at the end of the year
The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows:
Bank Overdraft
Cash at bank and on hand
Balances per statement of cash flows
Consolidated
30 June
2020
$’000
–
9,656
9,656
30 June
2019
$’000
–
1,596
1,596
(b) Bank overdraft right of set-off
With effect from 1 July 2004, the Company holds a contractual right of set-off between the current overdraft balance and the cash
at bank balances. There is no Bank overdraft set-off during the standstill period due to the Standstill agreement conditions.
61
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
9 Trade and other receivables
Current
Net trade receivables
Trade receivables
Provision for impairment of receivables (a)
Accrued revenue
Other assets
Job Keeper receivable
Sublease receivable
Prepaid expenses
Non-current
Sublease receivables
Prepaid expenses
Consolidated
30 June
2020
$’000
30 June
2019
$’000
4,854
(238)
4,616
2,724
524
2,817
153
2,477
13,311
469
271
740
6,434
(146)
6,288
3,039
938
–
–
2,606
12,871
–
558
558
(a) Impaired trade receivables
As at 30 June 2020 current trade receivables of the Group with a value of $651,000 (2019: $359,000) were assessed as potentially
impaired. The amount of the provision was $238,000 (2019: $146,000). The individually impaired receivables mainly relate to
debtors which have been outstanding for more than 90 days. It has been assessed that a portion of these receivables are expected
to be recovered.
There is no significant impact from COVID-19 on the trade receivables’ carrying value and the ageing of potential impaired debt has
not materially increased when compared with the Group’s total trade receivables’ carrying value.
The ageing of these receivables is as follows:
Over 3 months
Movements in the provision for impairment of receivables are as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
Unused amount reversed
62
Consolidated
30 June
2020
$’000
651
651
30 June
2019
$’000
359
359
Consolidated
30 June
2020
$’000
30 June
2019
$’000
146
483
(47)
(344)
238
163
318
(42)
(293)
146
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 9 Trade and other receivables (continued)
(a) Impaired trade receivables (continued)
The creation and release of the provision for impaired receivables has been included in ‘other expenses’ in the income statement.
Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit
history of these other classes, it is expected that these amounts will be received when due. The Group does not hold any collateral
in relation to these receivables.
(b) Past due but not impaired
As at 30 June 2020, trade receivables of the Group of $2,477,000 (2019: $3,736,000) were past due but not impaired. These relate
to a number of independent customers for whom there is no recent history of default.
The ageing analysis of these trade receivables is as follows:
Up to 3 months
Over 3 months
10 Purchased debt ledgers
Current
Non-current
At beginning of year
Net additions*
Impairment
Legal and court costs
Gross PDL Collections
Interest income
Disposal of PDLs
As end of year
Consolidated
30 June
2020
$’000
1,331
1,146
2,477
30 June
2019
$’000
2,912
824
3,736
Consolidated
30 June
2020
$’000
172,541
12,187
184,728
30 June
2019
$’000
52,466
357,837
410,303
410,303
313,407
38,946
129,294
(238,890)
3,140
–
7,721
(97,780)
(102,529)
79,261
75,419
(10,252)
(13,009)
184,728
410,303
* Acquisition of ACM Group Limited and Receivables Management (NZ) Limited (RML) have met the AASB3 asset concentration test and treated as
PDL acquisition in FY19.
PDLs are considered as purchased or originated credit impaired (“POCI”) assets and are measured at amortised cost using the
effective interest rate method in accordance with AASB 9: Financial Instruments.
The credit-adjusted effective interest rate is the implicit interest rate based on forecast collections determined in the period
of acquisition of an individual PDL and equates to the Internal Rate of Return (IRR) of the forecast cash flows without any
consideration of collection costs.
63
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 10 Purchased debt ledgers (continued)
Impairment
Where the carrying amount exceeds the present value of the estimated future cash flows discounted at the asset’s original Effective
Interest Rate (“EIR”), the Group recognises an impairment loss.
During the reporting period, the Group undertook a comprehensive review of its operating model and collection strategies. The
Group’s revised collection strategy enhances the level of care and customer focus applied to negotiate repayment solutions which
appropriately matched the customers’ unique circumstances. The Group is committed on refocusing the establishment of payment
arrangements which match our customers’ circumstances and simultaneously create a long term income stream for the Group. The
economic effects of this decision are:
1.
2.
total expected future recoveries from the portfolio may decrease due to the lower proportion of customers who will be
subject to legal action; and
the timing of cash flows received from customers will be elongated, to be more reflective of a traditional payment
arrangement than a settlement arising from legal action
The Group also considered the impacts of COVID-19 on it’s PDL asset value taking into account such factors as any further impact
on legal processes and outcomes, recent CLH collection performance (which had stablised recently albeit at a lower level versus
12 months ago), the impact of unemployment levels (including jobkeeper) and other market factors upon existing and new
arrangements, general impacts on the Australian economy, and comparable company reporting outcomes.
In addition, in determining the expected credit loss on the PDL portfolio, the cash flows expected to be derived from the sale
of the portfolio (Refer Note 32) were estimated and discounted at the portfolio’s original EIR as at 30 June 2020. This estimate
took into account the market conditions, including economic factors and outlook as at 30 June 2020. Although the transaction
was completed in December 2020, the market conditions impacting the expected cash flows have not changed significantly and
therefore the expected cash flows have been adjusted to reflect the final transaction price as a subsequent event as it provides
evidence of the amount of proceeds that could be expected from the sale of the portfolio at 30 June 2020. The PDL sale has led to
the Group recognising an additional impairment to reflect the impact of the sale value versus the PDL book value ($111.5m before
tax). The sale value is based on a 30 September 2020 closing balance and so an equivalent 30 June 2020 amount was derived
taking into account additions and collections during the July to the expected completion date, derivation of interest income and
timing of cashflows.
As a result of the above factors, the PDL balance at 30 June 2020 has been subject to an impairment adjustment of $238.9 million
before tax ($167.2 million after tax) determined by calculating the Net Present Value (NPV) of the expected future cash flow
adjusted for the change in the Group’s collection strategy and the subsequent event PDL sale described above.
11 Other current assets
Other deposits
Current
Consolidated
30 June
2020
$’000
222
222
30 June
2019
$’000
167
167
64
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 12 Equity investments
Investment in Volt Corporation Ltd
At beginning of year
Additions
Fair Value adjustment
Consolidated
30 June
2020
$’000
4,868
4,868
8,500
30 June
2019
$’000
8,500
8,500
–
–
8,500
(3,633)
4,868
–
8,500
The Group designated the investment in Volt Corporation Ltd as equity securities at fair value through other comprehensive income
(FVOCI) because these equity securities represent investments that the Group intends to hold for the long term for strategic
purposes.
On 11 September 2019, there was the Share Split of Volt’s shares (inclusive of all classes) on the basis of 10 post-share split shares
for every 1 pre-split share held. The Group still holds the same proportion of Volt’s share capital after the Share Split and existing
rights remain unchanged.
The investment in Volt Corporation Ltd represents the total of shares of 10,818,380 units at the share price of $0.7857 (Pre-share
split: 1,081,838 units at the subscription price of $7.857).
Based on Volt Corporation Ltd’s latest capital raising, the share price of the equity raised was at $0.45. This resulted in a decrease in
valuation. The changes in fair value are captured within the fair value reserve and other comprehensive income.
Fair value is based on level 3 inputs as Volt Corporation Ltd’s shares are not traded in an active market at reporting period, thus fair
value is based on the valuation done by the company, which is available in their latest Information Memorandum (IM).
65
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 13 Property, plant and equipment
Buildings
$’000
Plant and
equipment
$’000
Leasehold
improvements
$’000
Motor
Vehicles
$’000
Work-in-
progress
$’000
At 1 July 2018
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2019
Opening net book amount
Additions
Disposals
Depreciation charge
Transfers
Closing net book amount
At 30 June 2019
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2020
Opening net book amount
*AASB 16: Initial recognition
Additions
Disposals
Depreciation charge
Transfers
Closing net book amount
At 30 June 2020
Cost or fair value
Accumulated depreciation
Net book amount
–
–
–
–
–
–
–
–
–
–
–
–
9,158
(8,210)
948
948
717
(0)
(543)
171
5,177
(4,455)
722
722
737
(0)
(351)
–
1,293
1,108
10,046
(8,753)
1,293
5,914
(4,806)
1,108
–
–
–
–
9
–
–
–
9
9
–
9
414
–
414
414
57
–
–
(171)
300
300
–
300
Buildings*
$’000
Plant and
equipment*
$’000
Leasehold
improvements
$’000
Motor
Vehicles*
$’000
Work-in-
progress
$’000
–
1,293
1,108
32,201
–
(1,105)
(5,666)
–
25,430
31,096
(5,666)
25,430
–
730
–
(574)
17
1,466
10,793
(9,327)
1,466
–
224
–
(255)
–
1,077
6,138
(5,061)
1,077
9
–
59
–
(21)
–
47
68
(21)
47
300
–
–
–
–
(23)
277
277
–
277
Total
$’000
14,749
(12,665)
2,084
2,084
1,520
(0)
(894)
–
2,710
16,269
(13,559)
2,710
Total
$’000
2,710
32,201
1,013
(1,105)
(6,516)
(6)
28,297
48,372
(20,075)
28,297
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application.
See Note (1)
(a) Non-current assets pledged as security
Refer to Note 18 for information on non-current assets pledged as security by the Group.
66
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 14 Intangible assets
At 1 July 2018
Cost
Accumulated amortisation and
impairment
Net book amount
Year ended 30 June 2019
Goodwill
$’000
Computer
software
$’000
Customer
contracts
$’000
Other
intangible
assets
$’000
Work-in-
progress –
cost*
$’000
Total
$’000
23,490
27,526
2,487
(3,768)
19,722
(14,720)
12,806
(1,677)
810
Opening net book amount
19,722
12,806
Exchange differences
Additions - internal development
Amortisation charge
Impairment charge
Disposals
Transfers
4
–
–
–
–
–
Closing net book amount
19,726
–
378
(3,100)
–
(10)
1,891
11,965
810
–
–
(199)
–
–
–
611
171
(171)
–
–
–
–
–
–
–
–
–
827
54,501
(124)
703
(20,460)
34,041
703
–
2,753
–
–
–
(1,916)
1,540
34,041
4
3,131
(3,299)
–
(10)
(25)
33,842
At 30 June 2019
Cost
Accumulated amortisation and
impairment
Net book amount
23,490
29,785
2,487
171
1,664
57,597
(3,764)
19,726
(17,820)
11,965
(1,876)
611
(171)
–
(124)
1,540
(23,755)
33,842
Goodwill
$’000
Computer
software
$’000
Customer
contracts
$’000
Other
intangible
assets
$’000
Work-in-
progress –
cost*
$’000
Total
$’000
Year ended 30 June 2020
Opening net book amount
19,726
11,965
Exchange differences
Additions – internal development
Amortisation charge
Impairment charge
Disposals
Transfers
(2)
–
–
–
–
–
Closing net book amount
19,724
–
458
611
–
–
(3,392)
(159)
–
–
927
9,958
–
–
–
452
–
–
–
–
–
–
–
–
1,540
33,842
–
2,187
–
–
–
(850)
2,877
(2)
2,645
(3,551)
–
–
77
33,011
At 30 June 2020
Cost
Accumulated amortisation and
impairment
Net book amount
23,490
31,170
2,487
171
3,001
60,319
(3,766)
19,724
(21,212)
(2,035)
9,958
452
(171)
–
(124)
(27,308)
2,877
33,011
* Work-in-progress includes capitalised development costs of an internally generated intangible asset which is under development.
67
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
14 Intangible assets (continued)
(a) Impairment tests for goodwill
All goodwill is allocated to the Company’s Collection Services cash-generating unit (CGU).
The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections
based on the financial budget for the first year approved by management, which is then extrapolated to cover a an additional
4 year period (total 5 years) and include a terminal value calculation, which used a long-term growth rate of 2.5% (FY2019: 2.5%)
and is in line with the long-term targeted inflation set by the Reserve Bank of Australia.
(b) Key assumptions used for value-in-use calculations
CGU
Growth rate (revenue)
Growth rate (expenses)
Discount rate *
30 June
2020
%
30 June
2019
%
30 June
2020
%
30 June
2019
%
30 June
2020
%
30 June
2019
%
Collection services
3.9 to 5.0
5.00
0.0 to 4.7
3.00
13.11
12.70
* In performing the value-in-use calculation, the Group has applied the post-tax discount weighted average cost of capital to discount the forecast
future attributable post tax cash flows.
(c) Impairment charge
As a result of the impairment evaluation, the Group has determined that the carrying value of intangible assets does not exceed
their value-in-use, and no impairment charge was required (2019: Nil).
(d) Impact of possible changes in key assumptions
Collection services
There is a substantial margin between the calculated value-in-use and the carrying value of all assets within the CGU, and as such
there is no reasonably possible change in key assumptions that would give rise to an impairment.
The impairment assessment includes stress tests done on the key assumptions i.e. changes in WACC and cash inflow used to
calculate the value-in-use (VIU) and there is no indication of impairment due to the substantial headroom to support the carrying
value of Goodwill.
Covid-19
The Group’s performance and operations have been impacted by both the societal and economic impact of the COVID-19 virus.
The value-in-use calculations use cash flow projections that have incorporated the COVID-19 effects.
Growth rates have been adjusted to a conservative position due to the COVID-19 challenges, to reflect the increased volatility and
uncertainty in the impairment model.
WACC
The change in WACC is the reflection of current cost of debt and equity. The change is due to market conditions and the general
impact of higher debt over the whole financial year.
68
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 15 Trade and other payables
Trade payables
Accrued expenses
Other payables
16 Provisions
Current
Employee benefits
Make good
Fringe benefits tax
Non-current
Employee benefits
Consolidated
30 June
2020
$’000
5,339
5,729
2,144
30 June
2019
$’000
5,579
7,633
1,397
13,212
14,609
Consolidated
30 June
2020
$’000
30 June
2019
$’000
3,832
552
35
4,419
142
142
3,123
652
35
3,810
103
103
(a) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
2020
Current
Carrying amount at start of year
– additional provisions recognised
– payments/provision used
Carrying amount at end of year
2019
Current
Carrying amount at start of year
– additional provisions recognised
– payments/provision used
Carrying amount at end of year
Make
good
$’000
Fringe
benefits tax
$’000
652
–
(100)
552
570
82
–
652
35
236
(236)
35
5
201
(171)
35
69
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
16 Provisions (continued)
(b) Superannuation plans
All employees are entitled to varying levels of benefits on retirement, disability or death. The superannuation plans provide
accumulated benefits. Employees contribute to the plans at various percentages of their wages and salaries. Where there is a legal
requirement the Company contributes the appropriate statutory percentage of employees’ salaries and wages.
17 Other financial liabilities
Current
Lease liabilities**
Other current financial liabilities
Non-current
Lease liabilities**
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
6,892
633
7,525
30,674
30,674
572
1,365
1,937
5,053
5,053
The total cash outflow for lease during the year was $7.7 million, which comprises of the payment of principal and interest.
*
The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial
application. See Note (1)
** As a result of applying AASB 16, in relation to the leases that were previously classified as operating leases, the Group recognised $43.2 million
of lease liabilities as at 1 July 2019.
18 Borrowings
Secured
Bank loans – current
Bank loans – non-current
Total secured borrowings
Consolidated
30 June
2020
$’000
30 June
2019
$’000
214,857
–
214,857
14,667
195,933
210,600
All bank loans are denominated in Australian dollars and are secured by a fixed and floating charge over all of the assets and any
uncalled capital of the parent entity and of its Australian-owned entities.
70
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 18 Borrowings (continued)
The carrying amounts of assets pledged as security for borrowings are:
Current
Floating charge
Cash and cash equivalents
Receivables
Purchased debt ledgers
Total current assets pledged as security
Non-current
Floating charge
Receivables
Purchased debt ledgers
Plant and equipment*
Total non-current assets pledged as security
Total assets pledged as security
Consolidated
30 June
2020
$’000
30 June
2019
$’000
Notes
8
9
10
9
10
13
9,656
13,311
172,541
195,508
740
12,188
2,805
15,733
211,241
1,596
12,871
52,466
66,933
558
357,837
2,710
361,105
428,038
* This excludes ROU assets ($25.5 million) that were recognised due to AASB16.
(b) Fair value
The carrying amounts and fair values of borrowings at the end of reporting period are:
Group
On-balance sheet (i)
Non-traded financial liabilities
Bank loans – current
Bank loans – non-current
30 June
2020
30 June
2019
Carrying
amount
$’000
Fair value
$’000
Carrying
amount
$’000
Fair value
$’000
214,857
214,857
–
–
214,857
214,857
14,667
195,933
210,600
14,667
195,933
210,600
As noted, none of the classes of liabilities are readily traded on organised markets in standardised form.
(i) On-balance sheet
The fair value of current borrowings equals their carrying amount. The facility is structured as a series of loan instruments which are
repriced on a regular basis with terms of less than six months, and the impact of discounting on such instruments is not material.
The rolling nature of the loan instruments is designed to provide the Group with maximum flexibility within the overall facility. The
Group’s total borrowings were re-classified to current liability as the Group were unable to comply with a number of its banking
covenants after the impairment adjustment to its PDL assets as at 31 December 2019.
As at 9 April 2020, the Group entered into a Standstill Agreement (SA) with its lenders. With the SA in place, the Group’s lenders
did not take any action during the period to 23 December 2020 (the standstill period) in relation to any potential or existing
defaults that occurred under the facilities prior to the commencement of the standstill period. The maturity dates of its lending
facilities have been adjusted to 23 December 2021. Refer to the Group’s capital management are disclosed in Note 20 (h) for
more details.
(c) Risk exposures
Information about the Group’s exposure to interest rate and foreign currency changes is provided in Note 3.
For an analysis of the sensitivity of borrowings to interest rate risk and foreign exchange risk refer to Note 3.
71
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
19 Deferred tax balances
(a) Deferred tax assets
The balance comprises temporary differences attributable to:
Tax losses
Project Costs – Refinancing Transaction
Fair Value Adjustment – Volt Investment
Lease Liabiity – AASB 16
PDL Impairment
Provisions and employee benefits
Lease Incentives
Accruals
Share based payments
Doubtful debts
Other
Set-off of deferred tax liabilities pursuant to set-off provisions (b)
Net deferred tax assets
Movements:
Opening balance at 1 July
Credited / (charged) to the retained earnings
Credited / (charged) to the fair value reserve
Credited / (charged) to the current tax liability
Credited / (charged) to the income statement
Closing balance at 30 June
Consolidated
30 June
2020
$’000
30 June
2019
$’000
591
714
1,090
11,220
59,113
1,562
–
124
65
72
16
74,567
(10,835)
63,732
3,704
11,240
1,090
89
58,444
74,567
161
–
–
–
–
1,578
1,688
77
156
44
–
3,704
(3,704)
–
3,248
–
–
456
3,704
72
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 19 Deferred tax balances (continued)
Movements –
Consolidated
Provisions
and
employee
benefits
$’000
Tax
losses
$’000
Lease
incentive
$’000
Lease
Liability
$’000
Share
based
payments
$’000
Accruals
$’000
PDL
Impair-
ment
$’000
Fair
Value -
Volt
$’000
Doubtful
debts
$’000
Project
Cost
$’000
Others
$’000
Total
$’000
At 30 June 2018
– to profit or loss
73
88
1,356
1,731
222
(43)
At 30 June 2019
161
1,578
1,688
–
–
–
–
156
156
80
(3)
77
–
–
–
–
–
–
49
(5)
44
–
–
–
–
–
–
3,289
415
3,704
Movements –
Consolidated
Provisions
and
employee
benefits
$’000
Tax
losses
$’000
Lease
incentive
$’000
Lease
Liability
$’000
Share
based
payments
$’000
Accruals
$’000
PDL
Impair-
ment
$’000
Fair
Value -
Volt
$’000
Doubtful
debts
$’000
Project
Cost
$’000
Others
$’000
Total
$’000
At 30 June 2019
161
1,578
1,688
–
156
– to Retained
Earnings
– to profit or loss
– to Fair value
Reserve
– to current tax
liability
–
331
–
99
–
(1,688)
12,928
(16)
–
–
(1,698)
–
(10)
–
–
–
–
–
(91)
–
–
77
–
47
–
–
–
–
59,113
–
–
–
–
–
1,090
–
44
–
28
–
–
–
–
–
–
3,704
11,240
714
16
58,444
–
–
–
–
1,090
89
At 30 June 2020
591
1,562
11,220
65
124
59,113
1,090
72
714
16
74,567
(b) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Property, plant and equipment
Purchased debt Ledger (Legal and Court cost)
Sublease Receivables
JobKeeper Receivables
Prepayments
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-off provisions (a)
Net deferred tax liabilities
Consolidated
30 June
2020
$’000
30 June
2019
$’000
9,798
–
187
845
5
10,835
10,835
(10,835)
–
2,600
2,602
–
–
7
5,209
5,209
(3,704)
1,505
73
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
Consolidated
30 June
2020
$’000
30 June
2019
$’000
5,209
9,612
(3,986)
10,835
3,864
–
1,345
5,209
Total
$’000
3,864
1,345
5,209
Total
$’000
5,209
9,612
(3,986)
10,835
19 Deferred tax balances (continued)
Movements:
Opening balance at 1 July
Charged / (credited) to the Retained Earnings
Charged / (credited) to the income statement (Note 7)
Closing balance at 30 June
Movements – Consolidated
At 30 June 2018
– to profit or loss
At 30 June 2019
Movements – Consolidated
At 30 June 2019
– Retained Earnings
– to profit or loss
At 30 June 2020
Property,
plant and
equipment
$’000
Purchased
Debt Ledger
– Legal and
Court Cost
$’000
3,115
(515)
2,600
743
1,859
2,602
Property,
plant and
equipment
$’000
Purchased
Debt Ledger
– Legal and
Court Cost
$’000
2,600
9,612
(2,414)
9,798
2,602
–
(2,602)
–
Prepayments
$’000
Sublease
Receivables
$’000
JobKeeper
Receivables
$’000
6
1
7
–
–
–
–
–
–
Prepayments
$’000
Sublease
Receivables
$’000
JobKeeper
Receivables
$’000
7
–
(2)
5
–
–
187
187
–
–
845
845
74
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements
20 Contributed equity
(a) Share capital
Ordinary shares – fully paid
Treasury shares
Total contributed equity
Company
Company
2020
Shares
2019
Shares
2020
$’000
2019
$’000
141,948,162
139,279,060
120,260
117,077
(512,317)
(467,482)
(693)
(664)
141,435,845
138,811,578
119,567
116,413
(b) Movements in ordinary share capital
Issues of ordinary shares during the year
Date
Details
1 July 2018
Opening balance
26 October 2018
Dividend reinvestment plan issues
28 March 2019
Dividend reinvestment plan issues
Less: Transaction costs arising on share issues
Less: Transaction costs arising on share issues
30 June 2019
1 July 2019
Closing balance
Opening balance
12 September 2019
Performance Rights Plan
Less: Transaction costs arising on share issues
30 September 2019
Share Issuance: Exempt Employee Share Plan
25 October 2019
Dividend reinvestment plan issues
Less: Transaction costs arising on share issues
30 June 2020
Closing balance
Number of
shares
$’000
137,152,058
114,195
1,018,199
1,108,803
–
139,279,060
139,279,060
1,141,738
–
154,795
1,468
(8)
1,429
(7)
117,077
117,077
1,416
(7)
197
1,372,569
1,584
–
(7)
141,948,162
120,260
(c) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the
number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a
poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(d) Treasury shares
When share capital recognised as equity is repurchased or held by employee share plans and subject to vesting conditions, the
amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. When treasury
shares are sold or reissued subsequently, the amount received is recognised as an increase in equity.
(e) Dividend reinvestment plan
The Company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of
their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares are issued under
the plan at a 5% discount to the market price. As noted in the Directors’ report, the Dividend reinvestment plan has not been
activated in relation to the FY20 Dividends.
(f) Employee share scheme
Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in Note 30.
75
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 20 Contributed equity (continued)
(g) Performance rights
Information relating to the performance rights plan adopted as a means of rewarding and incentivising key employees, including
details of rights issued during the financial year, is set out in Note 30.
(h) Capital management
The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, and to provide
adequate returns for shareholders and benefits for other stakeholders.
“Capital” includes all funding provided under the Group’s funding facility (net of cash balances for which a right of offset is held)
plus equity as shown in the balance sheet.
In order to maintain or adjust the capital structure, the Group may:
– draw down or repay debt funding;
– adjust the amount of dividends paid to shareholders;
– negotiate new or additional facilities or cancel existing ones;
– return capital to shareholders or issue new shares or
– sell assets to reduce debt.
The Group manages capital to ensure that the goals of continuing as a going concern and the provision of acceptable stakeholder
returns are met.
Arrangements with the Group’s financiers are in place to ensure that there is sufficient credit available to meet unforeseen
circumstances should they arise. Financing facilities are renegotiated on a regular basis to ensure that they are sufficient for the
Group’s projected growth plus a buffer. As far as possible, asset purchases are funded from operational cash flow, allowing
available financing to be maintained. Cash is monitored on a daily basis to ensure that immediate and short term requirements
can be met. During the standstill period, additional cash monitoring and controls are added to ensure standstill conditions are not
breached including financial covenants that have been put in place. Detailed cash monitoring enables the Group to reduce the risk
of liquidity and going concern issues.
Management of the mix between debt and equity impacts the Group’s Cost of Capital and hence ability to provide returns to
stakeholders, primarily the funding institutions and shareholders. The Group maintains its debt-to-equity mix in accordance with
its immediate needs and forecasts at any point in time. Effective management of the capital structure maximises profit and hence
franked dividend returns to shareholders.
When additional funding is required, it is sourced from either debt or equity, depending upon management’s evaluation as to
which is the most appropriate at that point in time.
The financing facility includes all funding provided by the Group’s main bankers. Details of financing facilities are set out in Note 3.
Quantitative analyses are conducted by management using contributed equity balances shown above together with the drawn and
undrawn loan balances disclosed in Note 3.
As part of the financing facility, the Company is required to monitor a number of financial indicators as specified by the financiers.
This strategy was followed during both the 2020 and 2019 financial years.
As at 31 December 2019, the Group recognised an impairment adjustment to its PDL assets. As a result, the Group was unable
to comply with a number of its banking covenants after the impairment adjustment, which resulted to the reclassification of
the Group’s total borrowings to current liability. As at 9 April 2020, the Group entered into a Standstill Agreement (SA) with
its lenders. With the SA in place, that the Group’s lenders will not take any action during the period to 23 December 2020 (the
standstill period) in relation to any potential or existing defaults that occurred under the facilities prior to the commencement
of the standstill period. Subject to compliance with its terms, the SA, among other things, modifies the financial covenants
under the Group’s lending facilities during the standstill period. In addition, the maturity dates of its lending facilities have been
adjusted to 23 December 2021 and the Group has suspended any dividend or other distribution payments during the standstill
period. The Group has been monitoring the indicators on a monthly basis and reporting to the funding providers based on the
standstill agreement conditions.
The Group has agreed with its lenders a programme to recapitalise the Group in order to reduce debt and restore those financial
covenants to a sustainable level. The recapitalisation process has been completed as at 23 December 2020 with the proceeds from
a sale of its Australian PDL assets being applied to the repayment of the majority of its existing facilities and they will then provide
an ongoing funding facility for the remaining approximate $62m (amount to be finalised on settlement of the PDL Assets sale).
There is also a bank guarantee facility of $8.6m and a short term loan of $15m from the Credit Corp Group.
76
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 21 Reserves and retained earnings
(a) Reserves
Fair Value reserve
Share-based payments reserve
Foreign currency translation reserve
Movements:
Share-based payments reserve
Balance 1 July
Rights expense
Balance 30 June
Movements:
Foreign currency translation reserve
Balance 1 July
Currency translation differences arising during the year
Balance 30 June
(b) Retained earnings
Movements in retained earnings were as follows:
Balance 1 July
AASB 16 – Adjustment on application
Net profit/(loss) for the year
Dividends
Balance 30 June
Consolidated
30 June
2020
$’000
(2,542)
470
(2,107)
(4,179)
30 June
2019
$’000
–
2,472
(2,107)
365
Consolidated
30 June
2020
$’000
30 June
2019
$’000
2,472
(2,002)
470
1,622
850
2,472
Consolidated
30 June
2020
$’000
30 June
2019
$’000
(2,107)
–
(2,107)
(1,465)
(642)
(2,107)
Consolidated
30 June
2020
$’000
30 June
2019
$’000
112,370
92,693
(3,805)
(145,070)
(5,764)
–
30,690
(11,013)
(42,269)
112,370
77
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
21 Reserves and retained earnings (continued)
(c) Nature and purpose of reserves
(i) Share-based payments reserve
The share based payments reserve is used to recognise the fair value of performance rights issued to employees that have not yet
vested, or those that have vested at year end but not yet been issued as shares.
(ii) Foreign currency translation reserve
Exchange differences arising on translation of the foreign operations are recognised in other comprehensive income as described in
Note 1(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net
investment is disposed of.
(iii) Fair Value reserve
Changes in fair value through other comprehensive income are recognised in the Fair Value reserve. Any changes will be net of tax
thus corresponding impact from any changes in the deferred tax are also recognised in the Fair Value reserve.
22 Dividends
(a) Ordinary shares
Fully franked final dividend for the year ended 30 June 2019 – 4.1 cents per share
(2018 – 3.9 cents)
Fully franked interim dividend for the year ended 30 June 2020 – N/A
(2019 – 4.1 cents)
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan
during the years ended 30 June 2020 and 2019 were as follows:
Paid in cash
Satisfied under the Dividend Reinvestment Plan
(b) Dividends not recognised at the end of the reporting period
No Dividends were recommended as part of the conditions of the standstill agreement (2019 – 4.1 cents,
fully franked)
Consolidated
30 June
2020
$’000
30 June
2019
$’000
5,764
5,348
–
5,764
5,665
11,013
4,180
1,584
5,764
8,116
2,897
11,013
Consolidated
30 June
2020
$’000
30 June
2019
$’000
–
–
5,710
5,710
78
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements
22 Dividends (continued)
(c) Franked dividends
Franking credits available for subsequent financial years based on a tax rate of 30% (2019 - 30%)
Consolidated
30 June
2020
$’000
55,414
55,414
30 June
2019
$’000
48,178
48,178
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date;
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and
(d)
franking credits that may be prevented from being distributed in subsequent financial years.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries
were paid as dividends.
23 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related
practices and non-related audit firms:
Audit and review services
(a) Auditors of the Company – KPMG
Audit and review of the financial statements
Other regulatory audit services
Total auditors' remuneration
(b) Other auditors – Villaruz, Villaruz & Co (“VVC”)
Audit and review of the financial statements - Manila
Total auditors' remuneration
Other services
Auditors of the Company – KPMG
In relation to accounting advice and due diligence services
In relation to taxation services
Consolidated
30 June
2020
$
30 June
2019
$
411,547
71,720
258,280
69,800
483,267
328,080
9,575
9,575
5,105
5,105
–
267,760
267,760
196,690
120,700
317,390
79
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 24 Contingencies
(a) Contingent liabilities
The Group had contingent liabilities at 30 June 2020 in respect of:
Claims
On 15 March 2019, the Group was provided with a copy of a claim and statement of claim, which had been filed in the Supreme
Court of Queensland on the same date. The claim for damages is for $2,800,000 and proceedings are still being defended by
the Group.
Purchase Agreement with Put & Call Option with Insolve Capital Australia Pty Ltd (Balbec Capital LP)
(a)
The Group had assigned five years’ cash flow to Insolve Capital Australia Pty Ltd (Balbec Capital LP) through a put and call
option agreement.
(b)
The Group has the option to repurchase the residual rights to collect the remaining arrangements at the end of the five-year
agreement, at a market price determined by the performance of the accounts during the term of the agreement.
The two purchase agreements with Put & Call option have the following expiry dates:
–
–
3 November 2023
2 December 2024
Guarantees
(a)
Bank Guarantees (secured) exist in respect of satisfying contract terms amounting to $6,732,284 (2019: $6,732,334). During
the period, the increase is mainly contributed by new Bank Guarantees that were required to secure performance of new
Lease premises.
(b)
Guarantees and Indemnities (secured) given by the Company and certain of its subsidiaries in support of the existing Syndicated
Loan Facility provided by Westpac Banking Corporation and Commonwealth Bank of Australia, are currently in place.
Paragraphs (a) and (b) above are secured by a Fixed and Floating charge over the assets of the Company and certain of its
subsidiaries of the Group and may give rise to liabilities in the Group, if the associates do not meet their respective obligations
under the terms of the contracts, subject to the guarantees.
No material losses are anticipated in respect of any of the above contingent liabilities.
25 Commitments
(a) Capital commitments
Capital expenditure contracted for in relation to purchased debt commitments at the reporting date but not recognised as liabilities
is as follows:
Within one year
Later than one year, but not later than five years
Consolidated
30 June
2020
$’000
13,988
1,910
15,898
30 June
2019
$’000
38,387
4,616
43,003
80
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements
25 Commitments (continued)
(b) Non-cancellable leases
The Group leases its offices under non-cancellable leases expiring at various times during the next ten years. The leases have
varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.
Commitments for minimum lease payments in relation to non-cancellable leases are payable as
follows:
Within one year**
Later than one year but not later than five years**
Later than five years**
Consolidated
30 June
2020
$’000
30 June
2019*
$’000
–
–
–
–
3,236
31,605
5,328
40,169
*
The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial
application.
** Following the adoption of AASB 16, the Group has presented right of use assets within property, plant and equipment and lease liabilities
within other financial liabilities. See Note 1.
26 Related party transactions
(a) Group companies
Details of the parent company, the ultimate parent company and interests in subsidiaries are set out in Note 28.
(b) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Consolidated
30 June
2020
$
30 June
2019
$
2,592,682
2,479,189
235,195
183,028
65,336
117,619
–
54,049
208,938
565,295
3,010,832
3,490,499
Detailed remuneration disclosures are provided in sections A-J of the remuneration report on pages 21 to 34.
(c) Other transactions with key management personnel or entities related to them
No other transactions were made with key management personnel or entities related to them other than as appropriate payments
for performance of their duties.
(d) Transactions with other related parties
The classes of non director-related parties are:
– wholly owned controlled entities;
– directors of related parties and their director-related entities.
Transactions
There were no transactions with directors of related parties and their director-related entities. Transactions with wholly owned
related parties are eliminated on consolidation.
81
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 27 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Shareholders’ equity
Contributed equity
Reserves
Retained earnings
Capital and reserves attributable to owners of Collection House Limited
Profit or (loss) for the year
Total comprehensive income
Company
30 June
2020
$’000
30 June
2019*
$’000
14,923
421,228
436,151
6,612
431,439
438,051
231,887
26,790
72,767
248,696
304,654
275,486
119,567
116,413
(2,072)
14,002
2,475
43,677
131,497
162,565
(20,486)
(20,486)
18,868
18,868
* The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application.
See Note (1)
(b) Guarantees entered into by the parent entity
The parent entity has entered into guarantees with certain of its subsidiaries as set out in Note 24.
No liability was recognised by the parent entity or the consolidated entity in relation to this guarantee, as the fair value is
immaterial.
(c) Contingent liabilities of the parent entity
Refer to Note 24 for contingent liabilities entered into by the Group. For information about guarantees given by the parent entity,
please see above.
82
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 28 Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with
the accounting policy described in Note 1(b):
2020
%
2019
%
Parent and Ultimate Parent company:
Collection House Limited
Controlled entities – incorporated in Australia
Safe Horizons Pty Ltd (formerly Cash flow Accelerator Pty Ltd)
ThinkMe Finance Pty Ltd
Collective Learning and Development Pty Ltd
CLH Legal Group Pty Ltd
Lion Finance Pty Ltd
Midstate CreditCollect Pty Ltd
CLH Business Services Pty Ltd
Collection House Limited Employee Share Plan Trust
Controlled entities – incorporated in New Zealand
Collection House (NZ) Limited
Lion Finance Limited
Receivables Management (NZ) Limited
Receivables Management (International) Limited
Creditnet International Limited
Receivables Finance Limited
Southern Receivables Limited **
R.J.K Receivables Limited **
Allied Recoveries Limited **
Controlled entities – incorporated in Philippines
Collection House International BPO, Inc *
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
*
Collection House International BPO, Inc started up on 10 May 2012 and commenced business operations on 1 April 2013. While Collection
House Limited holds legal and beneficial ownership of 9,995 issued shares in the subsidiary, it has beneficial ownership of 5 issued shares in the
subsidiary, held on trust for Collection House Limited by each of the five appointed directors of the subsidiary, in accordance with Philippines
law, representing all of the issued shares in the subsidiary currently.
** As of 28 June 2019, Allied Recoveries Limited and R.J.K. Receivables Limited have been amalgamated to become Southern Receivables Limited.
29 Earnings/(Loss) per share
(a) Basic earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders of the Company
Total basic earnings per share attributable to the ordinary equity holders of the Company
(b) Diluted earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders of the Company
Total diluted earnings per share attributable to the ordinary equity holders of the Company
Consolidated
30 June
2020
Cents
30 June
2019
Cents
(103.2)
(103.2)
(103.2)
(103.2)
22.3
22.3
22.0
22.0
83
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 29 Earnings/(Loss) per share (continued)
(c) Reconciliations of earnings/(loss) used in calculating earnings/(loss) per share
Basic earnings/(loss) per share
Profit/(Loss) attributable to the ordinary equity holders of the Company used in calculating basic
earnings per share
Diluted earnings/(loss) per share
Profit/(Loss attributable to the ordinary equity holders of the Company used in calculating
diluted earnings per share
(d) Weighted average number of shares used as the denominator
Consolidated
30 June
2020
$’000
30 June
2019
$’000
(145,070)
(145,070)
30,690
30,690
(145,070)
(145,070)
30,690
30,690
Consolidated
30 June
2020
Number
30 June
2019
Number
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
140,605,045
137,637,841
Adjustments for calculation of diluted earnings per share:
Performance Rights
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
840,711
1,972,323
141,445,756
139,610,164
(e) Information concerning the classification of securities
(i) Performance rights
Performance rights issued to employees under the Performance Rights Plan (PRP) are considered to be potential ordinary shares and
have been included at the probability rate of 100% in the determination of diluted earnings per share to the extent to which they
are dilutive. The performance rights have not been included in the determination of basic earnings per share. Details relating to the
performance rights are set out in Note 30.
30 Share-based payments
(a) Performance Rights Plan
In line with the executive remuneration framework, the Board approved and adopted the Performance Rights Plan (PRP), effective
on and from 1 July 2012, as a means of rewarding and incentivising its key employees. The PRP was extended to the then Chief
Executive Officer (CEO), and to eligible employees. Future performance rights may be issued by the Board pursuant to the PRP.
The board determines the value of shares granted based on the individual’s performance. Future performance rights may vest at
the discretion of the Board, subject to not only individual service conditions being met, but also, Company performance hurdles
being achieved.
During the reporting period ending 30 June 2019, there were no unlisted performance rights were issued to a number of eligible
employees as these rights have been deferred to FY20.
84
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements
30 Share-based payments (continued)
(a) Performance Rights Plan (continued)
During the reporting period ending 30 June 2020, 398,068 unlisted performance rights were issued to a number of eligible
employees pursuant to the PRP. A summary of these performance rights is identified below as PR2019. No further performance
rights were issued in relation to FY20, thus no performance rights is identified as PR2020.
Effective date
PR2019
1 July 2019
Earliest possible Vesting date
The performance rights cannot vest earlier than the Test Date (1)
Performance hurdles based on
the satisfactory achievement of
performance conditions approved by
the Board
Performance Conditions
% of Pool
Compound EPS growth over performance
period of:
0% to 5.00%
5.01% to 7.50%
7.51% to 10%
More than 10.01%
Nil
33.33%
66.66%
100%
Performance between 5% to 10% will be assessed on a sliding scale basis up to
a maximum of 398,068 shares.
Exercise conditions and Vesting Date
The Performance Rights Test Date will be 30 June 2021 (Test Date) after which, the Board
will determine whether or not the Performance Hurdles have been achieved.
As soon as reasonably practicable after each Test Date applicable to any Performance
Period, the Board shall determine in respect of each eligible employee, as at that Test Date:
(a) whether, and to what extent, the Performance Hurdles applicable as at the Test Date
have been satisfied;
(b) the number of Performance Rights (if any) that will become Vested Performance Rights
as at the Test Date; and
(c) the number of Performance Rights (if any) that will lapse as a result of the non-
satisfaction of Performance Hurdles as at the Test Date,
and shall provide written notification to each eligible employee as to that determination.
Exercise price
Expiry date
Nil
30 September 2021
A Performance Right lapses, to the extent it has not been exercised, on the earlier to occur
of:
(a) where Performance Hurdles have not been satisfied as at the relevant Test Date;
(b) if an eligible employee’s employment with the Company or Related Body Corporate
ceases before the Vesting Date;
(c) the day the Board makes a determination that the Performance Rights lapses because
of breach, fraud or dishonesty; and
(d) 30 September 2021.
5 Day volume weighted average
Share price
$1.2198
(1)
Test Date: the date at which assessment against the Performance Conditions are made by the Board. For PR2019, the Test Date will be
30 June 2021.
85
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 30 Share-based payments (continued)
(a) Performance Rights Plan (continued)
During the reporting period ending 30 June 2018, 341,071 unlisted performance rights were issued to a number of eligible
employees pursuant to the PRP. A summary of these performance rights is identified below as PR2018.
Effective date
PR2018
1 July 2017
Earliest possible Vesting date
The performance rights cannot vest earlier than the Test Date (1)
Performance hurdles based on
the satisfactory achievement of
performance conditions approved by
the Board
Performance Conditions
% of Pool
Compound EPS growth over performance
period of:
0% to 5.00%
5.01% to 7.50%
7.51% to 10%
More than 10.01%
Nil
33.33%
66.66%
100%
Performance between 5% to 10% will be assessed on a sliding scale basis up to a
maximum of 341,071 shares.
Exercise conditions and Vesting Date
The Performance Rights Test Date will be 30 June 2020 (Test Date) after which, the Board
will determine whether or not the Performance Hurdles have been achieved.
As soon as reasonably practicable after each Test Date applicable to any Performance
Period, the Board shall determine in respect of each eligible employee, as at that Test Date:
(d) whether, and to what extent, the Performance Hurdles applicable as at the Test Date
have been satisfied;
(e) the number of Performance Rights (if any) that will become Vested Performance Rights
as at the Test Date; and
(f) the number of Performance Rights (if any) that will lapse as a result of the non-
satisfaction of Performance Hurdles as at the Test Date,
and shall provide written notification to each eligible employee as to that determination.
Exercise price
Expiry date
Nil
30 September 2020
A Performance Right lapses, to the extent it has not been exercised, on the earlier to occur
of:
(e) where Performance Hurdles have not been satisfied as at the relevant Test Date;
(f) if an eligible employee’s employment with the Company or Related Body Corporate
ceases before the Vesting Date;
(g) the day the Board makes a determination that the Performance Rights lapses because
of breach, fraud or dishonesty; and
(h) 30 September 2020.
5 Day volume weighted average
Share price
$1.5404
(1)
Test Date: the date at which assessment against the Performance Conditions are made by the Board. For PR2018, the Test Date will be
30 June 2020.
86
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 30 Share-based payments (continued)
(a) Performance Rights Plan (continued)
Set out below are summaries of rights issued under the plan:
Effective
Date
Expiry date
Exercise
price
Balance
at start of
the year
Granted
during the
year
Vested
during the
year
Lapsed
during the
year
Balance at
end of the
year
Vested and
issuable at
end of the
year
Number
Number
Number
Number
Number
Number
Company – 2020
1 July 2016
30 September 2019
1 July 2017
30 September 2020
1 July 2019
30 September 2021
Nil
Nil
Nil
1,141,738
261,775
– (1,141,738)
–
–
–
398,068
–
–
(261,775)
(398,068)
Total
1,403,513
398,068 (1,141,738)
(659,843)
–
–
–
–
–
–
–
–
Effective
Date
Expiry date
Exercise
price
Balance
at start of
the year
Granted
during the
year
Vested
during the
year
Lapsed
during the
year
Balance at
end of the
year
Vested and
issuable at
end of the
year
Number
Number
Number
Number
Number
Number
Company – 2019
1 July 2016
30 September 2019
1 July 2017
30 September 2020
Nil
Nil
Total
3,213,133
341,071
3,554,204
–
–
–
–
–
–
2,071,395
1,141,738
79,296
261,775
2,150,691
1,403,513
–
–
–
Fair Value of Performance Rights Issued
The assessed fair value at issue date of all performance rights is set out above. The fair value at issue date is determined based on
the five day volume weighted average share price prior to issue date.
(c) Employee Share Plan
The Group introduced the Collection House Limited Exempt Employee Share Plan, providing eligible employees with an opportunity
to acquire a beneficial ownership of shares in the Company. The Plan is administered by CPU Share Plans Pty Limited. This Trust is
consolidated in accordance with Note 1 (b) and Note 28.
All Australian and New Zealand resident employees were entitled to participate in the Plan subject to meeting certain eligibility
criteria. Employees eligible to participate in the Group’s Performance Rights Plans detailed at (a) above where not eligible to
participate in the Plan. Eligible employees may elect not to participate in the Plan.
Shares issued by the Trust to employees are acquired on-market prior to issue. Shares held by the Trust and not yet issued to
employees at the end of the reporting period are shown as treasury shares in the financial statements (refer Note 20).
Under the Plan, eligible employees may be granted up to $1,000 worth of fully paid ordinary shares in Collection House Limited
annually for no cash consideration. The number of shares issued to participants is the offer amount divided by the average price of
the shares acquired on the Australian Securities Exchange during the on-market purchase period. The shares are recognised at the
closing share price on the grant date, as an issue of treasury shares, and as part of employee benefit costs in the period the shares
are granted.
Shares issued under the scheme may not be sold until the earlier of three years after issue, or cessation of employment by the
Group. In all other respects, shares rank equally with other fully paid ordinary shares on issue.
The total number of shares granted to participating employees on 30 September 2019 was 327,980 units. The trade price of the
shares issued as at grant date was $1.27, and the shares had a grant date fair value of $1.27.
87
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements 30 Share-based payments (continued)
(d) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense
were as follows:
Performance rights plan
Deferred shares – CEO short-term incentive
Employee share plan
Total expenses arising from share-based payment transactions
Consolidated
30 June
2020
$’000
30 June
2019
$’000
(271)
(30)
196
(105)
620
124
107
851
31a Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Depreciation and amortisation
PDL Asset Impairment
Amortisation of purchased debt ledgers
Asset write offs
Non-cash employee benefits expense – share-based payments
Job Keeper accrued receipts
Provision for doubtful debts
Other non-cash expenses
Lease Interest
Borrowing costs
Interest paid
Change in operating assets and liabilities
(Increase)/decrease in trade debtors and bills of exchange
(Increase)/decrease in sundry debtors
(Increase)/decrease in other non-current assets
Increase/(decrease) in trade creditors
Increase/(decrease) in sundry creditors and accruals
Increase/(decrease) in current tax liability
(Increase)/decrease in deferred tax assets
Consolidated
30 June
2020
$’000
(145,070)
10,409
238,890
28,793
–
(105)
(2,817)
93
1,378
1,942
1,351
7,559
1,115
450
281
(219)
(7,015)
(9,165)
(62,521)
30 June
2019
$’000
30,690
6,326
–
42,041
29
955
(18)
411
–
1,591
6,067
749
3,910
(7,720)
(1,043)
876
1,068
889
Net cash inflow (outflow) from operating activities
65,349
86,821
88
Collection House Limited Annual Report 2020for the year ended 30 June 2020Notes to the Financial Statements 31b Reconciliation of Liabilities arising from financing activities
Movements – Consolidated
At 30 June 2019
– Cash
– Non-Cash
At 30 June 2020
Contributed
Equity**
$’000
Lease
Liabilities*
$’000
Borrowings
$’000
Total
$’000
116,413
5,625
210,600
332,638
1,256
1,898
119,567
(5,707)
4,254
(197)
37,648
37,566
3
39,549
214,857
371,990
*
**
The disclosure note is prepared in conjunction with the AASB16 transition adjustment to disclose the non-cash adjustment within the
financing activities.
Non-cash adjustment in Ordinary shares represents the transfer to issued shares from options reserve due to the vesting of performance
rights.
32 Events occurring after the reporting period
As previously stated, the Group had been actively engaged in a recapitalisation process which commenced 9 April 2020 when
a Standstill agreement was entered into with the Group’s lenders.
As disclosed in Note 18, on 9 April 2020, the Group entered into a Standstill Agreement with its Senior Lenders. This Standstill
Agreement (with subsequent amendments and extensions) confirmed, subject to the Group’s compliance with its terms and
conditions including the revised financial ratios and covenants, that the Group’s lenders would not take any action during the
period to 23 December 2020 (the standstill period) in relation to any potential or existing defaults that occurred under the facilities
prior to or during the standstill period.
On 23 December 2020, the Group entered into a sale agreement with Credit Corp Group Limited to acquire a significant portion
of it’s Australian PDL assets at a value of $160m. The Company has also reached agreement with its lenders where it will apply
the sale proceeds to the repayment of the majority of it’s existing facilities and they will then provide an ongoing funding facility
for the remaining approximate $62m (amount to be finalised on settlement of the PDL Assets sale). The buyer is also providing
a short term loan of $15m. The Group will retain a portion of it’s PDL assets and remains an active participant in the PDL asset
acquisition market.
Key terms of these financing facilities are outlined in Note 1v.
As the recapitalisation process, which resulted in the sale agreement, was in progress at year end, the anticipated cash flows
obtained from the final sale transaction have been used as a primary input in determining the value of the Group’s PDL assets
reported as at 30 June 2020. From the financial position disclosed in the Appendix 4E lodged with the ASX on 31 August 2020, this
value has led to a further impairment of $111.5m ($78.1m after tax). The final impact of the sale will be reflected in the December
2020 half year results.
89
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Notes to the Financial Statements
Directors’ Declaration
In the directors’ opinion:
(a)
the financial statements and notes set out on pages 37 to 89 are in accordance with the Corporations Act 2001, including:
(i)
(ii)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements, and
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for
the financial year ended on that date,
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and
payable, and
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A
of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Leigh Berkley
Chairman
Brisbane
23 December 2020
90
Collection House Limited Annual Report 2020for the year ended 30 June 2020
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Collection House Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of Collection
House Limited (the Company).
In our opinion, the accompanying Financial Report of
the Company is in accordance with the Corporations
Act 2001, including:
•
•
giving a true and fair view of the Group's
financial position as at 30 June 2020 and of its
financial performance for the year ended on that
date; and
complying with Australian Accounting Standards
and the Corporations Regulations 2001.
The Financial Report comprises:
• Consolidated Balance Sheet as at 30 June 2020;
• Consolidated Income Statement, Consolidated
Statement
Income,
Consolidated Statement of Changes in Equity,
and Consolidated Statement of Cash Flows for
the year then ended;
Comprehensive
of
• Notes
including a summary of significant
accounting policies;
• Directors' Declaration.
The Group consists of the Company and the entities
it controlled at the year-end or from time to time during
the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under 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 Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia.
We have fulfilled our other ethical responsibilities in accordance with the Code.
Material uncertainty related to going concern
We draw attention to Note 1a(v) “Basis of preparation – Going concern: Net current asset deficiency” in the
Financial Report. The conditions disclosed in Note 1a(v) indicate a material uncertainty exists that may cast
significant doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its
assets and discharge its liabilities in the normal course of business, and at the amounts stated in the Financial
Report. Our opinion is not modified in respect of this matter.
In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty
regarding events or conditions casting significant doubt in the Group’s assessment of going concern. Our
approach to this involved:
•
Evaluating the feasibility, quantum and timing of the Group’s plans to manage business performance and
liquidity and maintain compliance with relevant financial covenants imposed by the Group’s lenders, to
address going concern;
©2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG
name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability
limited by a scheme approved under Professional Standards Legislation.
91
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020
• Assessing the Group’s cash flow forecasts for incorporation of the Group’s operations and plans to address
going concern, in particular the potential for future impacts on the Group from the uncertain economic
conditions resulting from COVID-19;
• Determining the completeness of the Group’s going concern disclosures for the principle matters casting
significant doubt on the Group’s ability to continue as a going concern, the Group’s plans to address these
matters, and the material uncertainty.
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit
of the Financial Report of the current period.
This matter was 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 this matter.
In addition to the matter described in the Material uncertainty related to going concern section, we have
determined the matter described below to be the Key Audit Matter.
Valuation of the Purchased Debt Ledger portfolio ($173m) and Accuracy of Impairment Gain/Loss
($239m)
Refer to Note 10 to the Financial Report
The key audit matter
How the matter was addressed in our audit
A key audit matter was the assessment of the
Purchased Debt Ledgers (PDL) portfolio recognised
by the Group as:
the PDLs are significant to the financial position
of the Group and are the driver of financial
results
the PDLs consists of a portfolio of credit-
impaired
greater
variability in risks of recovery given their nature
receivables,
attracting
accounting for these PDLs using AASB 9
Financial Instruments (AASB 9) is complex and
multi-layered.
the Group
Starting with
estimating future cash flows and their Effective
Interest Rate (EIR), we particularly focused on
estimation of future cash collections, their
receipt and timing. This is the basis for layering
assessments of lifetime expected credit losses
in-reporting year
(ECL)
favourable changes, as an impairment gain, or
unfavourable, as impairment losses, and use of
a relevant discount rate. These are complicated
in nature and vary according to conditions and
risks relevant.
to measure any
The Group’s estimation of
future cash
collections and their lifetime ECL uses statistical
models for each PDL segment profile, which are
complicated in nature reflecting the accounting
complexity, and uses significant judgement
estimating forward-looking outcomes.
The Group changed strategies during the year,
•
•
•
•
•
92
Working with our credit risk modelling specialists, our
audit procedures included:
• Understanding key internal controls in the debt
collection process, including those in the collection
call centre, valuation and monitoring processes.
• Checking the mathematical accuracy of the PDL
valuation models.
• Understanding the Group’s collection strategy and
assessing the consistency of changes made to that
strategy as to their incorporation into the PDL
valuation models.
• Challenging key assumptions used by the Group in
determining the value of the PDL’s at year end.
Our challenge of key assumptions included:
o
o
o
o
the Group,
evaluating the accuracy of previous estimates
by
including debt collection
forecasting, credit-adjusted effective interest
rate, and estimated PDL life, when compared
to actual historical data;
identifying unusual ratios and trends in key
estimates when compared to actual historical
experience;
challenging
judgements and assumptions
applied with respect to estimated future cash
collections and ultimate lifetime recoveries,
against current experience of constrained
economic conditions and the impact of COVID-
19 on actual cash collections.;
analysing the credit-adjusted effective interest
rates applied by comparing the rate to actual
pricing/internal rate of return on recently
acquired accounts, historical implicit rates from
rates
cash collections and amortisation
Collection House Limited Annual Report 2020for the year ended 30 June 2020Independent Auditor’s Report
•
•
impacting
their cash collection processes,
increasing the variability of receipt and timing of
future cash collections from that previously
experienced.
The impact of the COVID-19 pandemic on
customers is unprecedented, challenging the
role of previous patterns of cash collections as a
proxy for future predicted behaviour. The rapidly
changing impact of the health crisis, along with
government and business relief and stimulus
arrangements, increase the risk in estimations,
widening the possible outcomes.
Subsequent to 30 June 2020, the Group entered
into a transaction to sell the Australian PDL
portfolio as part of the recapitalisation process.
The sale proceeds were a further indicator
regarding the amount the Group expects to
thereby
recover
necessitating additional focus from us in the
assessment of the impairment, the appropriate
application of AASB 9, and subsequent event
disclosure.
the PDL portfolio
from
These features resulted in significant audit effort, in
particular regarding the key assumptions, and we
involved our credit risk modelling specialists to
supplement our senior audit team members when
assessing this Key Audit Matter.
experienced, and by assessing the process’ of
calculating the actual implicit rate of return of
individual PDL’s tranches acquired on sample
of transactions from 1 July 2019 to 30 June
2020;
assessing out of model adjustments applied by
the Group to the PDL net present value by
using our knowledge of
industry,
constrained economic conditions and impact of
COVID-19 on cash collections.
the
o
• Assessing the accuracy of underlying data used
within the model. For a sample of accounts, we
tested their classification type and total amount
owed within PDL model
the underlying
documentation of the customer, such as account
history and collections characteristics;
to
• Assessing the impact of the Group entering into a
binding transaction to sell the Australian PDL
portfolio, including:
o
o
assessing the application of AASB 9 in the
measurement of the ECL as at 30 June 2020.
This included checking the appropriateness
and accuracy of key inputs in the estimation of
the ECL such as the expected sales proceeds,
forecast timing of cash flows and EIR.
comparing the expect sales proceeds to signed
transaction documentation;
• Assessing the appropriateness of the Group’s
including
disclosures
subsequent
our
understanding obtained from our testing against
the requirement of the accounting standards.
in the financial reports,
disclosure
event
using
Other Information
Other Information is financial and non-financial information in Collection House Limited’s annual reporting which
is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other
Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an
audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing
so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other Information and based
on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s
Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
93
Collection House Limited Annual Report 2020OverviewCorporate GovernanceFinancial ReportAdditional Informationfor the year ended 30 June 2020Independent Auditor’s Report
•
•
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and
fair view and is free from material misstatement, whether due to fraud or error
assessing the Group and Company's ability to continue as a going concern and whether the use of the going
concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless they either intend to liquidate the Group and
Company or to cease operations or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
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 Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They 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.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and
Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This
description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration
Report of Collection House Limited
for the year ended 30 June 2020,
complies with Section 300A of the
Corporations Act 2001.
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 responsibilities
We have audited Sections A to J of the Remuneration Report which is
contained in the Directors’ report for the year ended 30 June 2020.
Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing
Standards.
KPMG
Scott Guse
Partner
Brisbane
Ben Flaherty
Partner
Brisbane
23 December 2020
23 December 2020
94
Collection House Limited Annual Report 2020for the year ended 30 June 2020Independent Auditor’s Report
Shareholder Information
The shareholder information set out below was applicable as at 10 December 2020.
A. Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Class of equity security
Ordinary shares
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
There were 1,249 holders of less than a marketable parcel of ordinary shares.
B. Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
Name
1.
2.
3.
4.
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
JP Morgan Nominees Australia Pty Limited
Neweconomy com au Nominees Pty Limited <900 Account>
5. Mr Frederick Benjamin Warmbrand (FB & LJ Warmbrand Super A/C)
6.
7.
Durbin Superannuation Pty Ltd (Durbin Family S Fund A/C)
Kemp SMSF Pty Ltd (Kemp Super Fund A/C)
8. Morgan Stanley Australia Securities (Nominee) Pty Limited
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