Eclipx Group Ltd
Annual Report 2020

Plain-text annual report

Annual Report 2020 E C L I P X G R O U P L I M I T E D A C N 1 3 1 5 5 7 9 0 1 About Eclipx Group Eclipx Group is an established leader in vehicle fleet leasing and management in Australia and New Zealand. Eclipx Group’s primary brands are FleetPartners, FleetPlus and FleetChoice. For more information visit www.eclipx.com Contents Chairman’s Letter Chief Executive Officer’s Letter Business Overview Financial Highlights Values Environmental, Social & Governance Board of Directors Corporate Directory Financial Report 2 4 6 8 10 12 21 23 24 Shareholder’s Information 143 2 Chairman’s Letter Dear Shareholders, The Simplification Plan On behalf of your Board and of the Eclipx Group executive team, it’s with pleasure we present our 2020 Annual Report for the financial year ended 30 September 2020. Our core Fleet and Novated leasing businesses delivered a solid result in a most challenging macroeconomic and sociological environment, navigating the COVID-19 Pandemic crisis well throughout the last seven months of this financial year. Despite the negative impact of COVID-19, our executive successfully executed the Simplification Plan more than 13 months ahead of schedule, whilst announcing our Strategic Pathways plan underpinning our next growth phase. Understandably, since March 2020, we have concentrated on doing all we can to work with our executive and with each customer impacted by the Pandemic, assisting each one to manage this crisis. 2020 performance and operating environment In FY20, the Eclipx core Fleet and Novated businesses delivered Earnings Before Interest, Tax, Depreciation, Amortisation (EBITDA) of $85.4m, representing a like for like annual growth rate over the previous financial year of 4.3% and a Net Profit After Tax excluding Amortisation and One Off Costs (NPATA) of $47.5m, up 2.2% compared with FY19. The primary growth drivers included strong end of lease sale outcomes experienced in a better- than-expected used car market, combined with a robust credit performance in our portfolio and the benefits arising from operating cost and funding cost optimisation initiatives, that were part of the Simplification Plan. In May 2019, the Group outlined its “Simplification Plan”, aimed at bringing the Group back to a pure- play fleet management platform by the end of September 2021. Implementation of this plan was based upon four pillars: › divestment of six non-core businesses; › optimisation of the Group cost base; › de-risking of the Group Balance Sheet; and › a refocus on our core Fleet and Novated businesses. On behalf of the Board, I am pleased to report that in FY20, under the capable leadership of Julian Russell, the Simplification Plan was successfully completed some 13 months ahead of our target. Along with the FY20 year-on-year growth rates in core EBITDA and NPATA reported above, all six non-core businesses were exited, the reduction in our cost base was ahead of our initial target, and by year end we achieved a 56% reduction in gross corporate debt. In parallel with the execution of Simplification, the Group was able to launch its Strategic Pathways plan, focussing on growth in three target markets – Corporate, Novated and SMEs. Our people It is with pleasure that I advise that throughout FY20, implementation of the Group Simplification Plan was achieved without any material impact upon customers or the Fleet and Novated businesses. Significant changes were made to the executive team commencing in May 2019, with the majority of new appointments being made during FY20. These newly appointed executives managed the execution of the Simplification Plan, whilst planning and commencing implementation of the Group’s Strategic Pathways. I pay tribute to all Eclipx Group employees, who have each made significant contributions throughout FY20, demonstrating their resilience, commitment and consistency through a year of internal change and external challenges, much of it brought about by the COVID-19 Pandemic. I thank our employees whose dedication ensured Eclipx maintained its reputation for service leadership to our customers, evidenced in our consistently strong NPS. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 2 - 3 I was saddened earlier this year to say farewell to our loyal employee, colleague and great friend Jason Muhs. Although he battled for many years with cancer, right until the end Jason worked tirelessly, most recently as Head of Strategy and Interim Chief Financial Officer. Jason played a major role in the development and early implementation of the Simplification Plan. On behalf of the entire Eclipx Group family, I express our sincere sympathy and our thanks to Jason’s family and to all of his friends. Also, I express sincere appreciation to all those making up the Eclipx Group comprising the Board of Directors, our executive leaders and to all their team members both in Australia and throughout New Zealand. In what has been an extraordinarily challenging year, I compliment and thank the current team for their loyalty, resilience and commitment to provide exceptional service to our customers, in the interests of our investors and the wider community. Finally, on behalf of the Eclipx Group, I express my sincere thanks and appreciation to our customers, and to our shareholders for their continuing support and feedback throughout this year. COVID-19 response The ongoing COVID-19 Pandemic demanded a multi- faceted response. This included, but was not limited to, ensuring the health and safety of our employees, who worked endlessly supporting our customers and suppliers. In the early months of COVID-19, our particular attention was liquidity preservation and risk management. Under the capable leadership of our Chief Executive Officer Julian Russell, the Eclipx Group managed well and sensitively, quickly enabling remote working whilst maintaining excellent customer support, whilst keeping the Board, the investors and our funders well informed. That said, the effects of this Pandemic are likely to be with us throughout FY21 and beyond. Environmental, social and governance In an unusual yet busy 12 months, environmental, social and governance (ESG) continues as a high priority at the Eclipx Group. This year, significant steps were taken to address our environmental responsibilities, including our continuing focus on carbon offsets. I am most pleased to report our FleetPlus business retained its 100% carbon offset status for the third consecutive year. Also, the Group is committed to achieving permanent carbon neutrality, seeking “Climate Active” status certification in FY21. Throughout the Eclipx Group, our people maintained their strong commitment to the communities in which we live and work. This year the Group provided support to every employee who volunteered for the Rural Fire Service and to all other frontline responders during the catastrophic 2019/2020 bushfires. In response to these bushfires, the Group implemented an “adopt a koala” campaign whilst also committing to dollar matching at numerous charitable events, including a number of bushfire relief funds and “STEPtember”. Last, the Board reviews its governance framework periodically to ensure we uphold the highest standards. As a part of our commitment to corporate responsibility and sustainability, Eclipx has adopted a scorecard to measure our performance and to track our progress. Priorities and Outlook The Group is committed to implementing the next phase of its Strategic Pathways following completion of its Simplification Plan. This strategy is the Group’s roadmap with actions directed towards sustainable growth from three target markets: Corporate, Novated and SME. Investment is currently being directed at enhancing relevant market capabilities, including digital platforming and improved customer in-life experiences, combined with upgrading the Group’s technology infrastructure. These clear strategic actions are designed to deliver superior financial performance over the medium term. The 2020 Annual Report includes the Directors’ Report and audited Financial Statements, with comprehensive details of the Group’s operations and financial results across each business unit. Kerry Roxburgh Chairman 4 Chief Executive Officer’s Letter Dear Shareholders, The FY20 financial year commenced with good momentum in our core fleet and novated leasing business and with continued progress against our Simplification Plan. Notwithstanding this, the 2019/20 catastrophic bushfire season had a significant impact on customers, employees and the operating environment. This crisis was closely followed by the emergence of the COVID-19 pandemic, which came late in our second quarter, presenting unprecedented disruption to our customers, employees and the broader economy. These crises posed serious potential threats to our Group, but we took proportionate mitigation steps to manage these risks, and we continue to do so for the ongoing COVID-19 situation. Despite these crises and the consequential economic disruption, we are very proud that our Group’s core fleet and novated business delivered core standalone EPS growth of 22% in FY20 compared to FY19. Further, the Group completed its Simplification Plan, more than one year ahead of schedule and has already commenced the execution of our next phase of strategy, Strategic Pathways. COVID-19 When COVID-19 emerged late in our first half, we acted quickly and decisively. Beyond staff well- being and maintaining a strong customer service proposition, our initial priority was de-risking liquidity. Through lease extensions, cash and inventory management, we reinforced the liquidity position to $181m, a net 70% increase in liquidity between April and September 2020. During FY20, we further reduced our corporate net debt by 47% to $99m, bringing gearing down to 1.1x, compared to just over 3.0x twelve months prior at the end of FY19. New business writings (NBW) were impacted by the disruption of the COVID environment for two primary reasons. Firstly, we deliberately sought to incrementally extend leases in order to avoid potential liquidity issues, should the used car market have been closed. These incremental extensions effectively replaced NBW in the period. Secondly, NBW saw some reduction in line with business uncertainty and supply chain disruption caused by COVID. While we saw a resurgence of tenders and new business opportunities in our fourth quarter, business confidence remained volatile and decision making was slower than usual. Simplification Plan completed 13 months ahead of initial schedule In May 2019, shortly after I joined Eclipx Group, we set out the Simplification Plan with the specific objective of returning our business to a market leading fleet management organisation. There were four primary goals of the Simplification Plan, namely the divestment of our six defined non-core businesses, de-risking our balance sheet through a 50% ($175m) reduction in our corporate debt, increasing profitability through a net reduction in costs of $15m per annum, and a strategic re- focus on our core businesses. The non-core business divestment program was finalised with the sale of our last remaining non- core business, Right2Drive, in August 2020. The divestment program was critical to de-risking of our Group balance sheet, reducing the debt balance with sales proceeds, while removing earnings drag from non-performing businesses. Since the commencement of the Simplification Plan, we have reduced gross corporate debt from $350m in March 2019 to $155m in September 2020, $20m ahead of our initial target. The leverage ratio (net debt to EBITDA), a corporate debt covenant, was circa 1.1x in FY20, a huge improvement compared to more than 3.0x in FY19. The EBITDA constituent of the leverage ratio has been helped, in part, by our cost optimisation execution. On a run-rate basis, our Group consolidated operating cost base was $84.0m at 30 September 2020, compared to $99.5m in FY19, a net $15.5m per annum reduction, marginally ahead of our initial $15m reduction target. The Group outperformed each of the Simplification Plan targets, 13 months ahead of the initial end-FY21 target date. The execution of our Simplification Plan ahead of time and budget has given us great confidence in the strength and potential of our core businesses, and our Group’s capability to execute on plan. We are well positioned to execute on the next phase of our strategy, Strategic Pathways, a plan that has been carefully developed in parallel to the execution of Simplification. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 4 - 5 Strategic Pathways Strategic Pathways represents the next phase of our Group strategy. The plan has been specifically developed to further penetrate our three primary market segments, being Corporate operating leases, SME operating leases and Novated leasing. The plan also defines the initiatives required to drive profitable growth in these three large target markets. Australian Corporates (Fleets greater than 20 vehicles) represent roughly 2.1 million vehicles, of which circa 50% is estimated to be outsourced to fleet management organisations, like Eclipx Group. The Group has invested in its technology platform to enable better quality tools and propositions for our clients. There has also been a heavy focus on the development of our direct B2B sales channels, including alignment of sales incentives to deliver the best outcomes for shareholders. Our Novated business has customers with approximately 880,000 employees, which is about 1.6% penetrated by Eclipx. This is low relative to sector benchmarking, and gives us a good organic runway for growth. The low penetration rate reflects an historic underinvestment in this product offering. Over the last 18 months, the Group has invested, and continues to invest in the development of this business, including the development of an end-to- end digital platform. This platform is expected to be rolled out during FY21. As the broader economic confidence re-emerges, our Novated business is expected to provide a good tailwind for our Group. Australian SMEs (Fleets with less than 20 vehicles) represent roughly 1.3 million vehicles, of which only circa 2% are outsourced to fleet management organisations to date. While the domestic SME operating lease market is largely uncontested, the product is equally not well understood, unlike the UK and Europe where operating lease product penetration in the SME market has recently seen strong acceleration. Our two critical tasks in SME operating leasing is the finalisation of our go-to-market digital platform aimed at improving customer in-life experiences, and the selection of appropriate distribution partners. Customer, Community and Employees When COVID-19 emerged, the team moved quickly to remote working with limited disruption to productivity and customers. The team has achieved a number of outstanding outcomes for the Group and its customers including the establishment of the Group’s financial assistance (hardship) program, which provides temporary relief to customers impacted by COVID-led economic disruption. During the year, the Group provided support to all employees volunteering for the Rural Fire Service and other front-line responders to the 2019/2020 bushfires. The Group committed to dollar matching on a number of charitable events including bushfire relief, STEPtember, and introduced an ‘adopt a koala’ campaign for new novated customers from January through to April 2020. Throughout the year, the Group continued its support of Mental Awareness week, Movember, and Red Cross blood donation across Australia. The safety and well-being of our employees is a major priority for the Group. The impact of the COVID-19 environment has required an emphasis on expanding well-being measures, particularly given the severity of second stage lockdowns in Victoria, where a significant proportion of our employees are based. These measures included our existing employee assistance (counselling) program, offering support to our employees and their family members. We also introduced the Resilience Project program and access to zoom- based Reborn Fitness classes for all employees, as well as internal social network community events and many other well-being initiatives. Outlook We are very pleased with the FY20 full year result and believe it reflects strongly on the Group’s business model and team. With Simplification behind us, the business is now in a much stronger position to pursue profitable growth while managing external risks. Strategic Pathways has a very clear execution pathway to deliver the Group growth in each of our target markets. The implementation of the next stage of our strategy is already well underway and we feel confident in the outlook for our business. We are currently carrying a conservative liquidity position given the uncertainty in the macro environment. Notwithstanding this, we expect solid organic capital generation in FY21 and therefore through the course of FY21, we will continue to assess the best use of capital having regard to balancing macro risks, organic growth investment alternatives and with the ultimate goal of maximising capital returns to our shareholders. Julian Russell Chief Executive Officer 6 - 7 Eclipx Group Businesses Eclipx Group has three go-to-market brands: Operating across both Australia and New Zealand, FleetPartners and FleetPlus are leading providers of fleet management, leasing and salary packaging solutions. Utilising leading technology and decades of expertise, innovative and tailored solutions are provided to a diverse range of customers, including multi-nationals, corporates, small to medium sized businesses and individuals. In addition to its core fleet services and novated leasing they also provide solutions across accident management, short term rentals, driver education and telematics, including driver behaviour data and car pool bookings. FleetChoice provides novated leasing and salary packaging administration services for small to medium sized organisations and their employees across Australia, making reporting easy via a combination of direct contact and online reporting tools to streamline tax and compliance. In addition to its core fleet and finance services, it also assists customers to access a nation-wide supplier network offering fleet discounts, full vehicle servicing, maintenance and repairs. Business Overview Eclipx Group is an established leader in fleet leasing and management in Australia and New Zealand providing: F L E E T L E A S I N G A N D M A N A G E M E N T N O V A T E D L E A S I N G S A L A R Y P A C K A G I N G S O L U T I O N S ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Financial Highlights 1 2 GROWTH IN EARNINGS REFLECTS BUSINESS DEFENSIVE QUALITIES c. 70% Increase in available liquidity in the last six months c. 47% Decrease in corporate net debt in FY20 SIMPLIFICATION COMPLETED ONE YEAR AHEAD OF SCHEDULE 3 4 5 FOCUS ON PROFITABLE GROWTH THROUGH THREE TARGET MARKETS CORPORATE | NOVATED | SME “STRATEGIC PATHWAYS“ ($m unless specified) FY20A FY19A Var (+/-) C O R E I N C O M E S U M M A R Y NOI (pre- provisions)1 174.1 173.8 +0.2% EBITDA2 85.4 81.9 +4.3% NPATA 47.5 46.5 +2.2% A U M O F & N B W AUMOF ($bn) 2.0 2.1 (4.1%) NBW 6903 7614 (9.3%) B A L A N C E S H E E T Gross debt 155 286 (45.7%) Net debt 99 189 (47.3%) Net debt to EBITDA5 1.10x 3.03x 1.93x Available liquidity6 1817 1066 70.1% Notes: 1. NOI pre-provisions represents Net Operating Income and EOL income, but before credit and fleet impairment provisions. 2. 3. 4. 5. 6. 7. EBITDA pre AASB 16 adoption. Includes $61m of proactive and incremental targeted extensions deliberatively executed due to COVID environment in 2H20. Excludes $4m of lower profitability panel business given 100% of panel business has been run off as at 30 September 2020. Excludes $25m of lower profitability panel business given 100% of panel business has been run off as at 30 September 2020. Adjusted net debt (includes other financial indebtedness) to adjusted EDITA as reported to ECX lenders for covenant reporting. Available liquidity 2H20 vs 1H20. Includes $56m of unrestricted cash and cash equivalents plus $125m of available revolver capacity. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 8 - 9 Simplification Completed one year ahead of plan $350m $175m $155m 1H19 gross debt Targeted gross debt FY20 gross debt 2 Strengthened balance sheet 1 Non-core divestments Simplification Plan 3 Cost optimisation 4 Investment in sustainable core growth Run-rate opex $84.0m Reduced by >$15m since FY19 Corporate SME Novated Our team is always greater than the sum of its parts O U R T E A M I S : • Highly respectful • Your biggest challenger • Your strongest critic • Your best supporter Ownership, accountability & pride in everything we do W E A R E A C C O U N T A B L E F O R : • Ourselves • Our customers • Our colleagues • Our company E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 10 - 11 Values Eclipx Group are proud to have launched CARE, the new company Values designed to guide and drive employee engagement and to strengthen relationships with customers, partners and shareholders. CARE stands for Collaboration, Accountability, Reimagine and Excellence. Dream big, ask why and seek out positive change W E C H A L L E N G E : • Status quo • Conventional wisdom • Our assumptions • Each other respectfully Deliver beyond expectations, every day W E T H R I V E O N : • Beating customer expectations • Building relationships • Creating opportunities • Winning for our team Environmental, Social & Governance Corporate responsibility, sustainability and employee wellbeing are high priorities at Eclipx. Our primary focus is to ensure robust stewardship of the business and to deliver sustainable long term growth whilst operating in an ethical and transparent way. E N V I R O N M E N T H E A LT H A N D W E L L B E I N G O U R W O R K F O R C E D E V E L O P I N G O U R P E O P L E H E A LT H & S A F E T Y D I V E R S I T Y, I N C L U S I O N & B E N E F I T S C O M M U N I T Y S U P P O R T C O R P O R A T E G O V E R N A N C E V A L U E S A N D I N T E G R I T Y E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 12 - 13 Environment Health and Wellbeing At Eclipx we have a number of solutions to help reduce our environmental impact and climate risk. Eclipx’s partnership with the Clean Energy Finance Corporation (CEFC) has continued, with the aim of increasing the uptake of low emissions vehicles across Australia. Our partnership with CEFC provides corporate, government and not-for- profit fleet customers with access to discounted interest rates when choosing eligible low emissions passenger and light commercial vehicles. We have now financed more than $56.2 million worth of vehicles in our clean energy funding facility, since its establishment in 2015. With a commitment to employee health and wellbeing, Eclipx partnered with the Resilience Project during COVID lockdown to provide an online wellbeing program created to support physical and mental health. The Resilience Project’s top 10 strategies for building resilience and happiness were shared with all employees via an email series twice a week and was available on the Group Intranet and Workplace. The Resilience Project combined with the new Employee Assistance Program has provided a holistic support network for all employees during a potentially difficult time. We also recycle at the majority of our business locations through designated bins which separate paper, organic and plastic waste for collection. Empty toner cartridges and waste containers are also recycled through a third party and e-waste is either redirected or responsibly disposed of. Eclipx has not received any fines during the reporting period for non-compliance with environmental laws and regulations. Support for Bushfire Victims To assist recovery efforts from the catastrophic bushfires Eclipx pledged to adopt a koala on behalf of every new Novated Lease customer from 22 January to 29 February 2020. We were pleased to donate $26,760 to the Port Macquarie Koala Hospital to assist with the rescue and treatment of sick and injured koalas followed by their release back to the bush where possible. Our Workforce T U R N O V E R ( % ) Total (%) Voluntary (%) Involuntary (%) A G E D I V E R S I T Y ( % ) <20 (%) 20-29 (%) 30-39 (%) 40-49 (%) 50-59 (%) 60+ (%) G E N D E R D I V E R S I T Y Group Board (%) Group Executive (%) Management (%) Individual (%) Australia Only Management (%) Individual (%) New Zealand Only Management (%) Individual (%) FY20 FY19 35 69 31 0 15 37 26 15 5 M 60 90 67 55 M 69 59 M 67 44 F 40 10 33 45 F 31 41 F 33 56 47 64 36 1 27 32 22 15 3 M 67 87 67 56 M 66 57 M 71 50 F 33 13 33 44 F 34 43 F 29 50 14 - 15 Developing our people Eclipx employees are also offered compliance and risk related training throughout the year on various topics, including: Anti-money laundering, privacy, fraud awareness, anti-bribery and corruption, workplace health and safety, diversity and equality and cyber security. In FY20, Eclipx’s employees completed approximately 2,500 hours of training on these topics. Health & Safety Workplace health and safety management is a very important aspect of Eclipx’s operations, and we aim to create and maintain a safe environment for all employees, contractors, customers and visitors. Eclipx has designated health and safety professionals to guide our compliance to relevant health and safety laws and regulations, through a health and safety management system, which supports planned, orderly and effective control over health and safety issues. We also ensure our people are held accountable and responsible for workplace health and safety performance and that they proactively manage health and safety risks through identifying hazards, reporting near misses and carrying out risk assessments to eliminate or control any identified hazards. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Diversity, inclusion and benefits Eclipx Group offers an inclusive work environment for our diverse mix of employees regardless of their gender, age, disability, ethnicity, marital or family status, religious or cultural background, sexual orientation and gender identity. We also provide a supportive and rewarding working environment that offers a range of development opportunities and benefits: Diversity Committee Our Diversity Committee is responsible for driving and embedding our diversity strategy across the Group. With a varied and diverse workforce across Australia and New Zealand our life experiences and personal perspectives make us think and react differently, solve problems differently, and see different opportunities. We continue with our commitment to a diverse workforce, with better conversations and better results for customers. Our Diversity Committee members receive appropriate training through the Diversity Council of Australia and are charged with being advocates of change to ensure diversity and inclusion are ingrained throughout the business. International Women’s Day On International Women’s Day 2020 we were thrilled to have Susan Alberti AC come to our Richmond office to speak to staff across our businesses and share her inspirational story. Susan, is one of Australia’s pre-eminent philanthropists, having donated millions of dollars to medical research and other charitable causes over her successful business career. Susan has been both a Board member and Vice President of the Western Bulldogs Football Club and was named by the Herald Sun as one of the top 20 most influential women in sport for 2020. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 16 - 17 FleetPartners Supporting Children The Alan Duff Charitable Foundation, better known as Duffy Books in Homes is a literacy programme aimed at breaking the cycle of booklessness amongst children at low decile schools throughout New Zealand. The programme was developed following a visit by Alan Duff to Camberley School in Hastings in 1992. FleetPartners has been a supporter of Duffy Books in Homes for over 10 years providing the Westpac Duffy Theatre team a Mazda CX5 to drive around NZ, educating NZ school children on the value of books and reading. Empowering women Women in Eclipx (WINE) has now been running for over a year. Officially launched in FY18 WINE is an employee led networking group set up to enable women to have the opportunity to meet and learn from each other and to build meaningful connections across the Eclipx Group. It’s also about building confidence and independence by providing women with opportunities to learn new skills including wealth building, resilience training and how to juggle family life whilst still having a career. The Group’s vision is to inspire, develop and empower Eclipx’s female employee’s by creating networking, ideas sharing and mentoring opportunities. A number of WINE events took place over the last year both online and in person including a webinar on Unconscious Bias and an International Women’s Day presentation by Susan Alberti at the Richmond office. Volunteer leave We encourage and support our employees to safely engage with the communities they live and work in, while also driving engagement and collaboration amongst employees. One day of paid volunteering leave is offered to all permanent and fixed term employees (with a contract term of 12 months or more) on an annual basis, so they can take the time out to support a cause they are passionate about, as an individual or as part of a team. We provided support to all employees volunteering for the Rural Fire service and other front line responders to the 2019/2020 bushfires in Australia. Community support Engagement with and support of the communities we live and work in is a priority at Eclipx and we continuously provide our people with opportunities to participate in the environmental, social and sustainability programs and causes they are passionate about. Across our businesses employees dedicate time, funds, skills and knowledge to various not-for- profits. Eclipx employees participated in a number of fundraising initiatives throughout FY20, including “Movember” to raise money for men’s health. Staff also donated money and food in response to the bushfires in 2019/2020. Whilst FleetPartners were involved in Steptember, raising over $30,000 for Cerebral Palsy Alliance - an organisation committed to supporting children and adults living with cerebral palsy. We also continued to support Mental Health Awareness Week and Red Cross blood donation across Australia. 18 - 19 Parental leave We offer 12 weeks of paid leave for primary carers and one week of paid leave for secondary carers, along with flexible return to work options. We also offer an optional Keeping in Touch Plan to employees on parental leave, including 10 optional Keeping in Touch working days. This allows employees to transition more smoothly back into their role and team, remain connected to the business, become familiar with new or updated processes, and able to maintain and refresh their skills. Eclipx also provides all employees with access to an Employee Assistance Program. Internal mobility We aim to provide employees with meaningful work and development opportunities across the Group. These internal mobility opportunities may take the form of a secondment, permanent transfer or relocation to a new office, state or country. Study assistance We offer study assistance to employees as an acknowledgement of our most important resource - our employees and the knowledge, skills and values they bring to work. The Group recognises that the personal growth and development of our employees improves individual and organisational capability and is an integral part of the success of our people and business. Flexible work We believe that fostering an environment in which our employees can better integrate and balance their work life and personal commitments, will ensure we can attract and retain a diverse and talented workforce now and into the future. We also recognise that this approach leads to greater productivity, wellbeing and job satisfaction. Richmond office. Dress for your day We understand every day is different for every person within Eclipx. We want our employees to feel comfortable and empowered to their jobs which is why we’re embracing ‘dress for your day’. The choice is up to our employees based on a common-sense, professional approach and does not apply where mandatory safety uniforms are required. Engagement We have launched a fortnightly virtual town hall meeting to keep employees updated and connected with our successes, wins and business updates. Our Group intranet has regular updates coupled with an online CEO suggestion box enabling employees to provide feedback, comments and suggestions either directly or anonymously. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Corporate governance Values and integrity The Board of Directors, as Eclipx’s highest governance body, sets an expectation that Eclipx’s values and ethical standards are reflected in our operations. Eclipx is committed to maintaining the highest ethical standards in the conduct of its business activities and has adopted a Code of Conduct that applies to all Directors and employees, and where relevant and to the extent possible, consultants and contractors of Eclipx. The Code of Conduct outlines how Eclipx expects its representatives to behave and conduct business in the workplace, on a range of issues. The Eclipx Group Board is committed to implementing the highest possible standards of corporate governance and its underlying commitment to excellence is enshrined in its approach to governance. The Board reviews the governance framework periodically to ensure we continue to uphold the highest governance standards. The Board believes that sound governance is fundamental to ongoing success and growth and wherever possible, that it’s practices are consistent with the Third Edition of the Australian Securities Exchange (ASX) Corporate Governance Council’s Principles and Recommendations. To support these principles, Eclipx has established several distinct management and executive committees, each of which has a dedicated charter which outlines the purpose, responsibilities, composition, guidelines and source of decision making authority. The following are the three executive committees: Executive Committee: executes Eclipx’s strategy, develops business plans and ensures alignment with risk appetite. Risk Committee: identifies, assesses and reviews the key enterprise risks and relevant mitigating control activities and their effectiveness in accordance with our Risk Management Framework. Cost Committee: ensures that Eclipx operates in accordance with it’s approved annual budget, specifically in respect to operational and capital expenditure. 20 - 21 Board of Directors Kerry C D Roxburgh Gail Pemberton Chairman since 26 March 2015, Independent Non-Executive Director since 26 March 2015 Independent Non-Executive Director since 26 March 2015 Gail Pemberton’s executive roles have included Chief Operating Officer UK at BNP Paribas Securities Services and CEO and Managing Director, BNP Paribas Securities Services, Australia and New Zealand. Gail joined BNP Paribas after a highly successful 20-year career at Macquarie Bank, where she worked for 20 years, holding the role of Group CIO for 12 years and subsequently as COO of the Financial Services Group in her last three years at Macquarie. Gail’s current Board roles include Non-Executive Director of Eclipx (ASX:ECX), MNF (ASX:MNF), the Sydney Metro, Land Services WA and Chair of Prospa (ASX:PGL). She previously served on the Boards of Arq Group (ASX:ARQ), OneVue (ASX:OVH), SIRCA and RoZetta Technology as independent Chair, and as Non-Executive Director for PayPal Australia, QIC, UXC (ASX:UXC) amongst others. Gail was awarded the Order of Australia (AO) in the 2018 Australia Day Honours list for distinguished service to the finance and banking industry, to business through a range of roles, as an advocate for technology, and as a mentor to women. Kerry Roxburgh has over 50 years’ experience in financial services. He is a Practitioner Member of the Stockbrokers and Financial Advisers Association. He is Chairman of the Eclipx Group Ltd, the immediate past Chairman of Tyro Payments Ltd where he was a Non- Executive Director from April 2008 retiring at their AGM in October, 2019. For 22 years until 2019, he served as the Lead Independent Non-Executive Director of Ramsay Health Care Ltd. For 17 years, he was also a Non-Executive Director of the Medical Indemnity Protection Society and of MIPS Insurance Ltd, chairing their Group Investment Committee until 2020. Kerry was previously the CEO of E*TRADE Australia and was subsequently Non-Executive Chairman until it was acquired by the ANZ Bank in 2007. Prior to his time at E*TRADE in Australia, Kerry was an Executive Director at the HSBC Bank Australia where, for 10 years he held various positions including Head of Corporate Finance and Executive Chairman of HSBC James Capel in Australia. Prior to the HSBC, Kerry spent 20 years as a Chartered Accountant at HLB Mann Judd until 1986 and previously at Arthur Andersen. For 10 years until 2014, Kerry was the inaugural Chairman of the Charter Hall Group (ASX Code: CHC) and in 2015 he retired after 20 years as Chairman of the Board of Tasman Cargo Airlines (a member of the DHL International network) and he was previously a member of the Advisory Board of AON Risk Solutions in Australia. In addition to Eclipx Group Ltd, Kerry also serves as a member of the Executive Advisory Board for Team Thrive Pty Ltd, and since July 2020 he is Chairing a bid under the Federal Cooperative Research Centre (“CRC”) grant scheme for Australian research into “Blockchain & the Trust Economy”. ECLIPX GROUP LIMITED | ANNUAL REPORT 202022 Board of Directors C O N T I N U E D Trevor Allen Russell Shields Independent Non-Executive Director since 26 March 2015 Independent Non-Executive Director since 26 March 2015 Trevor Allen has over 40 years’ corporate and commercial experience, primarily as a corporate and financial adviser to Australian and international corporates. Russell Shields has more than 35 years’ experience in financial services, including six years as Chairman of ANZ Bank, Queensland and Northern Territory. Prior to joining ANZ, Russell held senior executive roles with HSBC, including Managing Director Asia Pacific – Transport, Construction and Infrastructure and State Manager Queensland, HSBC Bank Australia. He was previously Chairman of Onyx Property Group Pty Ltd and Chairman of Maritime Capital Shipping Ltd, an unlisted Hong Kong dry bulk shipping company. During the last three years Russell has also served as a Director for the following listed companies: Aquis Entertainment Ltd (appointed August 2015) and Retail Food Group Ltd (resigned October 2018). He is a Non-Executive Director of Peet Ltd and Freedom Foods Group Ltd and a Non-Executive Director of Australian Fresh Milk Holdings Pty Ltd. He is also a Non-Executive Director of Topco Investments Pty Ltd, the holding company of Real Pet Food Company Limited. Prior to undertaking non-executive roles in 2012, Trevor held senior executive positions as an Executive Director - Corporate Finance at SBC Warburg and its predecessors for eight years and as a Corporate Finance Partner at KPMG for nearly 12 years. At the time of his retirement from KPMG in 2011 he was the Lead Partner in its National Mergers and Acquisitions Group. Trevor was Director - Business Development for Cellarmaster Wines from 1997 to 2000, having responsibility for the acquisition, integration and performance of a number of acquisitions made outside Australia in that period. During the last three years Trevor has also served as a Director for the following companies: Yowie Group Ltd (resigned January 2018) and Brighte Capital Pty Ltd (resigned June 2018). Linda Jenkinson Independent Non-Executive Director since 4 January 2018 Linda Jenkinson is a proven global entrepreneur who has started three multi-national companies, one of which listed on the NASDAQ. Linda is currently a Chair of Guild Trustee Services, Gold Cross Products & Services as well as the Chair of Jaxsta Ltd (JXT-AX). In New Zealand Linda is a Director of Air New Zealand (AIR-NZ), a Director of Harbour Asset Management and the Chair of UNICEF Aotearoa New Zealand. Linda also acts an Advisory Board chair for Valocity Global. In the United States Linda is a Trustee and Secretary of the Massey Foundation. Most recently she was the co-founder of John Paul, a global concierge services and digital solutions company that services some of the world’s leading customer facing businesses. Previously she was a partner at A.T. Kearney in their Global Financial Services Practice and was a leader in A.T. Kearney Global Sourcing Practice. Linda holds a Master of Business Administration from The Wharton School, University of Pennsylvania and a Bachelor of Business Studies from Massey University. 22 - 23 Corporate Directory Eclipx Group Limited ACN 131 557 901 Eclipx Group is listed on the Australian Securities Exchange under the ASX code of ECX. Directors Kerry Roxburgh – Chairman Gail Pemberton Trevor Allen Russell Shields Linda Jenkinson Group General Counsel and Company Secretary Matthew W. Sinnamon Registered Office and Principal Administration Office Level 6, 601 Pacific Highway St Leonards, NSW 2065 Australia T: +61 2 8973 7272 F: +61 2 8973 7171 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney, NSW 2000 Australia T: +61 2 8280 7100 F: +61 2 9287 0303 Auditor KPMG Tower 3, International Towers Sydney 300 Barangaroo Avenue Sydney, NSW 2000 Australia T: +61 2 9335 7000 F: +61 2 9335 7001 Corporate Governance Statement For a copy of Eclipx’s Corporate Governance Statement visit: investors.eclipxgroup.com/Investor-Centre ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Financial Report for the year ended 30 September 2020 Directors’ Report Lead Auditor’s Independence Declaration Letter from Remuneration and Nomination Committee (unaudited) Remuneration Report (audited) Financial Statements Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements 1.0 Introduction to the Report 2.0 Business Result for the Year 2.1 Segment information 2.2 Discontinued operations 2.3 Revenue 2.4 Expenses 2.5 Earnings per share 2.6 Taxation 3.0 Operating Assets and Liabilities 3.1 Property, plant and equipment 3.2 Right-of-use assets 3.3 Finance leases 3.4 Trade receivables and other assets 3.5 Trade and other liabilities 3.6 Lease liabilities 3.7 Intangibles 4.0 Capital Management 4.1 Borrowings 4.2 Financial risk management 4.3 Cash and cash equivalents 4.4 Derivative financial instruments 4.5 Contributed equity 4.6 Commitments 4.7 Dividends 5.0 Employee Remuneration and Benefits 5.1 Share based payments 5.2 Key management personnel disclosure 6.0 Other 6.1 Reserves 6.2 Parent entity information 6.3 Related party transactions 6.4 Government subsidies 6.5 Remuneration of auditors 6.6 Deed of cross guarantee 6.7 Reconciliation of cash flow from operating activities 6.8 Events occurring after the reporting period Directors’ Declaration Independent Auditor’s Report 25 41 42 44 64 64 66 67 68 69 69 75 75 78 81 84 86 88 92 92 95 96 97 98 99 100 104 104 105 113 113 115 116 118 119 119 125 126 126 128 128 130 131 131 134 134 135 136 24 - 25 Directors’ Report The Directors present their report on the consolidated entity (referred to hereafter as Group or Eclipx) consisting of Eclipx Group Limited (Company) and the entities it controlled at the end of, or during, the year ended 30 September 2020. 1. Directors The following persons were Directors of the Company during the financial year and up to the date of this report: K E R R Y R O X B U R G H B C O M , M B A , M E S A F A A G A I L P E M B E R T O N M A ( U T S ) , F A I C D , G C E R T F I N ( G R I F F I T H ) Chairman since 26 March 2015, Independent Non-Executive Director since 26 March 2015 Independent Non-Executive Director since 26 March 2015 Gail Pemberton’s executive roles have included Chief Operating Officer UK at BNP Paribas Securities Services and CEO and Managing Director, BNP Paribas Securities Services, Australia and New Zealand. Gail joined BNP Paribas after a highly successful 20-year career at Macquarie Bank, where she worked for 20 years, holding the role of Group CIO for 12 years and subsequently as COO of the Financial Services Group in her last three years at Macquarie. Gail’s current Board roles include Non-Executive Director of Eclipx (ASX:ECX), the MNF Group (ASX: MNF), the Sydney Metro and Chair of Prospa (ASX:PGL). She previously served on the Boards of Arq Group (ASX:ARQ), OneVue (ASX:OVH), SIRCA and RoZetta Technology and Onthehouse (ASX:OTH) as independent Chair, as a Non- Executive Director for PayPal Australia, QIC and UXC (ASX:UXC) amongst others. Gail was awarded the Order of Australia (AO) in the 2018 Australia Day Honours list for distinguished service to the finance and banking industry, to business through a range of roles, as an advocate for technology, and as a mentor to women. Kerry Roxburgh has over 50 years’ experience in financial services. He is a Practitioner Member of the Stockbrokers and Financial Advisers Association. He is Chairman of the Eclipx Group Ltd, the immediate past Chairman of Tyro Payments Ltd where he was a Non-Executive director from April 2008 retiring at their AGM in October, 2019. For 22 years until 2019, he served as the Lead Independent Non-Executive Director of Ramsay Health Care Ltd. For 17 years, he was also a Non-Executive Director of the Medical Indemnity Protection Society and of MIPS Insurance Ltd, chairing their Group Investment Committee until 2020. Kerry was previously the CEO of E*TRADE Australia and was subsequently Non-Executive Chairman until it was acquired by the ANZ Bank in 2007. Prior to his time at E*TRADE in Australia, Kerry was an Executive Director at the HSBC Bank Australia where, for 10 years he held various positions including Head of Corporate Finance and Executive Chairman of HSBC James Capel in Australia. Prior to HSBC, Kerry spent 20 years as a Chartered Accountant at HLB Mann Judd until 1986 and previously at Arthur Andersen. For 10 years until 2014, Kerry was the inaugural Chairman of the Charter Hall Group (ASX Code: CHC) and in 2015 he retired after 20 years as Chairman of the Board of Tasman Cargo Airlines (a member of the DHL International network) and he was previously a member of the Advisory Board of AON Risk Solutions in Australia. In addition to Eclipx Group Ltd, Kerry also serves as a member of the Executive Advisory Board for Team Thrive Pty Ltd, and since July 2020 he is Chairing a bid under the Federal Cooperative Research Centre (“CRC”) grant scheme for Australian research into “Blockchain & the Trust Economy”. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D T R E V O R A L L E N B C O M ( H O N S ) , C A , F F, F A I C D Independent Non-Executive Director since 26 March 2015 Trevor Allen has over 40 years’ corporate and commercial experience, primarily as a corporate and financial adviser to Australian and international corporates. He is a Non-Executive Director of Peet Ltd and Freedom Foods Group Ltd and a Non-Executive Director of Australian Fresh Milk Holdings Pty Ltd. He is also a Non-Executive Director of Topco Investments Pty Ltd, the holding company of Real Pet Food Company Limited. Prior to undertaking non-executive roles in 2012, Trevor held senior executive positions as an Executive Director - Corporate Finance at SBC Warburg and its predecessors for eight years and as a Corporate Finance Partner at KPMG for nearly 12 years. At the time of his retirement from KPMG in 2011 he was the Lead Partner in its National Mergers and Acquisitions Group. Trevor was Director - Business Development for Cellarmaster Wines from 1997 to 2000, having responsibility for the acquisition, integration and performance of a number of acquisitions made outside Australia in that period. During the last three years Trevor has also served as a Director for the following companies: Yowie Group Ltd (resigned January 2018) and Brighte Capital Pty Ltd (resigned June 2018). L I N D A J E N K I N S O N B B S , M B A Independent Non-Executive Director since 4 January 2018 Linda Jenkinson is a proven global entrepreneur who has started three multi-national companies, one of which listed on the NASDAQ. Linda is currently a Chair of Guild Trustee Services, Gold Cross Products & Services as well as the Chair of Jaxsta Ltd (JXT-AX). In New Zealand Linda is a Director of Air New Zealand (AIR-NZ), a Director of Harbour Asset Management and the Chair of Unicef Aotearoa New Zealand. Linda also acts as an Advisory Board chair for Valocity Global. In the United States Linda is a Trustee and Secretary of the Massey Foundation. Most recently she was the co-founder of John Paul, a global concierge services and digital solutions company that services some of the world’s leading customer facing business. Previously she was a partner at A.T. Kearney in their Global Financial Services Practice and was a leader in A.T. Kearney’s Global Sourcing Practice. Linda holds a Master of Business Administration from The Wharton School, University of Pennsylvania and a Bachelor of Business Studies from Massey University. R U S S E L L S H I E L D S F A I C D Independent Non-Executive Director since 26 March 2015 Russell Shields has more than 35 years’ experience in financial services, including six years as Chairman of ANZ Bank, Queensland and Northern Territory. Prior to joining ANZ, Russell held senior executive roles with HSBC, including Managing Director Asia Pacific - Transport, Construction and Infrastructure and State Manager Queensland, HSBC Bank Australia. He was previously Chairman of Onyx Property Group Pty Ltd and Chairman of Maritime Capital Shipping Ltd, an unlisted Hong Kong dry bulk shipping company. During the last three years Russell has also served as a Director for the following listed companies: Aquis Entertainment Ltd (appointed August 2015) and Retail Food Group Ltd (resigned October 2018). 26 - 27 2. Company Secretary Mr Matt Sinnamon was appointed Company Secretary and Group General Counsel on 27 October 2014. He is admitted to the Supreme Court of New South Wales and the High Court of Australia. He is a member of the Governance Institute of Australia, a Chartered Secretary and is entered on the Roll of Public Notaries. The Company Secretary function is responsible for ensuring the Company complies with its statutory duties and maintains proper documentation, registers and records. The role provides advice to the Directors and officers about corporate governance and legal matters. 3. Directors’ Meetings The table below sets out the numbers of meetings held during the 2020 financial year and the number of meetings attended by each Director. During the year a total of 14 Board meetings, six Audit and Risk Committee meetings and five People, Culture, Remuneration and Nomination Committee meetings were held. Board Audit and Risk Committee Remuneration and Nomination Committee Director Held Attended Held Attended Held Attended Kerry Roxburgh Gail Pemberton Trevor Allen Linda Jenkinson Russell Shields 14 14 14 14 14 14 14 14 14 13 7 7 7 n/a 7 7 7 7 n/a 6 5 5 5 5 5 5 5 5 n/a n/a 4. Review of operations Principal activities We are one of Australia’s leading providers of fleet management services and operate in Australia and New Zealand. Our products include a comprehensive range of motor vehicle fleet services from acquisitions, leasing, in-life fleet management and remarketing. Simplification Plan During the 2020 financial year, the Group completed, 12 months ahead of schedule, the Simplification Plan that was first outlined by the Board during the 2019 financial year. This includes accomplishing the following key objectives: Divesting all non-core businesses Reducing operating expenses, on a run-rate basis, by $15.0 million Strengthening the balance sheet by reducing holding company debt to $155.0 million which is $20.0 mil- lion below the $175.0 million Simplification Plan target The Group is now focused on developing the core fleet business and its strategy. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Directors’ Report C O N T I N U E D 5. Impact of coronavirus (COVID-19) The COVID-19 pandemic and the measures undertaken to contain it have had significant social, medical and economic impacts in Australian and New Zealand that continue to unfold with the ultimate extent of the impacts still unknown. This socio-economic crisis required a multifaceted response by the Group. The response includes but is not limited to ensuring the health and safely of employees, working closely with customers and suppliers in their support, increasing the rigor around liquidity and risk management and enacting appropriate mitigation actions across all other aspects of the Group’s operations. The effects on the fleet management sector will be dependent on the severity and duration of the pandemic. The main impacts on the Group during the 2020 financial year, are summarized below: Australia and New Zealand Commercial New business writings (NBW) between March 2020 to September 2020 fell to 79% of pre COVID-19 levels defined by the period of October 2019 to February 2020. This was driven by a number of COVID-19 related factors: Increased level of lease extensions, as clients looked to delay replacing fleets given the uncertain econom- ic outlook created by COVID-19; Decreased demand for new leases driven by low business confidence created by the effect of COVID-19; and Delay in deliveries of new motor vehicles driven by the global supply chain disruption created by COVID-19. Brokerage income that is earned as a result of NBW funded via a principal and agency (P&A) arrangement was reduced by $4.2 million in 2020 compared to 2019 from the fall in NBW. Impairment losses relating to specific clients that have defaulted on payments as a consequence of COVID-19 on their business has been limited to $2.0 million. Demand for second-hand motor vehicles has increased in Australia and New Zealand during the COVID-19 pandemic which has allowed the Group to reduce its inventory level to $18.4 million and earn end of lease income of $2,659 per motor vehicle which is $191 greater per vehicle than the first half of the 2020 financial year. Novated New business writings (NBW) between March 2020 to September 2020 fell to 81% of pre COVID-19 levels defined by the period of October 2019 to February 2020. This was driven in the main by decreased demand for new leases as consumer confidence fell as a result of COVID-19. Brokerage income that is earned as a result of NBW and funded via a principal and agency (P&A) arrangement was reduced by $0.7 million in 2020 compared to 2019 due to the fall in NBW. A provision for impairment losses relating to specific clients that operate in severely impacted industries, was raised for $0.4 million. With respect to managing the risks presented as a result of COVID-19, the Group is taking or has taken the following actions: Working with customers to extend lease contract maturities where it is mutually beneficial Temporarily reduced the employee cost base through salary reductions including Non-Executive directors’ fees Restricting all non-essential operating and capital expenditure Amending the calculation of covenant ratios on its corporate debt by removing Non-Core EBITDA to more appropriately reflect cash generation in the Group Working with the Australian Office of Financial Management (AOFM) with respect to potential support for securitisation trusts to assist in financing hardship cases 28 - 29 Critical accounting estimates The critical accounting estimates and key judgements of the Group have required additional considerations and analysis due to the impact of COVID-19. Given the uncertainty of the extent of the pandemic, changes to the estimates and outcomes that have been applied in the measurement of the Group’s assets and liabilities that may arise in the future. The key impacts on the financial statements, including the application of critical estimates and judgements, are as follows: Provision for impairment losses on finance leases and trade receivables In March 2020, the IASB published IFRS 9 and COVID-19, a document that reinforces the fact that IFRS 9 does not provide a mechanistic approach in accounting for impairment provisions. The AASB 9 impairment methodology has remained consistent with prior periods. The Group revised the weighting of the model’s multiple economic scenarios (MES) from base (60%), upside (20%) and downside (20%) to base (50%) and downside (50%). Considering the uncertainty surrounding the effect from COVID-19, the Group also implemented a model adjustment by applying the highest historical expected credit loss rate since the model inception. This model adjustment resulted in an incremental credit impairment loss provision of $2.5 million. The Group also recorded a $0.4 million impairment relating to novated leases for the employees of specific clients that operate in severely impacted industries. Based upon the rate at which employees defaulted on their first payment after the deferral period, the Group applied an impairment provision for all novated leases currently with deferred payments or in default. Provision for impairment losses on operating leases The Group assumes residual value risk on leased motor vehicles which exposes the Group to the movement in second-hand prices of these assets. The AASB 136 Impairment of Assets methodology for impairing operating leases has remained consistent with prior periods including the incorporation of forecasted sale proceeds on the disposal of motor vehicles at lease end. The model used by the Group to estimate future sale proceeds is based on nearly 30 years of experience. An observable effect from the COVID-19 pandemic has been an increase in second-hand motor vehicle prices which, when applied with the model, results in higher forecasted sale proceeds which in turn, has reduced the amount of provision for impairment required on the Group’s operating leases by $1.3 million. To take into account the expected short term impact of higher second-hand motor vehicle prices, the Group has applied a 4.68% reduction to forecasted sale proceeds in order to mitigate the temporary inflationary effect of COVID-19 on second-hand motor vehicle forecasts. This results in a $1.6 million additional provision. Taking the offsetting impact of both provisions into account results in a net impact on the income statement of $0.3 million. Maintenance revenue Maintenance revenue is recognized in accordance with AASB 15 Revenue from Contracts with Customers and is based upon years of external and internal data to calculate the percentage of maintenance revenue to be recognised in line with the level of services provided as part of our obligations under the lease. Accordingly, maintenance revenue is recognised progressively on a lease over time, with the age of the lease being the most practical proxy for services provided. During the months of April 2020 to September 2020, the Group witnessed a decrease in the utilisation of its fleet and as a result, a decrease in maintenance expenditure which was driven by the restrictions on movement imposed by State and Territory governments in response to the COVID-19 outbreak. In order to match the delay in revenue with the delay in services provided as a result of the COVID-19 restrictions, the Group has deferred the recognition of $2.5 million maintenance revenue during the financial year. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 5. Impact of coronavirus (COVID-19) (continued) Impairment of non-financial assets At each reporting period, the Group reviews the carrying amount of its intangible assets to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the affected assets are evaluated in accordance with AASB 136 Impairment of Assets. The Group tested goodwill for impairment. This included updating the assumptions and cash flow forecasts to reflect the potential impact of COVID-19 on the Group. The Group also tested goodwill under a downside scenario that included lower growth rates and higher cash flow discount rates. No impairment losses were required to be recognised on goodwill including the downside case. Further details of the Group’s test for goodwill impairment are outlined in Note 3.7 in the Financial report. No indication of impairment was identified on other intangible assets as a result of COVID-19. Summary of COVID-19 overlays Director Held Attended Held Provision for impairment losses on finance leases and trade Provision for impairment losses on operating leases Maintenance revenue 3.1 1.6 2.5 7.2 1.3 (1.3) n/a - 4.4 0.3 2.5 7.2 6. Group financial performance During the 2020 financial year, the Group successfully completed the Simplification Plan, a full 12 months ahead of schedule. This included the sale of the remaining non-core businesses of CarLoans and Right2Drive, the comprehensive resizing of the cost base by $15.5 million and the reduction of corporate debt to $155.0 million which is $20.0 million below the Simplification Plan target. The completion of the Simplification Plan was achieved during a period of unprecedented operating challenges due to the COVID-19 pandemic, which underscores the achievement by the Group. The Group measures financial performance adopting the following non-IFRS measures: Net operating income (NOI). This represents earnings before tax after direct costs such as interest ex- pense on debt allocated to fleet assets, depreciation and amortisation of fleet assets. NOI also includes end of lease income. Earnings before interest, taxes, depreciation and amortization (EBITDA). This represents earnings before taxes after indirect costs such as wages, occupancy and technology costs. It also includes impairment expenses. EBITDA excludes depreciation and amortisation of non-fleet assets, share based payments and interest expense on corporate debt, other than interest expense on debt allocated to fleet assets. Cash net profit after taxes and amortization (NPATA). This represents earnings of the Group after tax. It excludes significant costs deemed to be non-recurring due to the nature of the cost as well as excluding the amortisation of all intangibles. Cash net profit after tax (NPAT). This represents the earnings of the Group after tax excluding significant costs deemed to be non-recurring due to the nature of the cost. It also excludes the amortisation of ac- quired intangibles. 30 - 31 The table below reconciles the non-IFRS measures with the statutory profit reported in the Group Statement of Profit or Loss and Other Comprehensive Income. The statutory profit includes the impact of the adoption of AASB16. Core Non-core Group $’m 2020 2019 2020 2019 2020 2019 Net operating income 173.7 173.3 Bad and doubtful debts (4.4) (1.3) 11.3 0.3 88.6 (5.1) 185.0 261.9 (4.1) (6.4) Operating expense (78.7) (90.1) (24.8) (105.9) (103.5) (196.0) EBITDA 90.6 81.9 (13.2) (22.4) 77.4 59.5 Depreciation and amortisation Share based payments (6.6) (6.0) (3.4) (2.2) Holding company debt interest (10.9) (10.5) (19.6) (19.3) (1.3) (1.1) - (5.1) 5.7 - (8.0) 8.9 (7.9) (6.0) (4.5) (2.2) (16.0) (18.5) (13.9) (10.4) Tax Cash NPATA Software amortisation Tax Cash NPAT 47.5 46.5 (13.9) (22.6) 33.6 23.9 (3.5) 1.0 45.0 (6.8) 2.0 41.7 - - (3.4) 1.1 (13.9) (24.9) (3.5) 1.0 31.1 (10.2) 3.1 16.8 Reconciling items to statutory profits Amortisation of acquired intangibles (3.8) (3.7) Impairment of intangibles Loss on disposals Fair value adjustment Significant items Tax Statutory Profit - - - (8.3) 3.6 36.5 (27.7) - - (28.0) 17.4 (0.3) - - (2.5) (3.8) (6.2) (178.8) - (206.5) (2.5) (116.2) (2.5) (116.2) - (3.1) 1.2 (21.6) - (21.6) (6.9) 9.7 (11.4) (34.9) 4.8 27.1 (18.3) (341.2) 18.2 (341.5) ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 6. Group financial performance (continued) Net operating income (NOI) Net operating income (NOI) within the Core business increased by $0.4 million compared to the 2019 financial year. The NOI increase was a result of: Higher net interest margin created by the issuance of asset-backed securitisations in Australia and New Zealand during the financial year Higher end-of-lease income as a result of more motor vehicles sold during the financial year and at a high- er average income per sold motor vehicle Offset by lower management fees from the decrease in the average number of motor vehicles being managed by the Group during the financial year and lower brokerage income as a result of lower new business writings Net operating income within the Non-Core business decreased by $77.3 million compared to the 2019 financial year. This was due to the divestment of non-core businesses by the Group during the course of the 2019 and 2020 financial years such as Grays, Eclipx Commercial Finance, CarLoans and Right2Drive. EBITDA EBITDA within the Core business increased by $8.7 million compared to the 2019 financial year. In addition to the positive impact from higher NOI, the Core business also saw a $11.4 million decrease in operating expenses. This decrease was driven by the successful execution of the Group’s Simplification Plan with respect to resizing the cost base. Lower operating expenses includes a $5.3 million impact from the adoption of accounting standard AASB 16 Leases, which reclassified lease rental costs below the EBITDA line. Partially offsetting the impact from lower operating expenses was the increase in the provision for credit impairment losses. This increase was largely driven by a $3.1 million management overlay in relation to COVID-19. EBITDA within the Non-Core business increased by $9.2 million compared to the 2019 financial year. Offsetting the above mentioned reduction of Non-Core NOI of $77.3 million were lower operating expenses of $81.1 million and lower impairment losses of $5.4 million. These reductions were due to the divestment of non- core businesses by the Group during the course of the 2019 and 2020 financial years such as Grays, Eclipx Commercial Finance, CarLoans and Right2Drive. Cash NPATA Cash NPATA within the Core business increased by $1.0 million compared to the 2019 financial year. In addition to the above mentioned EBITDA increase of $8.7 million, was the reclassification of lease rental costs from EBITDA as a result of the adoption of accounting standard AASB 16 Leases. Further offsetting the EBITDA result was the transition of the Group’s executive remuneration program from short-term incentives to long- term incentives which saw an increase in share-based payments of $3.8 million. Cash NPATA within the Non-Core business increased by $8.7 million compared to the 2019 financial year. In addition to the above mentioned EBITDA increase of $9.2 million, was the reclassification of lease rental costs from EBITDA as a result of the adoption of accounting standard AASB 16 Leases. Further offsetting the EBITDA result was the reduction in holding company debt expense of $2.9 million. 32 - 33 Reconciling items to statutory profit The major reconciling items between Cash NPAT and statutory profit include: Amortisation of other intangibles The $3.8 million amortisation of other intangibles in the Core business represents the amortisation of brand names and customer relationships. There was no adjustment for the Non-core business in the 2020 financial year as the intangibles for Grays and Right2Drive were written off in the 2019 financial year. Impairment of intangibles The 2019 impairment of intangibles in Core of $27.7 million related to the impairment of IT systems following a review by the newly appointed management after the restructure of the business and the impairment of customer relationships following a review of the profitability of a product being offered in New Zealand. The 2019 impairment of intangibles in Non-Core of $178.8 million related to the impairment of goodwill, acquired intangibles and software of Right2Drive, GraysOnline and CarLoans. All Non-core operations were disposed of by 30 September 2020. Loss on disposal During the financial year, the Non-Core operations disposed of Right2Drive and Carloans which recognized a loss on disposal of $2.5 million. Significant items Significant expense items incurred in the Core business for the 2020 financial year are linked to the Group’s Simplification Plan with respect to cost optimization. Primarily these relate to costs associated with redundancy payments to employees and exit costs of premises. An expense associated with the early repayment of holding company debt during the period is also included under significant items for the Core business. Significant items for the Non-Core business for the 2020 financial year relate to the restructure of Right2Drive and an adjustment to the sale proceeds for Eclipx Commercial Finance upon the finalisation of the completion accounts during the financial year. Significant items for the 2019 financial year across both the Core and Non- Core businesses included $16.6 million related to the unsuccessful merger with McMillian Shakespeare and $7.7 million related to the subsequent restructure of the Group. The Group adopted AASB 16 Leases from 1 October 2019. Information about adoption of the new accounting standard is contained in Note 1. of the Financial Statements. The AASB 16 standard provides a single lessee accounting model, requiring lessees to recognise a right-of-use asset (ROUA) and a lease liability for leases with the exception of short-term (less than 12 months) and low value leases. The standard has the effect of bringing what were previously off-balance sheet lease obligations, onto the balance sheet in the form of a ROUA and a Lease Liability. For the Group, this predominately relates to premises agreements. In addition to the balance sheet impact, the application of AASB 16 re-classifies lease operating expenses, that were previously included in EBITDA, into interest and depreciation which appear below the EBITDA line. The Group’s accounting for leases as a lessor, where it provides motor vehicle leases to its customers, remains largely unchanged under AASB 16. The Group will make no change in its treatment of finance leases that transfer all the risks and rewards incidental to ownership of the assets, or of operating leases that do not transfer substantially all the risk and rewards incidental to ownership of the underlying assets. The ongoing COVID-19 pandemic increases the uncertainty associated with estimations made in the preparation of these 2020 financial statements. Information about the Group’s approach is provided in Section 5 of this Directors’ Report and in Note 1 of the Financial Statements. With respect to the potential impacts of COVID-19, the Group made 30 September 2020 estimates based upon all information the Board considers relevant at this time. However, it’s likely subsequent economic conditions will result in materially different outcomes (better or worse) than the accounting estimates used in the preparation of these financial statements. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 6. Group financial performance (continued) Segment performance Australia Commercial ($m) Net operating income EBITDA 2020 102.9 51.5 2019 106.0 55.1 The Australia Commercial segment specialises in fleet leasing and management that operates under the trading names of FleetPlus and FleetPartners. EBITDA within the Australia Commercial segment decreased by $3.6 million compared to the 2019 financial year. NOI decreased by $3.1 million as a result of lower brokerage commission from lower new business writings which was adversely impacted by the effects of COVID-19. Management fees were also lower as the business transitioned away from low returning products. The lower EBITDA is also driven by $0.3 million of higher operating expenses in the 2020 financial year. Higher operating expenses arise as a result of “stranded” costs, previously allocated to Non-Core operations, returning to the Core business with the disposition of Non- Core assets. These costs more than offset the combined beneficial impact of the Group’s Simplification Plan to optimise costs, and the reclassification of premises rental expenses below the EBIDTA line with the adoption of accounting standard AASB 16 Leases. In addition to the above drivers, a $0.2 million increase in provision for credit impairment also contributed to the EBITDA decrease. Novated ($m) Net operating income EBITDA 2020 24.7 11.8 2019 28.6 14.9 The Novated segment specialises in novated leasing and salary packaging. It operates in Australia under the trading names of FleetChoice, FleetPlus and FleetPartners. EBITDA within the Novated segment decreased by $3.1 million compared to the 2019 financial year. A $3.9 million decrease in NOI was a result of lower new business writings which were adversely impacted by the effects of COVID-19 and drove the EBITDA decrease. This was partially offset by $0.9 million of lower operating expenses. New Zealand Commercial ($m) Net operating income EBITDA 2020 46.1 27.3 2019 38.7 11.9 34 - 35 The New Zealand Commercial segment specialises in fleet leasing and management and operates under the trading names of FleetPlus and FleetPartners. This segment also operates three used vehicle dealerships under the trading name of AutoSelect. EBITDA within the New Zealand Commercial segment increased by $15.4 million compared to the 2019 financial year. A combination of margin expansion and increased end-of-lease income helped drive a $7.4 million increase in NOI. Furthermore, the successful execution of the Group’s Simplification Plan with respect to cost optimization helped reduce operating expenses by $10.9 million along with the reclassification of premises rental expenses below the EBITDA line with the adoption of accounting standard AASB 16 Leases. This was partially offset by a $2.9 million increase in impairment losses. Non-core ($m) Net operating income EBITDA 2020 11.3 (13.2) 2019 88.6 (22.4) This segment includes the 2020 financial results of Right2Drive an accident replacement vehicle provider and CarLoans which is an online lending provider of consumer financing for vehicle purchases. As both businesses were sold by the Group during the 2020 financial year, the Non-Core segment is no longer operating as at 30 September 2020. EBITDA within the Non-Core segment increased by $9.2 million compared to the 2019 financial year. The sale of the Group’s non-core operations including Eclipx Commercial Finance, Grays, CarLoans and Right2Drive during the 2019 and 2020 financial years as part of the Group’s Simplification Plan, is driving the reduction in NOI in 2020 by $77.3 million. 7. Financial position Inventory Inventory was $18.4 million as at 30 September 2020 which is a reduction of $15.6 million compared to 30 September 2019. As one of the strategic responses to the economic crisis created by the COVID-19 pandemic, the Group reduced the inventory position in order to preserve liquidity. As the pandemic has progressed, an observable effect has been an increase in second-hand motor vehicle prices. Finance leases Finance leases were $370.3 million as at 30 September 2020 which is a reduction of $37.2 million compared to 30 September 2019. The decrease of this balance was driven by a combination of a decrease in new business writings in the 2020 financial year as a consequence of the COVID-19 pandemic and due to a greater portion of finance leases being funded by our principal and agency (P&A) partners as opposed to by our warehouse facilities. Operating leases reported as property, plant and equipment Operating leases were $867.2 million as at 30 September 2020 which is a reduction of $92.0 million compared to 30 September 2019. The decrease of this balance was driven by a $5.3 million reduction in equipment leases in New Zealand, which is a product no longer offered, a decrease in new business writings in the 2020 financial year as a consequence of the COVID-19 pandemic and due to a greater portion of operating leases being funded by our principal and agency (P&A) partners as opposed to by our warehouse facilities. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 7. Financial position (continued) Borrowings and funding As at 30 September 2020, gross borrowings include an amount of $155.0 million drawn against the holding company debt facility. This represents a $130.7 million reduction to the 30 September 2019 balance. After deducting cash and cash equivalents, the holding company net debt borrowing as at 30 September 2020 was $99.3 million representing a $89.3 million reduction to the balance at 30 September 2019. The remaining borrowings of $1,190.0 million relates to funding directly associated with finance and operating leases that the Group provides to its customers along with the inventory of vehicles in the process of being sold. This funding is provided by a combination of warehouse and asset backed securitisation funding structures. Warehouse facilities are so called because they can be drawn and repaid on an ongoing basis up to an agreed limit subject to conditions. A group of assets funded via a warehouse facility can be pooled together and refinanced via the creation of special purpose asset backed securitisation vehicles (backed by the assets initially financed via the warehouse) which issue debt securities to wholesale investors such as domestic and international banks and institutional funds. The Group aims to optimise its funding facilities with committed funding facilities to cater for expected business growth. At 30 September 2020, the Group had undrawn debt facilities of $342.7 million. Total Group assets and liabilities ($m) As at 30 September 2020 As at 30 September 2019 % change Inventory Finance leases Operating leases Other assets Total assets Borrowings Other liabilities Total liabilities Cash flows 18.4 370.3 867.2 34.0 407.5 959.2 1,255.9 1,400.7 776.6 849.0 2,032.5 2,249.7 1,345.0 1,604.7 179.0 163.9 1,524.0 1,768.6 (46)% (9)% (10)% (10)% (9)% (10)% (16)% 9% (14)% The Group saw cash and cash equivalents, including restricted cash, decrease by $37.4 million during the 2020 financial year compared to an increase of $31.6 million during the prior corresponding period. The decrease was driven by a $130.7 million repayment of holding company debt partially offset by cash generated by the positive EBITDA result and the $6.4 million of net proceeds from the sale of CarLoans and Right2Drive. As at 30 September 2020, the Group held $55.8 million of unrestricted cash and $152.0 million of restricted cash. 36 - 37 8. Going concern This financial report has been prepared on the basis that the Group is a going concern. The Group has considered its ability to continue as a going concern, using projected cash flow forecasts and other Group metrics and information for at least the next 12 months from the approval of these financial statements, taking into consideration an estimation of the continued business impacts of COVID-19. This assessment assumes the Group will be able to continue trading and realise assets and discharge liabilities in the ordinary course of business beyond this period. At 30 September 2020 the Group held unrestricted cash reserves of $55.8 million, and undrawn capacity under its holding company debt facilities of $121.7 million maturing October 2022. The Group’s going concern assumption is supported by the following: The Group held unrestricted cash reserves of $55.8 million, and undrawn capacity under its debt facilities of $121.7 million; The amendment during the 2020 financial year to holding company debt covenant ratios provides the Group with material headroom; All non-core businesses have been divested; Group operating expenses have been reduced, on a run-rate basis, by $15 million; and The Group is now solely focused on growing the core fleet business. 9. Business strategic objectives With the successful execution of the Group’s Simplification Plan during the 2020 financial year, the strategy of the Group is now focused on accelerating growth across all of its three core segments. At the forefront of this strategy will be a technology led offering that ensures our client experience is market leading through its speed, simplicity and transparency. The Group will also continue to leverage the competitive advantage which is derived from its diverse funding model. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 10. Key risks The following risks represent those where the Board and the Executive Leadership Team are focusing their efforts. Key risk Mitigating factors The Group may inaccurately set and forecast vehicle residual values and there may be unexpected falls in used vehicle prices The Group may be exposed to increased funding costs due to changes in market conditions The Group is exposed to credit risk The Group performs a monthly portfolio revaluation using market information on all assets where the Group is at risk on the residual value and any impairment identified is immediately recognised. The Group has multiple disposal channels for vehicles returning at the end of the lease, allowing the Group to minimise any losses on vehicles where the residual value is above the market value. Residual values are reviewed regularly by the pricing and risk team and adjusted based on market and actual performance. The Group has materially reduced the inventory held by taking advantage of the current strong used car prices being experienced in the market The Group has a diversified funding structure which includes multiple funding parties. Funding margins are negotiated and agreed on an annual basis. The Group has the ability to charge any margin increase onto new business that is written in the year. The Group mitigates the interest rate risk by hedging the portfolio and funding is pro- vided based on the contractual maturity of the lease. The Group has a dedicated credit team that assesses risk drawing on nearly 30 years of operating experience, a wealth of proprietary data (including customer credit performance, arrears management, loss rates, and recovery rates), and external credit reporting data from local credit bureaus. Reduction in the number of new passenger vehicles sold The Group’s growth is comprised of leases from a diverse mix of vehicles in addition to passenger vehicles including, light commercial and heavy commercial vehicles. This mitigates exposure to one vehicle segment. The Group is growing in the Novated segment as it continues to educate customers about novated leases and continues to grow the sale of novated leasing. Maintaining a high-quality employee base The Group has a process in place to identify and develop key talent. Key staff are incentivised through short-term and long-term incentive plans. Incentive plans have been refreshed to reward individuals for achievements. Exposure to cyber-attacks The Group undertakes key actions to detect, contain, monitor and secure internal and external facing systems. Some of these actions include: Improved layers of monitoring Penetration testing on critical systems Education program to ensure increased vigilance of our staff with respect to various forms of cyber-attacks Program of continued upgrading of systems 11. Subsequent events No matter or circumstance has occurred since the end of the reporting period that may materially affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. 12. Changes in state of affairs During the financial year, there were no significant change to the state of affairs of the Group other than that referred to in the Director’s report, financial statements or notes thereto. 38 - 39 13. Environmental factors The Group is not subject to any significant environmental regulation under Australian Commonwealth, State or Territory law. The Group recognises its obligations to its stakeholders being customers, shareholders, employees and the community, to operate in a way that lowers the impact both it, and its customers, have on the environment. 14. Dividends No dividend were declared for the year ended 30 September 2020 (2019: nil). Details of dividends paid and dividends determined are outlined in Note 4.7 in the financial report. 15. Indemnification of Directors and Officers The Directors and Officers of the Group are indemnified against liabilities pursuant to agreements with the Group. The Group has entered into insurance contracts with third party insurance providers, in accordance with normal commercial practices. Under the terms of the insurance contracts, the nature of the liabilities insured against and the amount of premiums paid are confidential. 16. Non-audit services KPMG, the external auditors of the Group provided non-audit services during the 2020 financial year. The role of the external auditor is to provide an independent opinion that the financial reports are true and fair and that they comply with applicable regulations. The Audit and Risk Committee has implemented processes and procedures to review the independence of the external auditors and to ensure that they may only provide services that are consistent with their role of external auditor. The Group acquired non-audit services from KPMG only where the utilisation of KPMG would be beneficial to the Group due to the specific skills and knowledge the non-audit service team would have regarding the transaction and the impact this could have on the Group. Following a review of the services provided by KPMG for the 2020 financial year, the Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 in view of the nature and amount of the services provided, and that all non-audit services were subject to the corporate governance procedures adopted by the Company. The fees paid or payable to KPMG were as follows: ($m) Audit and assurance services 2020 $ 2019 $ Audit and review of financial statements 1.03 1.50 Non-audit services Proposed merger with McMillan Shakespeare Limited Debt restructuring Other transactional advisory services Total remuneration for non-audit services for KPMG Total remuneration for KPMG - 0.08 - 0.08 1.11 0.97 0.35 0.06 1.38 2.89 A copy of the auditor’s independence declaration is set out on page 16 of this financial report, and forms part of the Directors Report. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Directors’ Report C O N T I N U E D 17. Rounding of amounts The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report and the Financial Report. Amounts, unless otherwise stated, have been rounded off to the nearest whole number of thousands of dollars. This Directors’ Report is signed on behalf of the Directors in accordance with the resolution of Directors made pursuant to section 298(2) of the Corporations Act 2001. Kerry Roxburgh Chairman Sydney 40 - 41 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Eclipx Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Eclipx Group Limited for the year ended 30 September 2020 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG KPMG Dean Waters Partner Melbourne Peter Zabaks Partner Sydney 10 November 2020 10 November 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. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Letter from Remuneration and Nomination Committee 3 0 S E P T E M B E R 2 0 2 0 Dear Shareholders, On behalf of the Board, I am pleased to present Eclipx Group Limited’s (Group) FY20 Remuneration Report. Group performance highlights In FY19, the Group embarked upon a comprehensive restructure designed to streamline its business, enhance performance and support future growth. This restructure, known as the “Simplification Plan”, focused on four key pillars: seeing the Group divest of its non- core businesses, strengthen its balance sheet, optimise its costs and invest in sustainable core growth. Driving the success of the Simplification Plan is the Group’s revised executive team. In addition to promoting Bevan Guest to Chief Commercial Officer, over the last 16 months, the Group has refreshed eight of the ten executive team roles, which in FY20 included the appointment of Damien Berrell as the Group Chief Financial Officer, as well as new appointments to the roles of Chief Information Officer, Head of People & Culture, Chief Risk Officer, Head of Strategy and Group Treasurer. The efforts of the renewed executive team, and all of the Group’s employees, over the last 16 months have seen the Group deliver against the targets set under the Simplification Plan, more than one year ahead of expectations. This included the divestment of all six non-core businesses (with the final divestment of Right2Drive completing in August 2020), an annualised reduction of more than $15m in the Group’s operating expenses and a 56% reduction in gross corporate debt. The Group’s core business has also remained strong in FY20, increasing profitability despite challenging market conditions and the significant impact of the COVID-19 pandemic. This strong performance is a testament to the flexibility and commitment of the Group’s workforce, including the dedicated financial hardship team established to support customers through the COVID-19 pandemic and the sales teams tasked with proactively offering customers extensions to existing leases. With the successful execution of the Simplification Plan, our Chief Executive Officer (CEO), Julian Russell, and the renewed executive team will continue to pursue the Group’s strategic objectives through FY21 and beyond. COVID-19 response – overview of FY20 remuneration To address the impact of the pandemic, the Group implemented the COVID-19 Employee Optimisation Plan designed to retain its talented team and maintain the high standard of customer service associated with our brands. This prompt action meant the Group avoided employee stand downs while maintaining our strong customer service culture. As part of this plan, for a period of three months commencing in April 2020: › The Chairman and Non-Executive Directors accepted a reduction of 25% and 20% respectively in their Board fees; and › The CEO, Chief Commercial Officer and Chief Financial Officer accepted a respective reduction of 50%, 40% and 30% in their fixed remuneration. In addition to the above, during FY20: › Our Executive KMP were not eligible to receive any short-term incentive (STI) payments in line with the removal of STI from our executive remuneration framework; and › No long-term incentive (LTI) grants vested with our Executive KMP. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 42 - 43 Approach to FY21 executive remuneration (i) Fixed remuneration There is no proposal to change the quantum of fixed remuneration for the Executive KMP or of Board fees in FY21. (ii) Variable remuneration The Group’s share price experienced a sharp decline from late February 2020 as a consequence of COVID-19 and the associated challenging equity market conditions. During FY20, reflecting the need to ensure our key employees were incentivised to deliver on the Group’s Simplification Plan and to drive share price performance in the interests of our shareholders in a difficult operating environment, the Board decided to bring forward the award of an FY21 equity incentive by making a once-off grant of premium priced options to executives and selected employees in April 2020 with exercise prices set at a 20% and 35% premium to the Group’s share price at the time of grant (FY21 Variable Remuneration Options). These FY21 Variable Remuneration Options were made in lieu of our standard LTI award for FY21 (scheduled to be granted in November 2020). The options created value for our key employees only when there was a significant recovery of the Group’s performance, sustainability and share price in a challenging and uncertain operating environment. The FY21 Variable Remuneration Options reflected the unique circumstances created by COVID-19 and the Board intends to revert to our standard LTI arrangements in FY22. As noted above, our Executive KMP do not receive an STI under our executive remuneration framework. Subsequently, the Board have been pleased to see the Group’s share price recovering (see section 4.3), notwithstanding the continuing volatility and uncertainty in the market. The Group’s share price trajectory is, in large part, due to the actions of the recipients of the FY21 Variable Remuneration Options, setting the Group up for success in FY21 and beyond. The FY21 Variable Remuneration Options reflected the unique circumstances created by COVID-19 and the Board intends to revert to our standard LTI arrangements in FY22. As noted above, our Executive KMP do not receive an STI under our executive remuneration framework. The Board will continue to review the remuneration framework annually to ensure it remains fit for purpose to drive the delivery of the Group’s strategy and reward performance in line with the delivery of long-term value for our shareholders. I look forward to the opportunity to answer any questions regarding the Remuneration Report from shareholders at the Eclipx Annual General Meeting in February 2021. Yours faithfully, Gail Pemberton Gail Pemberton Chair of the Remuneration and Nomination Committee Remuneration Report (audited) for the year ended 30 September 2020 1. Who is covered by this Report? 2. FY20 at a glance 3. Overview of executive remuneration at Eclipx 4. Link between Group performance and remuneration outcomes 5. Remuneration framework for FY21 6. Remuneration governance 7. Non-Executive Director fees 8. Executive service agreements and statutory remuneration disclosures 9. Additional required disclosures 45 46 47 50 54 56 57 58 60 44 - 45 1. Who is covered by this Report? This Report covers the Group’s key management personnel (KMP), who are the people responsible for determining and executing the Group’s strategy. For the year ended 30 September 2020, the KMP were: Name Executive KMP Julian Russell Bevan Guest Damien Berrell Non-Executive Directors Kerry Roxburgh Gail Pemberton Trevor Allen Russell Shields Position Term at KPMG Chief Executive Officer Chief Commercial Officer Full Year Full Year Chief Financial Officer Appointed 18 April 2020 Independent Chairman Full Year Independent Non-Executive Director Full Year Independent Non-Executive Director Full Year Independent Non-Executive Director Full Year Linda Jenkinson Independent Non-Executive Director Full Year ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Remuneration Report (audited) C O N T I N U E D 2. FY20 at a glance The following table outlines the key focus areas and remuneration outcomes for FY20. Key focus area or outcome Highlights / Details Impact of COVID-19 on remuneration The Group took a number of measures in response to COVID-19 as part of its commitment to retain and reward its talented team and to ensure team consistency, a customer-centric culture and the preservation of our market leading customer proposition and service. Further information On FY20 executive remuneration outcomes: Section 4 One of these measures was the COVID-19 Employee Optimisation Plan, implemented in April 2020, that saw a three months temporary cash remuneration reduction for the Board, the executive team, all employees in New Zealand and employees with a salary above $70,000 in Australia. The level of remuneration reductions varied as follows: Executives and employees Chief Executive Officer Chief Commercial Officer Chief Financial Officer Executive Committee members 50% reduction 40% reduction 30% reduction 30% reduction All other employees 0-20% reduction Board Chairman Non-Executive directors 25% reduction 20% reduction LTI vesting outcomes in FY20 No LTI grants vested in FY20 as threshold EPS and TSR performance targets were not met. As a result, the FY18 LTI and re-tested FY17 LTI expired unvested. Section 4 As noted above, in line with our new executive remuneration framework, Executive KMP were not eligible to receive any STI payments in FY20. FY21 Variable Remuneration Options In April 2020, a once-off grant of premium priced options (FY21 Variable Remuneration Options) was made to Executive KMP in lieu of any FY21 LTI awards, reflecting the unique circumstances created by COVID-19. Two tranches of options were granted with exercise prices set at a 20% and 35% premium respectively to the Group’s five-day VWAP preceding the date of grant. The use of premium-priced options was to deliver value to Executive KMP and encourage them to focus on executing the Group’s Simplification Plan and to drive the Group’s share price performance in the interests of our shareholders, as the options would only deliver value only if there was a material increase in the Group’s share price. On key terms of the FY21 Variable Remuneration Options: Section 5 Changes in FY21 As noted above, the once-off grant of FY21 Variable Remuneration Options replaced the LTI for FY21. No other changes are proposed in FY21. The Board intends to revert to our standard executive remuneration framework (including our LTI arrangements) in FY22. On the FY21 executive remuneration framework: Section 5 46 - 47 3. Overview of executive remuneration at Eclipx 3.1 Our remuneration strategy Simplification Plan Our Simplification Plan is intended to establish the Group as the market leading fleet and novated leasing platform in Australia and New Zealand and is built on 4 pillars: Investing in sustainable fleet and novated core growth Divesting non-core assets Strengthening the balance sheet Optimising costs Remuneration Strategy The Group’s remuneration strategy seeks to attract, retain and incentivise key talent to support business performance that delivers sustainable long-term shareholder value creation. 3.2 Our remuneration objectives Alignment to performance Simple and Transparent Support the business strategy and stakeholder alignment Simple and transparent remuneration framework Market competitive Reward and retain key successors Equitable Culture Consistent approach to the way we reward all Executives, based on capability and performance Drive a culture of rewarding high performance and engagement ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 3. Overview of executive remuneration at Eclipx (continued) 3.3 Executive KMP remuneration framework The Group’s remuneration framework was revised in FY19 to support the delivery of the Simplification Plan. Remuneration components Fixed remuneration LTI What is it? Purpose Base salary, non-monetary benefits and superannuation Attract and retain key talent based on capability and experience to deliver strategy Options allocated using a fair value methodology Motivate, retain and reward key employees, focusing on sustainable long-term performance, and providing participants with exposure to the Group’s shares Link to performance Set based on the individual’s experience, capability and value they bring to the Group Will only deliver value to participant where strong share price growth occurs Alignment with business strategy Attract and retain based on comparable roles in companies with similar market capitalisation Rewards individuals for delivering business performance that accelerates shareholder value creation Remuneration delivery The following diagram provides an overview of the Executive KMP annual remuneration opportunity. Annual remuneration Fixed remuneration Base salary, superannuation and other benefits 100% cash paid in year LTI Performance period 100% subject to an Absolute Cash EPS hurdle 100% equity vest after three year performance period subject to performance Fixed remuneration is paid within the year, while the long-term incentive opportunity is subject to a three-year performance period. The above is the standard annual Executive KMP remuneration structure and excludes the one-off FY21 Variable Remuneration Options issued in April 2020 in lieu of a standard FY21 LTI award (scheduled to be issued in November 2020). While there will be no FY21 LTI grant, the Board intends to revert to the traditional LTI approach from FY22. Remuneration Report CONTINUED48 - 49 Remuneration mix The remuneration mix for the Executive KMP consists of fixed and at-risk remuneration. For FY20, the at-risk remuneration opportunity comprised of an LTI grant. The remuneration components for each Executive KMP are expressed as a percentage of total remuneration. The following diagram sets out the remuneration mix for Executive KMP. Julian Russell Bevan Guest Damian Berrell 69% 57% 59% 31% 43% 41% Fixed Remuneration FY20 LTI Grant (Fair Value) Remuneration mix for FY20 excludes the FY21 Variable Remuneration Options grant. ECLIPX GROUP LIMITED | ANNUAL REPORT 20204. Link between Group performance and remuneration outcomes 4.1 FY20 remuneration outcomes Actual remuneration awarded during FY20 comprises: Total fixed remuneration (cash salary and superannuation). As noted above, in response to COVID-19 and the challenging market conditions, the CEO, Chief Commercial Officer and Chief Financial Officer accepted reductions of 50%, 40% and 30% respectively in their total fixed remuneration for a period of three months from April 2020. During FY20: No STI awards were made to Executive KMP, in line with the decision to remove the STI from the new remuneration framework. No LTI grants vested. Following testing of the FY18 LTI and re-testing of the FY17 LTI, the EPS and TSR performance targets (as set out in the FY18 and FY17 Remuneration Reports, respectively) had not been met and both awards expired unvested. The table below presents the remuneration paid to Executive KMP in FY20 (note: the table is not prepared in accordance with Australian Accounting Standards. The statutory remuneration tables for Executive KMP are in Section 8.2). Total fixed remuneration Cash bonus paid Equity vested ($)1 ($) ($)2 Total ($) Julian Russell Bevan Guest Damien Berrell3 638,600 552,820 156,095 - - - - - - 638,600 552,820 156,095 (1) Salary and superannuation are paid fortnightly and may vary depending on the number of pay cycles within any given year. Total fixed remuneration includes the temporary reduction from April 2020. (2) No equity vested in respect of the FY17 and FY18 LTI grants. (3) Mr Berrell’s actual total remuneration reflects remuneration received since his appointment as CFO on 18 April 2020. Remuneration Report CONTINUED50 - 51 4.2 Historical performance against key metrics The table below summarises key financial metrics achieved for the last five years. FY16 FY17 FY18 FY19 FY20 Cash NPATA (‘$000) 55,330 68,275 78,108 23,823 33,615 Cash EPS (cents) Statutory EPS (cents) Share price at the end of the year Interim dividend paid (cents) Final dividend paid (cents) 22.19 18.88 $4.07 6.75 7.00 25.11 20.31 $4.05 7.50 7.75 24.69 19.80 $2.57 8.00 8.00 7.45 (107.00) $1.79 - - 10.52 5.76 $1.54 - - 4.3 FY20 share price performance The following graph represents the Group’s share price for the FY20 period (1 October 2019 to 30 September 2020) and provides a comparison of share price performance (rebased on the Group’s share price) against identified listed market peers, McMillan Shakespeare, SG Fleet and Smartgroup. ECLIPX GROUP LIMITED | ANNUAL REPORT 20204. Link between Group performance and remuneration outcomes (continued) 4.4 FY20 LTI grant The following table outlines the key features of the Executive KMP FY20 LTI plan for grants to Executive KMP during FY20. Key feature Detail Who is eligible to participate? Eligibility to participate in the LTI plan is determined by the Board. All Executive KMP participated in the FY20 LTI. What performance period applies? The FY20 LTI is subject to a three-year performance period and will be exercisable for a one-year period after vesting. How was the FY20 LTI delivered? The FY20 LTI is provided through a grant of Options. The number of Options granted is determined by the Board based on a percentage of the Executive’s fixed remuneration and the fair value of an Option calculated when the Options were granted. The Group uses the fair value methodology to calculate the number of Options granted each year for consistency and simplicity. The table below presents the number and fair value of the Options granted to Executive KMP under the FY20 LTI. Julian Russell3 Bevan Guest Damien Berrell Are dividends paid during the vesting period? No. Number Granted 4,590,164 2,360,656 747,682 Fair Value $1,400,000 $720,000 $228,043 How is the FY20 LTI valued? The Options granted to Executive KMP are valued using the Binomial Tree methodology. Remuneration Report CONTINUED52 - 53 What performance hurdles need to be met? The FY20 LTI is subject to the following performance hurdles, both of which must be achieved for Executive KMP to realise value from the Options. There is no retesting of performance hurdles. Any Options which do not vest following testing will lapse immediately. Performance hurdle ‘In-built’ share price Why was it chosen? Detail The ‘out-of-the money’ strike price of the Options acts as an absolute share price hurdle, which aligns Executive KMP with shareholder interests. On the date the Options were granted (27 November 2019), the Options were “underwater”, as the exercise price of the Options ($1.63) was 3% higher than the closing share price of $1.59 on 27 November 2019. Absolute Cash EPS Absolute Cash EPS was selected as a performance measure as EPS growth is a key strategic objective for the Group. For the FY20 LTI, the percentage of the Options that vest, if any, will be determined based on the Group’s compound annual growth in Absolute Cash EPS over the performance period by reference to the FY19 Absolute Cash EPS. To determine the growth in cash EPS, the cash EPS achieved in FY22 will be compared to cash EPS achieved in FY19, and the level of compound annual growth (CAGR), stated as a percentage, will determine the proportion of Options that vest, as outlined in the below table. CAGR from FY19 to FY22 % of Options that vest Below 3% CAGR At 3% CAGR Between 3% and 5% CAGR Nil 50% Straight line pro-rated vesting between 50% and 100% At or above 5% CAGR 100% What happens if an Executive KMP ceases employment? What happens if there is a change of control? Where an Executive KMP ceases employment defined by the Group as resignation or termination for cause, any unvested Options are forfeited, unless otherwise determined by the Board. Where an Executive KMP ceases employment for any other reason, unvested Options will continue “on-foot” and will vest at the end of the original performance period. Note the Plan Rules provide the Board with discretion to determine that a different treatment should apply at the time of cessation, if applicable. A change of control occurs where, as a result of any event or transaction, a new person or entity becomes entitled to a significant percentage of shares in the Group. In the event of a 50% change of control of the Group, all unvested Options will vest in full and will be exercisable until the end of the original exercise period, subject to the Board determining that an alternative treatment should apply. Where a transaction or event occurs, other than a 50% Change of Control, that in the opinion of the Board should be treated as a change of control for the purposes of the Plan, the Board can deter- mine the appropriate treatment of unvested Options Malus In the event of fraud, dishonest conduct or breach of duty or obligation owed to the Group by the participant, the Board has the discretion to lapse all unvested Options ECLIPX GROUP LIMITED | ANNUAL REPORT 20205. Remuneration framework for FY21 5.1 Overview In FY21: There are no proposed changes to Executive KMP fixed remuneration. No STI awards will be made to Executive KMP, following the removal of the STI program from the execu- tive remuneration framework in FY20. No LTI grants will be made to Executive KMP in FY21 (i.e. in November 2020), reflecting the once-off FY21 Variable Remuneration Options issued in April 2020, reflecting the unique circumstances created by COVID-19 (refer section 5.2 below). The Board intends to revert to the standard LTI program from FY22. 5.2 FY21 Variable Remuneration Options From late February 2020, the Group experienced a significant decline in its share price as a consequence of COVID-19 and the significant business challenges created by the global pandemic. While the FY21 LTI was scheduled to be granted in November 2020, to focus on share price performance in the near term in the interests of our shareholders amidst the difficult operating environment, the Board decided to make an earlier grant of premium-priced options (FY21 Variable Remuneration Options) to Executive KMP in April 2020 (in lieu of their FY21 LTI). As set out below, the exercise prices of the two tranches of the FY21 Variable Remuneration Options were set at a 20% and 35% premium to the Group’s share price at the time of grant, which meant that the options would not deliver any value to Executive KMP unless there was a material increase in the Group’s share price. The Board adopted this course of action for the following reasons: it is critical to the success of the Group that Executive KMP are motivated and incentivised to deliver on the Simplification Plan and to drive share price performance. The options were intended to strengthen the alignment between the interests of the Group’s shareholders and Executive KMP and provide more “skin in the game” to motivate Executive KMP in challenging market conditions; and the equity awards held by Executive KMP were also materially “out of the money” at the time of grant of the FY21 Variable Remuneration Options and some new appointments at the Executive KMP level did not hold meaningful positions in the Group’s LTI plans due to tenure. The FY21 Variable Remuneration Options were structured to support retention of key talent who were necessary to deliver on the Simplification Plan and to generate long-term sustainable value for our shareholders. Key terms of the grants made to Executive KMP are outlined in the following table: Key feature Detail The FY21 Variable Remuneration Options are subject to service over an eighteen- month vesting period and will be exercisable for a one-year period after vesting. Over what time period will the FY21 Variable Remuneration Options be delivered? Remuneration Report CONTINUED54 - 55 How are the FY21 Variable Remuneration Options delivered? The FY21 Variable Remuneration Options are provided in the form of Options over Eclipx Group Limited ordinary shares in two tranches: Tranche 1: Exercise price of $0.75 Tranche 2: Exercise price of $0.85. The exercise prices for the Options were set at a 20% and 35% premium to the share price at grant (being the VWAP for the last 5 days prior to grant). The number of Options granted was determined by the Board based on a percentage of the Executive’s fixed remuneration and the fair value of an Option calculated when the Options were granted. The Group uses the fair value methodology when calculating the number of Options to grant. The table below presents the number and fair value of the Options granted to the Executive KMP. Tranche 11 Tranche 22 Number Granted Fair Value Number Granted Fair Value Julian Russell3 4,402,516 $611,950 5,147,059 $602,206 Bevan Guest 2,264,151 $314,717 2,647,059 $309,706 Damien Berrell 864,780 $120,204 1,011,029 $118,290 (1) On the date the Options were granted (9 April 2020) the Options were “underwater”, as the exercise price of the Options ($0.75) was set based on a 20% premium to the VWAP for the last 5 days prior to issue of the FY21 Variable Remuneration Options. (2) On the date the Options were granted (9 April 2020) the Options were “underwater”, as the exercise price of the Options ($0.85) was set based on a 35% premium to the VWAP for the last 5 days prior to issue of the FY21 Variable Remuneration Options. (3) The Fair Value of FY21 Variable Remuneration Options issued to Julian Russell was $1.21 million, 13% lower than the $1.4 million that was contracted to be paid as an FY21 grant in his employment contract, the summary of which was disclosed to the ASX on 9 April 2020. Are dividends paid during the vesting period? No. How are the FY21 Variable Remuneration Options valued? What happens if a participant ceases employment? What happens if there is a change of control? The Options granted to participants are valued by using the Binomial Tree methodology. Where a participant ceases employment defined by the Group as resignation or termination for cause, any unvested Options are forfeited, unless otherwise determined by the Board. Where a participant ceases employment for any other reason, unvested Options will continue “on-foot” and will vest at the end of the original vesting period. Note that the Plan Rules provide the Board with discretion to determine that a different treatment should apply at the time of cessation, if applicable. A change of control occurs where, as a result of any event or transaction, a new person or entity becomes entitled to a significant percentage of shares in the Group. In the event of a 50% change of control of the Group, all unvested Options will vest in full, and Op- tions will be exercisable until the end of the original exercise period, subject to the Board determin- ing that an alternative treatment should apply. Where a transaction or event occurs, other than a 50% Change of Control, that in the opinion of the Board should be treated as a change of control for the purposes of the Plan, the Board can deter- mine the appropriate treatment of unvested Options. Malus In the event of fraud, dishonest conduct or breach of duty or obligation owed to the Group by the participant, the Board has the discretion to lapse all unvested Options. ECLIPX GROUP LIMITED | ANNUAL REPORT 20206. Remuneration governance Board The Board oversees the Group’s Remuneration Policy, which involves: Monitoring the performance of Senior Executives; and Approving Executive KMP remuneration (based on the recommendations of the Committee). Remuneration and Nomination Committee The Committee is responsible for making recommendations to the Board in relation to the Remuneration Policy. This may include recommendations in relation to: Remuneration strategy; The appointment, performance and remuneration of KMP; and The design and positioning of remuneration elements, including fixed and “at-risk” pay, equity-based incentive plans and other employee benefit programs. Management The Chief Executive Officer is responsible for making recommendations to the Committee in relation to the remuneration of the Executive KMP. Audit and Risk Committee The Audit and Risk Committee advises the Committee of material risk management issues or compliance breaches. Remuneration Advisors The Committee has appointed Ernst & Young (EY) as the external remuneration advisor to the Group. EY provides independent advice in relation to: Market remuneration practices and trends; Regulatory frameworks; and The design and valuation of equity awards, includ- ing tax and account- ing advice. No remuneration recommendations (as defined by the Corporations Act 2001) were requested from or provided by EY or any other advisors. Remuneration Report CONTINUED 56 - 57 7. Non-Executive Director fees 7.1 Overview Non-executive Directors (NEDs) receive base fees and committee membership fees, inclusive of statutory superannuation. Fees are reviewed and set annually by the Board. NEDs do not participate in any variable remuneration plans. There are no changes to Board fees in FY21. NEDs may participate in “Eclipx Non-Executive Director Share Rights Contribution Plan” which was approved by shareholders in 2016, under which NEDs may elect to sacrifice up to 50% of base fees (excluding committee fees) to acquire shares on a pre-tax basis. Share rights are not subject to performance conditions. If a participant ceases to hold office before their share rights convert to shares, all share rights will lapse and the fee amount sacrificed under the Share Rights Contribution Plan will be returned to the participant. During FY20, Mr Kerry Roxburgh elected to sacrifice a proportion of his base Board fees to acquire share rights (see table below). The table below outlines the Board fee structure and excludes the temporary reduction in Board fees for three months from April 2020. Fees in FY20 are within the approved aggregate Board fee pool of $1.4 million. Committee Board Audit & Risk Committee Remuneration & Nomination Committee Chairman fees Member fees ($) 250,000 25,000 25,000 ($) 125,000 12,500 12,500 ECLIPX GROUP LIMITED | ANNUAL REPORT 20207.2 FY20 remuneration The following table shows remuneration received by NEDs in FY20. As noted in section 2, the Chair and Non- Executive Directors accepted a reduction of 25% and 20% respectively in their Board fees for three months from April 2020. Salary and fees Short term benefits Post- employment benefits Share based payments Fees sacrificed to acquire share rights Non- monetary Super- annuation ($) ($) 126,999 120,313 Cash ($) 284,350 119,292 153,420 Kerry Roxburgh (Chairman) Russell Shields FY20 FY19 FY20 FY19 Trevor Allen FY20 147,359 Gail Pemberton Linda Jenkinson FY19 FY20 FY19 FY20 FY19 176,793 140,982 176,793 119,292 153,420 - - - - - - - - - Equity settled ($) - - - - - - - - - - Total ($) 257,813 305,000 130,625 167,500 154,375 192,500 154,375 192,500 130,625 167,500 ($) 10,502 20,650 11,333 14,080 7,016 15,634 13,393 15,707 11,333 14,080 - - - - - - - - - - 8. Executive service agreements and statutory remuneration disclosures 8.1 Executive service agreements The table below details the key individual terms and conditions of employment applying to Executive KMP. Julian Russell Bevan Guest Damien Berrell Notice period 9 months by either party 9 months by the Executive 6 months by either party 6 months by the Company Termination entitlement when initiated by Company 9 months 6 months 6 months The following terms and conditions are standard for all Executive KMP: Serious misconduct Restraint of trade Immediate termination 12 months following expiry of notice period Remuneration Report CONTINUED 58 - 59 8.2 Executive KMP statutory remuneration The following Executive KMP remuneration table has been prepared in accordance with the accounting standards and has been audited. The values in the table below align with the amounts expensed in the Group’s financial statements. Short term benefits Long term benefits Salary Non- monetary Annual leave Cash bonus Long Service Leave Super- annuation Share based payments ($)1 ($)2 ($) ($)3 ($)4 ($) ($)5 Total ($) Julian Russell Bevan Guest6 Damien Berrell7 FY20 617,828 6,531 26,980 FY19 270,411 2,177 20,744 FY20 532,049 40,115 28,948 - - - 585 20,772 1,377,873 2,050,569 225 8,113 164,931 466,601 58,935 20,772 950,680 1,631,498 FY19 223,667 10,481 14,466 281,473 25,414 8,113 196,760 749,893 FY20 146,502 2,127 14,109 - 153 9,593 253,760 426,244 (1) Salary is pro-rated for the period the executives were Executive KMP. (2) Amount represents motor vehicle, car parking, medical insurance, flights home, tax services and fringe benefits tax. (3) Amounts represent the ‘turnaround’ cash incentive granted in FY19 in relation to Mr. Guest’s appointment as Chief Commercial Officer and paid in early FY20, and a cash incentive earned prior to appointment as Executive KMP. (4) Amount represents long service leave provisions. (5) In accordance with the accounting standards, remuneration includes a proportion of the fair value of the Options and Rights awarded under the LTI program from current and prior years. The fair value is determined as at grant date and is progressively allocated over the vesting period. The amount included in remuneration above may not be indicative of the benefit (if any) that KMP may ultimately realise should the equity instrument vest. A grant of performance rights was made and cancelled in FY20. (6) Appointed 13 May 2019. (7) Appointed 18 April 2020. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Remuneration Report C O N T I N U E D 9. Additional statutory disclosures 9.1 Outstanding awards The maximum value of awards that may vest in future years that will be recognised as share-based payments in future years is set out in the table below. The amount reported is the value of share-based payments calculated in accordance with AASB2 Share-based Payments over the vesting period. n o i t i d n o C e c n a m r o f r e P e c i v r e S e c i v r e S S P E e c i v r e S e p y T d r a w A s n o i t p O s n o i t p O s n o i t p O s n o i t p O P M K Plan l l e s s u R n a i l u J FY21 Variable Remuneration Options FY20 LTI FY19 LTI Fair value at grant date Number of Awards Granted Exercise price Per Instrument Total Value of Award Grant Date ($) ($) ($) Vesting date/ first exercise date Expiry Date 4,402,516 04/04/20 $0.75 0.14 611,950 30/09/21 30/09/22 5,147,059 04/04/20 $0.85 0.12 602,206 30/09/21 30/09/22 4,590,164 27/11/19 $1.63 0.31 1,400,000 27/11/22 26/11/24 6,363,636 24/05/19 $1.20 0.22 1,400,000 23/05/22 23/05/23 60 - 61 FY21 Variable Remuneration Options FY20 LTI FY19 LTI FY19 LTI t s e u G n a v e B FY18 Grant FY18 LTI FY17 LTI s n o i t p O s n o i t p O s n o i t p O s n o i t p O s n o i t p O s n o i t p O s t h g R i s t h g R i s t h g R i s n o i t p O s n o i t p O s t h g R i s n o i t p O s n o i t p O s t h g R i s t h g R i s n o i t p O s t h g R i e c i v r e S e c i v r e S S P E e c i v r e S R S T S P E R S T S P E e c i v r e S R S T S P E e c i v r e S R S T S P E R S T S P E R S T R S T 2,264,151 04/04/20 $0.75 0.14 314,717 30/09/21 30/09/22 2,647,059 04/04/20 $0.85 0.12 309,706 30/09/21 30/09/22 2,360,656 27/11/19 $1.63 0.31 720,000 27/11/22 26/11/24 2,840,911 24/05/19 $1.20 0.22 625,000 23/05/22 23/05/23 200,000 17/12/18 $2.54 0.26 52,000 10/11/21 16/12/23 200,000 17/12/18 $2.54 0.28 56,000 10/11/21 16/12/23 50,000 17/12/18 50,000 17/12/18 50,000 17/12/18 - - - 1.22 61,000 10/11/21 16/12/23 2.07 103,500 10/11/21 16/12/23 2.07 103,500 10/11/21 16/12/23 150,000 17/08/18 $2.05 0.29 43,500 30/11/20 16/08/23 150,000 17/08/18 $2.05 0.55 82,500 30/11/20 16/08/23 200,000 17/08/18 - 2.26 452,000 18/08/21 16/08/23 90,000 08/11/17 $4.18 0.65 58,500 08/11/20 08/11/22 90,000 08/11/17 $4.18 0.68 61,200 08/11/20 08/11/22 22,500 08/11/17 22,500 08/11/17 - - 2.47 55,575 08/11/20 08/11/22 3.70 83,250 08/11/20 08/11/22 137,500 04/11/16 $3.60 0.53 72,875 04/11/19 04/11/21 22,500 04/11/16 - 2.18 49,050 04/11/19 04/11/21 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Remuneration Report C O N T I N U E D 9.1 Outstanding awards (continued) n o i t i d n o C e c n a m r o f r e P e c i v r e S e c i v r e S e c i v r e S S P E e p y T d r a w A s n o i t p O s n o i t p O s n o i t p O s n o i t p O P M K Plan l l e r r e B n e m a D i FY21 Variable Remuneration Options FY20 Sign-on Grant1 FY20 LTI Fair value at grant date Number of Awards Granted Exercise price Per Instrument Total Value of Award Grant Date ($) ($) ($) Vesting date/ first exercise date Expiry Date 864,780 04/04/20 $0.75 0.14 120,204 30/09/21 30/09/22 1,011,029 04/04/20 $0.85 0.12 118,290 30/09/21 30/09/22 819,672 27/11/19 $1.63 0.31 250,000 27/11/22 26/11/24 747,682 27/11/19 $1.63 0.31 228,043 27/11/22 26/11/24 (1) In recognition for forgoing incentives from his former employer, Mr Berrell was issued a sign-on grant in the form of options with the total fair value of $250,000. These options vest in November 2022 and were considered necessary by the Board to attract an executive of Mr Berrell’s calibre and fleet industry experience to the Group. 9.2 Equity instruments The table below shows details of the share and option holdings of KMP: Held as at 30 September 2019 Net Change Held as at 30 September 20204 Shares Rights Options1 Shares Rights2 Options1 Shares Rights Options Non-Executive Directors Kerry Roxburgh (Chairman) Russell Shields 239,611 285,647 Trevor Allen 179,846 Gail Pemberton 428,545 Linda Jenkinson 3,258 Current Directors Julian Russell - - - - - - - 200,000 4,449 85,657 (200,000) 244,060 85,657(3) 50,000 185,000 10,000 50,000 - 6,363,636 - - - - - - - (50,000) 285,647 (185,000) 189,846 (50,000) 428,545 - 3,258 14,139,739 - - - - - - - - - - - 20,503,375 Bevan Guest 400,745 460,000 4,070,911 (350,000) (42,500) 7,059,366 50,745 417,500 11,130,277 Damien Berrell - - - - - 3,443,163 - - 3,443,163 (1) Options for Non-Executive Directors were purchased at IPO at an issue price of $0.24 per option. The options expired on 21 April 2020. Each option was exercisable over one share with an exercise price of $2.645, immediately vested and exercisable. (2) Net change of rights for Executive KMP include the grant of performance rights made and cancelled in FY20 (3) Represent Share Rights held by Mr Roxburgh under the NED Share Right Contribution Plan (see section 7.1) as at 30 September 2020. Share rights convert automatically into shares at the commencement of the first trading window following the grant of rights. (4) No equity instrument had vested as at 30 September 2020 62 - 63 9.3 Loans Loan shares issued under the Group’s LTI plans prior to FY16 were funded by the Group. Recourse under the loans is limited to the shares and the proceeds of any sale of the shares. The loan is interest free and must be repaid by the expiry date. Pre-IPO loan share plan Former CEO Mr Doc Klotz, Former CFO Mr Garry McLennan and Former COO Mr Jeff McLean were offered loan shares under the share ownership plan prior to the IPO that are not subject to vesting conditions. Treatment of the loan shares upon the cessation of their employment was as follows: Mr Klotz’s and Mr McLennan’s loan shares vested, and the loan is required to be repaid by 1 October 2021, unless the shares are sold earlier. Mr McLean’s loan shares were settled on 15 October 2019. Chief Commercial Office Bevan Guest was also offered loan shares under the same share ownership plan prior to IPO. Mr Guest’s loan shares were settled on 26 November 2019. Details of these loans are as follows: Opening loan balance on 1 October 2019 Closing loan balance on 30 September 2020 Loan Share Holder ($) ($) Number of vested loan shares Loan value per vested loan share Loan expiry date Doc Klotz 5,854,967 5,854,967 3,539,118 Garry McLennan 5,854,967 5,854,967 3,539,118 Jeff McLean 1,131,512 Bevan Guest 118,216 - - - - $1.65 $1.65 - - September 2021 September 2021 - - 9.4 Other transactions Transactions with other related parties are made on normal commercial terms and conditions. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Statement of Profit or Loss and Other Comprehensive Income F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Revenue from continuing operations Cost of revenue Lease finance costs Net operating income before operating expenses and impairment charges Impairment losses on loans and receivables Software Impairment Other Intangible Impairment Fixture and fittings Impairment Total impairment Employee benefit expense Depreciation and amortisation expense Operating overheads Total overheads Operating finance costs Profit/(loss) before income tax from continuing operations Notes 2020 $’000 2019* $’000 2.3 2.3 2.4 3.7 3.7 3.1 2.4 2.4 2.4 2.4 674,248 709,401 (442,024) (460,692) (58,456) (73,390) 173,768 175,319 (4,428) (1,259) - (24,200) (398) - (3,458) (1,613) (4,826) (30,530) (65,155) (68,934) (13,793) (13,880) (26,787) (61,992) (105,735) (144,806) (20,815) (18,521) 42,392 (18,538) Income tax (expense)/benefit 2.6 (12,162) 5,070 Profit/(loss) from continuing operations 30,230 (13,468) Loss after tax from discontinued operations 2.2 (12,025) (327,989) Profit/(loss) for the year 18,205 (341,457) Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of cash flow hedges Exchange differences on transaction of foreign operations Other comprehensive income/(loss) for the year 1,659 (291) 1,368 (13,759) 2,580 (11,179) Total comprehensive income/(loss) for the year 19,573 (352,636) Profit/(loss) attributable to: Owners of Eclipx Group Limited Total comprehensive income/(loss) for the year attributable to: 18,205 (341,457) Owners of Eclipx Group Limited 19,573 (352,636) * The Group has initially applied AASB 16 at 1 October 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. Comparative information has been re-presented due to a discontinued operation. See Note 1.0 and 2.2. The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Notes 2020 Cents 64 - 65 2019* Cents (107.0) (107.0) (4.2) (4.2) 5.8 5.6 9.6 9.3 (3.8) (3.8) (102.8) (102.8) Earnings per share from continuing and discontinued operations Basic earnings per share Diluted earnings per share Earnings per share from continuing operations Basic earnings per share Diluted earnings per share Earnings per share from discontinued operations Basic earnings per share Diluted earnings per share 2.5 2.5 2.5 2.5 2.5 2.5 *The Group has initially applied AASB 16 at 1 October 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. Comparative information has been re-presented due to a discontinued operation. See Note 1.0 and 2.2. The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Statement of Financial Position A S A T 3 0 S E P T E M B E R 2 0 2 0 ASSETS Cash and cash equivalents Restricted cash and cash equivalents Trade receivables and other assets Inventory Assets classified as held for sale Finance leases Operating leases reported as property, plant and equipment Deferred tax assets Property, plant and equipment Right-of-use assets Intangibles Total assets LIABILITIES Trade and other liabilities Provisions Liabilities classified as held for sale Derivative financial instruments Other Borrowings Lease liabilities Deferred tax liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity Consolidated Notes 2020 $’000 2019 $’000 4.3 4.3 3.4 2.2 3.3 3.1 2.6 3.1 3.2 3.7 55,776 97,134 152,022 142,544 68,534 18,425 - 81,718 33,983 41,516 370,299 407,542 867,164 959,187 3,366 6,029 21,565 2,176 8,600 - 469,306 475,302 2,032,486 2,249,702 3.5 107,771 111,227 2.2 4.4 4.1 3.6 2.6 4.5 6.1 9,810 - 9,283 3,457 28,091 31,369 - 3,413 1,344,992 1,604,705 23,774 9,563 - 5,143 1,524,001 1,768,597 508,485 481,105 654,765 654,765 176,972 167,797 (323,252) (341,457) 508,485 481,105 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 66 - 67 Statement of Changes in Equity F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Attributable to owners of Eclipx Group Limited Consolidated Contributed equity Reserves Retained earnings Total equity Note $’000 $’000 $’000 $’000 Balance at 30 September 2018 654,765 17,046 196,288 868,099 Adjustment on initial application of AASB 9 * - - (12,511) (12,511) Re-stated balance as at 1 October 2018 654,765 17,046 183,777 855,588 Transfer to dividend reserve Loss for the year Cash flow hedges Foreign currency translation Total comprehensive income for the year Transactions with owners in their capacity as owners: Employee share schemes Movement in treasury reserve Dividends paid 5.1 4.7 - - - - - - - - 183,777 (183,777) - - (341,457) (341,457) (13,759) 2,580 - - (13,759) 2,580 (11,179) (341,457) (352,636) 2,238 1,486 (25,571) - - - 2,238 1,486 (25,571) Balance at 30 September 2019 654,765 167,797 (341,457) 481,105 Balance at 30 September 2019** 654,765 167,797 (341,457) 481,105 Profit for the year Cash flow hedges Foreign currency translation Total comprehensive income for the year Transactions with owners in their capacity as owners: Employee share schemes Movement in treasury reserve Dividends paid 5.1 4.7 - - - - - - - - 18,205 18,205 1,659 (291) 1,368 5,984 1,823 - - - 1,659 (291) 18,205 19,573 - - - 5,984 1,823 - Balance at 30 September 2020 654,765 176,972 (323,252) 508,485 * The Group applied AASB 9 retrospectively and took advantage of the exemption from restating prior periods in respect of AASB 9’s classification and measurement requirements. The effect of applying AASB 9 was recognised in retained earnings at 1 October 2018. ** The Group has initially applied AASB 16 at 1 October 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. Refer to Note 1.0. The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Statement of Cash Flows F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Cash flows from operations Receipts from customers Payments to suppliers and employees Cash generated from operating activities Income tax received / (paid) Interest received Interest paid Consolidated Notes 2020 $’000 2019 $’000 755,453 1,081,912 (264,107) (596,206) 491,346 485,706 2,138 1,172 (19,279) 2,811 (77,837) (86,676) Net cash inflow from operating activities 6.7 416,819 382,562 Cash flows from investing activities Purchase of items reported under operating leases reported as property, plant and equipment 3.1 (266,041) (307,296) Purchase of items reported under finance leases (141,408) (184,732) Purchase of property, plant and equipment and intangibles (2,626) (13,574) Payment for transaction cost on disposed groups Proceeds from sale of discontinued operations Proceeds from completion payments - 6,383 406 (7,449) 70,764 - Proceeds from sales of items reported under operating leases 217,093 219,159 Net cash outflow from investing activities (186,193) (223,128) Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Payment of lease liabilities Dividends paid Proceeds from settlement of long term incentive plans 383,139 453,635 (643,586) (556,678) (4,161) - - (25,571) 1,822 811 Net cash inflow from financing activities (262,786) (127,803) Net increase in cash and cash equivalents (32,160) 31,631 Cash and cash equivalents at the beginning of the financial year, net of overdraft 239,678 208,257 Exchange rate variations on New Zealand cash and cash equivalent balances 280 (210) Cash and cash equivalents at end of the year, net of overdraft 4.3 207,798 239,678 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 68 - 69 1.0 Introduction To The Report Statement of compliance These general purpose financial statements of the consolidated results of Eclipx Group Limited (ACN 131 557 901) have been prepared in accordance with the Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The financial report was authorised for issue by the Board of Directors on 10 November 2020. Basis of preparation These financial statements have been prepared under the historical cost convention, except for the financial assets and liabilities (including derivative instruments) at fair value through profit or loss. The Statement of financial position is prepared with assets and liabilities presented in order of liquidity. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) 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 Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Critical accounting estimates and assumptions 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. Significant accounting policies The significant accounting policies adopted in the preparation of the financial report are set out below. Other significant accounting policies are contained in the notes to the financial report to which they relate. The financial statements are for the Group consisting of Eclipx Group Limited (Company) and its controlled entities. (i) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all controlled entities of Eclipx Group Limited as at 30 September 2020 and the results of all controlled entities for the year ended. Eclipx Group Limited and its controlled entities together are referred to in this financial report as the Group or the consolidated entity. The Company controls an entity if it is exposed, or has rights, to variable returns from its involvement with the controlled entity and has the ability to affect those returns through its power over the controlled entity. All controlled entities have a reporting date of 30 September. Profit or loss and other comprehensive income of controlled entities acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. In preparing the financial report, all intercompany balances, transactions and unrealised profits arising within the consolidated entity are eliminated in full. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Significant accounting policies (continued) (ii) Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in Australian dollars (AUD), which is also the functional currency of the Company. Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from remeasurement of monetary items at year end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the date of transaction), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than AUD are translated into AUD upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period. On consolidation, assets and liabilities have been translated into AUD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into AUD at the closing rate. Income and expenses have been translated into AUD at the average rate over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. Going concern The financial report has been prepared on the basis that the Group is a going concern. The Group has considered its ability to continue as a going concern, using projected cash flow forecasts and other Group metrics and information for at least the next 12 months from the approval of these financial statements, taking into consideration an estimation of the continued business impacts of COVID-19. This assessment assumes the Group will be able to continue trading and realise assets and discharge liabilities in the ordinary course of business beyond this period. At 30 September 2020 the Group held unrestricted cash reserves of $55.8 million, and undrawn capacity under its holding company debt facilities of $121.7 million maturing October 2022. The Group’s going concern assumption is supported by the following: The Group held unrestricted cash reserves of $55.8 million, and undrawn capacity under its debt facilities of $121.7 million; The amendment during the 2020 financial year to holding company debt covenant ratios provides the Group with headroom; All non-core businesses have been divested; Group operating expenses have been reduced, on a run-rate basis, by $15 million; and The Group is now solely focused on growing the core fleet business. 70 - 71 Changes in significant accounting policies Except for the changes below, the Group has consistently applied the accounting policies set out in the notes to the financial statements to all periods presented in these consolidated financial statements. New and revised standards and interpretations not yet adopted by the Group A number of new standards are issued, but not yet effective. Early application is permitted; however the Group has not early adopted the new or amended standards in preparing the financial statements. New Australian Accounting Standards and amendment standards that are effective in the current period The Group applied AASB 16 Leases from 1 October 2019. The nature and effect of the changes as a result of adoption of this new accounting standard is described below. A number of other new standards are also effective in this financial year, but do not have a material impact on the consolidated financial statements of the Group. AASB 16 Leases The Group applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 October 2019 and the comparative information is not restated. Group as lessor The Group’s accounting for leases as a lessor remains largely unchanged under AASB 16. The Group will continue to classify leases as finance leases if it transfers all the risks and rewards incidental to ownership of the assets, or operating leases if it does not transfer substantially all the risk and rewards incidental to ownership of the underlying assets. Group as lessee On transition to AASB 16, the Group has applied a modified retrospective approach. Accordingly, information presented for the comparative period has not been restated and it is presented as previously reported, under AASB 117. In applying AASB 16 for the first time, the Group used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117: Applied a single discount rate to a portfolio of leases with similar characteristics; Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months to end of the lease term; Excluded initial direct costs at date of initial application; and Applied hindsight when determining the lease term if the contract contains options to extend of terminate the lease. Right-of-use assets The Group recognises a right-of-use asset (ROUA) where the Group has control of an asset for a period of more than 12 months. Assets are recorded initially at cost and depreciated on a straight-line basis over the term of the lease. The cost of the asset is defined as: The value of the corresponding lease liabilities recognised; Adjusted for any lease payments made at or before the lease commencement date (if applicable); plus An estimate of make good provisions; less Any lease incentive received. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 New Australian Accounting Standards and amendment standards that are effective in the current period (continued) AASB 16 Leases (continued) Lease liabilities Lease liabilities are measured at the present value of the lease payments to be made over the lease term as at the commencement of the lease. The present value is calculated by discounting the lease payments using the lessee’s incremental borrowing rate. The incremental borrowing rate is the rate that the Group would have to pay to borrow funds necessary to obtain an asset of similar value to the ROUA in a similar economic environment, with similar terms, security and conditions. Application of the incremental borrowing rate is adopted where the interest rate implicit in the lease cannot be readily determined, which is generally the case for leases in the Group. Lease payments due within the next 12 months are recognised within current lease liabilities; payments due after 12 months are recognised within non-current lease liabilities. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest expense on the lease liability is a component of finance costs and presented in the statement of profit or loss. Lease liabilities include the net present value of the following lease payments: Fixed payments, less any lease incentives receivable; Variable lease payments that are based on an index or a rate; and Payments of penalties for the termination of the lease, if the lease term reflects the lessee exercising that option. The short-term lease exemption will be applied to leases that are less than 12 months. These leases are recognised on a straight-line basis as an expense. Critical judgement in determining lease term In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension options are only included in the lease term if the lease is reasonably certain to be extended. The lease term is reassessed if an option is actually exercised or the Group becomes obliged to exercise it. Impact on application On adoption of AASB 16 the Group recognised a lease liability of $24,769,305 and lease ROUA of $25,290,367, with a corresponding entry in provision for make good $521,062. As a result, there is no overall impact to retained earnings at adoption. The weighted average incremental borrowing rate applied to the lease liabilities on 1 October 2019 was 4.42%. A reconciliation of the new lease liabilities to the amounts disclosed at 30 September 2019 as commitments is provided below. Operating lease commitments disclosed at 30 September 2019 Discounted applying the incremental borrowing rate Leases classified as short term Amendments to lease term Leases associated with discontinued operations Lease liabilities recognised as at 1 October 2019 $ 35,056,966 (5,384,104) (2,675,789) (43,631) (2,184,137) 24,769,305 72 - 73 $ 25,290,367 (4,289,862) 614,391 (50,043) 21,564,853 ROU Asset recognised as at 1 October 2019 Depreciation Additions Foreign exchange movements ROU Asset as at 30 September 2020 Impact of coronavirus (COVID-19) The preparation of the financial report requires the use of management judgement, estimates and assumptions. These estimates and judgements are reviewed on an ongoing basis. The ongoing COVID-19 pandemic has increased the estimation uncertainty in the preparation of the financial report. The estimation uncertainty is associated with: the extent and duration of disruption to business as a result of ongoing actions from consumers, busi- nesses and governments to contain the spread of the virus; the extent and duration of the expected economic downturn. This includes forecasts for economic growth, unemployment, interest rates and inflation; and the effect of government incentives and support put in place to support businesses and consumers through this economic downturn. The Group has formed estimates based on information that was available as at 30 September 2020, this information was deemed to be reasonable in forming these estimates. The actual economic conditions are likely to be different from the estimates used and this may result in material differences between the accounting estimates applied and the actual results of the Group for future periods. The significant estimates impacted are predominantly related to provision for impairment of inventory, provision for impairment of operating leases reported as property, plant and equipment, provision for impairment losses on finance leases and trade receivables, recognition of maintenance revenue and the carrying value of goodwill. The impact of COVID-19 on these estimates is discussed below and / or in the relevant note of the consolidated financial statements. Provision for impairment of inventory Inventory is held at the lower of cost and net realisable value, where net realisable value is defined as the selling price less the estimated cost necessary to make the sale. At 30 September 2020 management performed an analysis at the individual inventory line level and assessed the net realisable value for each asset. Where the net realisable value was below the carrying value, an impairment was recognised. Management applied judgement as to the value that would be realised on the sale of the vehicle. At 31 March 2020 the Group recognised a provision for the additional holding costs of inventory where an estimation was made that inventory will be held for an additional 90 days compared to pre-COVID-19 levels. The Group has subsequently released this provision as the Group is experiencing high demand for used motor vehicles and inventory has decreased from $32.9 million (31 March 2020) to $18.4 million. Provision for impairment losses on operating leases reported as property, plant and equipment The Group assumes lease residual value risk on motor vehicles which exposes the Group to the movement in second-hand prices of these assets. The AASB 136 Impairment of Assets methodology for impairing operating leases has remained consistent with prior periods including the incorporation of forecasted sale proceeds on the disposal of motor vehicles at lease end. The model used by the Group to estimate future sale proceeds is based on nearly 30 years of experience. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 New Australian Accounting Standards and amendment standards that are effective in the current period (continued) Impact of coronavirus (COVID-19) (continued) An observable effect from the COVID-19 pandemic has been an increase in second-hand motor vehicle prices. The impact from the current high second-hand motor vehicle prices results in higher forecasted sale proceeds which in turn, reduces the amount of provision required on the Group’s operating leases. The Group has applied a 4.68% reduction to these forecasted sale proceeds in order to mitigate the temporary inflationary effect of COVID-19 on second-hand motor vehicle forecasts. This results in $1.6 million additional provision. Provision for impairment losses on finance leases and trade receivables In March 2020, the IASB published IFRS 9 and COVID-19, a document that reinforces the fact that IFRS 9 does not provide a mechanistic approach in accounting for impairment provisions. The AASB 9 impairment methodology has remained consistent with prior periods. The Group revised the weighting of the model’s multiple economic scenarios (MES) from base (60%), upside (20%) and downside (20%) to base (50%) and downside (50%). Considering the uncertainty surrounding the effect from COVID-19, the Group also implemented a model adjustment by applying the highest historical expected credit loss rate since the model inception. This model adjustment resulted in an incremental credit impairment loss provision of $2.5 million. The Group also recognised a $0.4 million impairment relating to novated leases for the employees of specific client that operates in a severely impacted industry. Based upon the rate at which employees defaulted on their first payment after the deferral period, the Group applied an impairment provision for all novated leases currently with deferred payments or subsequently in default. Maintenance revenue Maintenance revenue is recognized in accordance with AASB 15 Revenue from Contracts with Customers and is based upon years of external and internal data to calculate the percentage of maintenance revenue to be recognised in line with the level of services provided as part of our obligations under the lease. Accordingly, maintenance revenue is recognised progressively on a lease over time, with the age of the lease being the most practical proxy for services provided. During the months of April 2020 to September 2020, the Group witnessed a decrease in the utilisation of its fleet and as a result, a decrease in maintenance expenditure which was driven by the restrictions on movement imposed by State and Territory governments in response to the COVID-19 outbreak. In order to match the delay in revenue with the delay in services provided as a result of the COVID-19 restrictions, the Group has deferred the recognition of $2.5 million maintenance revenue during the financial year. Impairment of non-financial assets At each reporting period, the Group reviews the carrying amount of its intangible assets to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the affected assets are evaluated in accordance with AASB 136 Impairment of Assets. Given the uncertainty around the effect of COVID-19, the Group tested goodwill for impairment. This included updating the assumptions and cash flow forecasts to reflect the potential impact of COVID-19 on the Group. The Group also tested goodwill under a downside scenario of that included lower growth rates and higher cash flow discount rates. No impairment losses were required to be recognised on goodwill including the downside case. Further details of the Group’s test for goodwill impairment are outlined in Note 3.7 in the financial report. 74 - 75 2.0 Business Result for the Year This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made. 2.1 Segment information 2.2 Discontinued operations 2.3 Revenue 2.4 Expenses 2.5 Earnings per share 2.6 Taxation 2.1 Segment information Identification of reportable segments An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses, whose operating results are reviewed regularly by the Group’s Chief Operating Decision Maker in assessing performance and in determining the allocation of resources. The Group has identified Core and Non-Core business segments. Core businesses include fleet leasing management and services to corporate small and medium enterprises (“SME”) and consumers in Australia and corporate SME customers in New Zealand. Core business segments are Australia Commercial, Novated and New Zealand Commercial. Non-Core relates to business that have been disposed by 30 September 2020 and were part of the simplification plan announced to the market in 2019. The segments have been identified based on how the Chief Operating Decision Maker monitors performance and allocates resources. The Chief Operating Decision Maker amended the name of Australia Consumer to Novated, this is to more accurately reflect the activities carried on in this segment where historically this segment included activities associated with CarLoans (Non-core), which was disposed of on 6 May 2020. The segment information for the reportable segments for the year ended 30 September 2020 is as below: ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.1 Segment information (continued) 2020 Australia Commercial $’000 Novated $’000 New Zealand Commercial Non-core* $’000 $’000 Total $’000 Net operating income 102,917 24,751 46,070 11,278 185,016 Bad and doubtful debts (1,285) (15) (3,128) 312 (4,116) Operating expenses (50,084) (12,932) (15,644) (24,799) (103,459) EBITDA 51,548 11,804 27,298 (13,209) 77,441 Depreciation and amortisation (3,714) (1,457) (5,002) (1,288) (11,461) Share Based Payments (3,347) (760) (1,877) - (5,984) Holding company debt interest (7,828) (1,118) (1,928) (5,121) (15,995) Amortisation acquired intangibles Significant material non-recurring items** (3,359) (7,692) (409) - (27) (589) - (3,795) (5,585) (13,866) Tax (7,682) (2,418) (5,005) 6,970 (8,135) Statutory net profit after tax 17,926 5,642 12,870 (18,233) 18,205 Post tax add back amortisation acquired intangibles Post tax add back significant material non-recurring items Cash net profit after tax including amortisation of software 2,351 286 19 - 2,656 5,413 - 450 4,360 10,223 25,690 5,928 13,339 (13,873) 31,084 Software amortisation (post tax) Cash net profit after tax 1,247 26,937 317 6,245 967 - 2,531 14,306 (13,873) 33,615 * Non-core includes the entities associated with CarLoans, Right2Drive and Eclipx Commercial Finance. ** Significant material non-recurring items relate to loss on disposal of discontinued operations, disposal related costs and restructuring costs. 76 - 77 2019 Australia Commercial Novated New Zealand Commercial Non-core* Grays** $’000 $’000 $’000 $’000 $’000 Total $’000 Net operating income 105,975 28,638 38,665 30,869 57,709 261,856 Bad and doubtful debts (1,087) 72 (244) (5,420) 320 (6,359) Operating expenses (49,773) (13,799) (26,506) (47,494) (58,444) (196,016) EBITDA 55,115 14,911 11,915 (22,045) (415) 59,481 Depreciation and amortisation (4,881) (1,319) (3,976) (2,318) (2,145) (14,639) Share Based Payments (1,659) Holding company debt interest (8,046) Amortisation acquired intangibles (2,811) (448) (840) (343) (94) (37) - (2,238) (1,587) (5,029) (3,019) (18,521) (551) (913) (1,554) (6,172) Impairments and write-offs (9,091) (2,457) (16,110) (119,670) (59,131) (206,459) Significant material non-recurring items (25,045) (1,761) (1,174) (42,823) (101,859) (172,662) Tax (1,160) (2,703) 3,950 17,590 2,076 19,753 Statutory net profit after tax 2,422 5,040 (7,627) (175,245) (166,047) (341,457) Post tax add back impairments and write-offs Post tax add back amortisation acquired intangibles Post tax add back significant material non-recurring items Cash net profit after tax including amortisation of software 6,363 1,720 11,599 113,831 59,131 192,644 1,968 240 397 639 1,088 4,332 17,532 1,233 844 41,596 99,992 161,197 28,285 8,233 5,213 (19,179) (5,836) 16,716 Software amortisation (post tax) 1,997 540 2,259 1,319 992 7,107 Cash net profit after tax 30,282 8,773 7,472 (17,860) (4,844) 23,823 * Non-core includes the entities associated with CarLoans, Right2Drive and Eclipx Commercial Finance. ** The Group completed the sale of GraysOnline and AreYouSelling on 31 July 2019 in the 2019 financial year. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.2 Discontinued operations On 6 May 2020, the Group completed the sale of CarLoans.com.au and Georgie (CarLoans) to FirstMac Limited for a value of $2.0 million. The Group received $0.4 million at transaction close and will receive the remaining $1.6 million on a quarterly basis from December 2020 to September 2021. On 6 August 2020, the Group completed the sale of Right2Drive to Growth Factor Group for an amount of up to $26.5 million. The Group received $15.0m at transaction close, and will receive an additional deferred consideration of $4.2m 18 months after completion. The Group is entitled to a further contingent consideration of up to $7.3 million, payable at six-month intervals from 6 August 2020 for a period of up to 24 months, based on pre-agreed collection rates on the Right2Drive debtor book at the date of sale. On 31 July 2019, the Group completed the sale of GraysOnline and AreYouSelling to Quadrant Private Equity for an enterprise value of A$60 million. Management committed to a plan to sell this segment early in 2019, following a strategic decision to place greater focus on the Group’s Core business segments. On 13 September 2019, the Group completed the sale of Eclipx Commercial and the FP Turbo Series 2015-1 Equipment Trust to Grow Asset Finance Pty Limited for A$17.7 million. The disposal was effective as at 31 August 2019, and encompassed all the issued shares of Eclipx Commercial Pty Limited, all of the issued units and notes of the Equipment Trust, and the Equipment held by the trust. CarLoans was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of profit or loss and OCI for the year of 2019 has been re-presented to show the discontinued operation separately from continuing operations. Details of the sales are as follows: Loss on sale of disposed groups Proceeds from disposal of discontinued operations Less cash and cash equivalents disposed of (including restricted cash): Net carrying value of assets of discontinued operations at date of disposal (excluding cash) Deferred and contingent consideration Transaction costs Tax benefit Loss on disposal of discontinued operations after tax 2020 $’000 15,414 (9,031) 6,383 (16,004) 11,048 (4,338) (9,294) 427 (2,484) The carrying amounts of assets and liabilities as at the date of sale were: Financial position of the disposed groups as at the date of the sale: Cash and Cash equivalents (including restricted cash) Trade and Other receivables Property, Plant and equipment Operating leases reported as PP&E Intangibles Right-of-use assets Trade and other liabilities Liabilities held for sale Lease liabilities Provisions Deferred tax asset Less cash and cash equivalents disposed: Net carrying value of assets excluding cash and cash equivalents 78 - 79 2020 $’000 9,031 32,266 422 426 84 1,585 (863) (21,569) (1,461) (2,064) 7,178 25,035 (9,031) 16,004 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.2 Discontinued operations (continued) (i) Results of discontinued operations The financial performance and cash flow information presented are for the period to the effective date of disposal (2020 column) and the year ended 30 September 2019. The effective date of disposal for Right2Drive was 6 August 2020 and the effective date for Carloans was 6 May 2020. Revenue Cost of revenue Impairment losses on loans and receivables Fair value adjustment Goodwill impairment Software impairment Other intangible impairment Employee benefit expense Depreciation and amortisation Operating expenses Loss from operating activities Income tax benefit Loss on sale of discontinued operations 2020 $’000 2019* $’000 38,125 172,704 (26,847) (88,801) 312 (5,100) - - - - (21,569) (159,338) (6,319) (13,144) (13,619) (59,855) (1,288) (6,927) (9,826) (38,107) (13,143) (226,456) 3,602 14,682 (2,484) (116,215) Total comprehensive loss from discontinued operations (12,025) (327,989) Earnings per share from discontinued operations Basic earnings per share, from discontinued operations - cents per share Diluted earnings per share, from discontinued operations - cents per share (3.8) (3.8) (102.8) (102.8) Cash flow from discontinued operations Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Net cash flows from discontinued operations * Comparatives have been re-present to reclass CarLoans to discontinued operations. 6,141 (99) 40,627 (6,032) - (34,804) 6,042 (209) 80 - 81 (ii) Asset held for sale As at 30 September 2020, there were no assets classified as held for sale in the Group. As at 30 September 2019, the assets and liabilities that were classified as held for sale relates to Right2Drive Group, which consists of Right2Drive Australia, Right2Drive New Zealand and Onyx Car rentals. The sale process was completed in financial year 2020. Assets held for sale Trade and other receivables Liabilities held for sale Other liabilities Provisions Trade and other liabilities 2020 $’000 - - - - - - 2019* $’000 41,516 41,516 1,074 1,412 971 3,457 The fair value of the asset held for sale was calculated using various inputs which would include a combination of indicative bid prices for the assets and external security value identified for the business. 2.3 Revenue Recognition and measurement Revenue is recognised when the Group satisfies its obligations in relation to the provision of goods and services to its customers in the ordinary course of business. Revenue is measured at an amount that reflects the consideration to which the Group expects to be entitled in exchange for performing these obligations. The Group’s revenue is disaggregated by the nature of the product or service. Finance income The Group purchases vehicles to lease to customers and earns a spread, or net interest income, being the difference between the interest component of the lease rental income it receives from customers and its cost of funds. The Group recognises net interest income over the life of the lease. Interest income from finance lease contracts is recognised using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the future asset. Payments collected from the lease are allocated between reducing the net investment in the lease and recognising interest income. Operating lease rentals The Group purchases vehicles to lease to customers and collects rentals in relation to these operating leases. The operating lease instalments (or rental income) are recognised in the financial statements in their entirety on a straight-line basis over the lease term. The instalments are classified and presented in ‘Operating lease rentals’. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.3 Revenue (continued) Maintenance and management income The Group earns maintenance and management fees from related products and services. Income related to maintenance and management services is recognised over the term of the lease contract based on the percentage of completion method. The allocation of income over the term is based on a maintenance profile supported by market data of expected service costs and intervals. The difference between the amounts received and amounts recognised as income is accounted for as deferred revenue disclosed within trade and other liabilities. Deferred maintenance income amounted to $17.4m (2019: $18.5m) and will be recognised over the remaining term of the respective lease contracts. Sale of goods The Group earns revenue from the sale of goods, which also includes ex-fleet and purchased vehicles. Sales are recognised when control of the products has transferred, being when the products are delivered to the customer, usually evidenced in the form of a delivery docket. Amounts disclosed as revenue are net of sales returns and trade discounts. Brokerage, commissions and advice services income The Group earns fees for the origination of financing from third party banks and financial institutions. Revenue is recognised when the related service has been provided. This is deemed to be at settlement date. The Group also earns finder fees for introducing individuals to car dealerships, which recognises revenue consistent with the treatment above. End of lease income - Vehicle sales The Group earns income on the sale of vehicles from terminated lease contracts. The Group acts as the principal in these transactions and proceeds are recognised on a gross basis. Revenue is recognised at the point in time the vehicle is sold and there are no remaining performance obligations. End of lease income - other The Group earns other end of lease income for variations in contractual terms related to early termination, mileage and excessive wear and tear of the vehicle. The fees are recognised at a point in time, upon termination of the lease contract. Sundry income The Group earns sundry income which includes commissions from finance and warranty product referrals; and short term flexible rentals to customers. Revenue is recognised when the service has been provided. This is deemed to be at settlement date for product referrals; and over time for short term rental vehicles. Cost of revenue Cost of revenue comprises the cost associated with providing the service components of the lease. Cost of revenue is recognised as incurred. 82 - 83 Consolidated 2020 $’000 2019* $’000 96,036 108,967 99,930 103,340 34,991 37,073 184,838 201,851 13,568 17,746 4,162 3,814 225,822 219,441 14,901 17,169 674,248 709,401 43,636 10,338 43,713 11,628 207,526 207,742 321 485 180,203 197,124 442,024 460,692 Revenue from continuing operations: Finance income Maintenance and management income** Related products and services income** Operating lease rentals Brokerage income** Sundry income** End of lease income - Vehicle Sales** End of lease income - other Total revenue from continuing operations Cost of revenue: Maintenance and management expense Related products and services expense Cost of goods sold Impairment on operating leased assets Depreciation on operating leased assets Total cost of revenue * Comparatives have been re-presented to reclassify CarLoans figures to discontinued operations. ** The above amounts totalling $378,473,000(2019: $381,414,000) represents the Group’s revenue derived from contracts with customers, in accordance with AASB15. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.4 Expenses Recognition and measurement Depreciation Depreciation on assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Motor vehicles 2-10 years; Furniture and fittings 3-10 years; and Plant and equipment 3-10 years. The right-of-use asset is subsequently depreciated using the straight-line method over the term of the lease. Operating finance costs Facility finance costs and lease liability interest is recognised in the statement of profit or loss and other comprehensive income using the effective interest method. Facility finance restructure costs are recognised in the statement of profit or loss and other comprehensive income as and when they are incurred. Amortisation 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 is calculated on a straight line basis over periods generally ranging from three to five years for non-core costs, and seven to ten years for core system software costs. 84 - 85 Consolidated 2020 $’000 2019* $’000 2,323 1,778 5,402 4,290 3,414 3,666 6,800 - Profit before income tax includes the following specific expenses: Depreciation and amortisation Plant and equipment - fixture and fittings Amortisation - Intangible assets Software Right-of-use assets Total depreciation and amortisation expense 13,793 13,880 Lease finance costs Interest and finance charges - Third parties Hedge (gain) / loss Total lease finance costs Operating finance costs Facility finance costs Lease liabilities interest Facility finance restructure Total operating finance costs Operating overheads Rental of premises Technology costs Restructuring costs Merger related costs Other overheads Total operating overheads * Comparatives have been re-presented to reclassify CarLoans figures to discontinued operations. 59,714 70,131 (1,258) 3,259 58,456 73,390 14,943 18,521 1,052 4,820 - - 20,815 18,521 1,096 8,243 3,303 158 13,987 26,787 7,584 9,974 7,703 16,630 20,101 61,992 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.5 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of fully paid ordinary shares outstanding during the financial year and excluding treasury shares. 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. Profit / (loss) attributable to the ordinary shareholders Profit / (loss) attributable to the ordinary equity holders of the company used in calculating basic earnings per share and diluted earnings per share Profit/(loss) from continuing operation Profit/(loss) from discontinued operation From continuing and discontinued operations Weighted average number of shares used as the denominator Consolidated 2020 $’000 2019* $’000 30,230 (13,468) (12,025) (327,989) 18,205 (341,457) Consolidated 2020 2019 Number Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 315,854,276 319,111,693 Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share 324,673,926 319,111,693 The weighted average number of shares is only adjusted for dilution purposes, where this will decrease the earnings per share or increase the loss per share, accordingly no adjustment was made in 2019 to the weighted average number of ordinary shares used as the denominator in the calculation of diluted earnings per share. Continuing and discontinuing earnings per share Continuing and discontinuing earnings per share Basic earnings per share Diluted earnings per share Impact of continuing operations Basic earnings per share Diluted earnings per share Impact of discontinuing operations Basic earnings per share Diluted earnings per share 86 - 87 2019 Cents (107.0) (107.0) 2019 Cents (4.2) (4.2) (102.8) (102.8) Consolidated 2020 Cents 5.8 5.6 Consolidated 2020 Cents 9.6 9.3 (3.8) (3.8) ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.6 Taxation Recognition and measurement Current tax Current tax assets and liabilities are measured at the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and tax offsets, to the extent that it is probable that sufficient future taxable profits will be available to utilise them. However, deferred tax assets and liabilities are not recognised for: taxable temporary differences that arise from initial recognition of an asset or liability in a transaction oth- er than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future; and taxable temporary differences arising from goodwill. Deferred tax assets and liabilities are measured at the tax rates and tax laws that are expected to apply the year when the asset is utilised or liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised directly in equity and not in the statement of profit or loss and other comprehensive income. Offsetting deferred tax balances Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Tax consolidation legislation Eclipx Group Limited and its wholly owned Australian controlled entities are part of a tax-consolidated group under Australian taxation law. Eclipx Group Limited is the head entity in the tax-consolidated group. Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, Eclipx Group Limited and each of the entities in the tax-consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. (i) Reconciliation of income tax expense 88 - 89 Consolidated 2020 $’000 201* $’000 Profit/(loss) from continuing operations before income tax expense 42,392 (18,538) Loss from discontinuing operations before income tax expense (16,054) (342,672) Prima facie tax rate of 30.0% (2019 - 30.0%) New Zealand tax rate differentials Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Grays loss on disposal ECF loss on disposal R2D gain on disposal CarLoans gain on disposal Contingent consideration Goodwill impairment FV adjustment Transaction costs Other 26,338 (361,210) 7,901 (108,363) (372) 169 - 328 (143) (286) - - - 617 90 28,237 4,393 - - (35) 47,801 6,471 1,207 367 Income tax (benefit)/expense 8,135 (19,753) Income tax expense comprises of: Current tax Deferred tax Income tax (benefit)/expense is attributable to: Profit/(loss) from continuing operations Loss from discontinuing operations Income tax (benefit)/expense Effective tax rate 3,531 4,604 8,135 6,586 (26,339) (19,753) 12,162 (5,070) (4,027) (14,683) 8,135 (19,753) 31% 5.4% The effective tax rate for 2020 was impacted by the gain or loss on sale of disposal groups and certain transaction costs which are not deductible and decreases the effective benefit on the loss from continuing and discontinuing operations. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 2.0 Business Result for the Year (continued) 2.6 Taxation (continued) (ii) Movement of deferred tax C h a r g e d t o o t h e r c o m p r e h e n s i v e i n c o m e a n d e q u i t y C h a r g e d t o p r o fi t o r l o s s t a x a n d d e f e r r e d t a x i O p e n n g b a a n c e l i l R e c a s s fi c a t i o n b e t w e e n c u r r e n t i D s p o s e d a s p a r t o f t h e s a e o f l C a r L o a n s a n d R 2 D D e f e r r e d t a x a s s e t D e f e r r e d t a x l i a b i l i t y l i C o s n g b a a n c e l $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 11,191 1,663 (776) (7,194) 4,884 4,884 Deferred revenue 8,798 (2,101) (410) 9,228 (338) (646) - - - 6,287 6,287 8,244 8,244 9,647 (2,779) Leasing adjustments (37,618) (1,717) Transaction costs 5,251 (1,145) Intangible assets (2,274) 1,813 - - - - 1,935 1,458 10,263 12,020 (1,757) 2,300 (203) - (37,035) - (37,035) (85) 3,818 3,818 - (840) (1,357) (2,658) - (2,658) 4,223 (4,604) (646) 2,006 (7,178) (6,197) 35,253 (41,450) Set off DTL against DTA Net tax assets/ (liabilities) (31,887) 31,887 (6,197) 3,366 (9,563) 2020 Doubtful debt provision Hedging assets and liabilities Accruals, employee provisions and other - - - - - 90 - 91 D e f e r r e d t a x a s s e t D e f e r r e d t a x l i a b i l i t y l i C o s n g b a a n c e l C h a r g e d t o o t h e r c o m p r e h e n s i v e i n c o m e a n d e q u i t y C h a r g e d t o p r o fi t o r l o s s t a x a n d d e f e r r e d t a x i O p e n n g b a a n c e l l i R e c a s s fi c a t i o n b e t w e e n c u r r e n t i D s c o n t i n u e d o p e r a t i o n s ( R 2 D ) o f G r a y s a n d E C F i D s p o s e d a s p a r t o f s a e l $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 7,534 (39) 5,361 (9) (7,194) (1,656) 3,997 3,997 - 1 - - 86 - 8,798 8,798 9,228 9,228 - - - - - - - (1,516) 1,446 3,531 11,093 13,125 (2,032) 1,735 - (20,847) (37,618) - (37,618) (864) (85) (724) 5,166 5,166 - 2,752 (1,357) 8,527 (3,631) - (3,631) 2019 Doubtful debt provision Deferred revenue 5,329 3,383 - Hedging assets and liabilities Accruals, employee provisions and other 2,631 699 5,897 3,159 4,472 Leasing adjustments (28,490) 9,984 Transaction costs 4,161 2,678 Intangible assets (18,714) 5,162 (24,390) 26,339 11,258 2,099 (7,190) (11,083) (2,967) 40,314 (43,281) Set off DTL against DTA Net tax assets/ (liabilities) (iii) Franking credits (38,138) 38,138 (2,967) 2,176 (5,143) Consolidated 2020 $’000 2019 $’000 Franked dividends (Australia) Franking credits available for subsequent financial years based on a tax rate of 30% (2019: 30%) 5,817 5,523 5,817 5,523 Key estimate and judgement: Taxation The Group is subject to income taxes in Australia and New Zealand. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax based on estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities This section provides information relating to the operating assets and liabilities of the Group. 3.1 Property, plant and equipment Recognition and measurement Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the reporting period in which they are incurred. 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. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the statement of profit or loss and other comprehensive income. Leased property Leased property is stated at cost less accumulated depreciation and impairment. Cost includes initial direct costs incurred in negotiating and arranging the operating lease contract. In the event that the settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value at the date of acquisition. Depreciation is brought to account on leased property. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life (being the term of the related lease contract) to its estimated residual value. The assets’ residual values and useful lives are revised, and adjusted if appropriate, at the end of each reporting period. Residual values are assessed for impairment and in the event of a shortfall, an impairment charge is recognised in the current period. 92 - 93 Total $’000 967,787 266,550 Plant and equipment Fixture and fittings Motor vehicles and equipment $’000 $’000 $’000 4,236 290 - (702) (40) - 4,364 219 959,187 266,041 - - - - (175,834) (175,834) - - (321) (702) (40) (321) (1,505) (818) (180,203) (182,526) (2) 2,277 (13) 3,752 (1,706) (1,721) 867,164 873,193 17,843 (15,566) 10,606 (6,854) 1,353,785 1,382,234 (486,621) (509,041) Consolidated 2020 Opening net book amount Additions Transfers to inventory Disposals Disposal - discontinued operations Impairment charge Depreciation charge - continuing operations Foreign exchange variation Closing net book amount 2020 Cost Accumulated depreciation and impairment Net book amount 2,277 3,752 867,164 873,193 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities (continued) 3.1 Property, plant and equipment (continued) Consolidated Plant and equipment Fixture and fittings Motor vehicles and equipment $’000 $’000 $’000 Total $’000 2019 Opening net book amount Additions Transfers to inventory Depreciation charge - discontinued operations Disposal - discontinued operations Impairment charge Depreciation charge - continuing operations Foreign exchange variation Closing net book amount 2019 Cost Accumulated depreciation and impairment 6,227 2,328 - (409) (2,020) - (1,897) 7 4,236 7,618 2,477 1,052,114 1,065,959 307,296 312,101 - (207,311) (207,311) (752) (1,876) (1,613) (1,517) 27 4,364 - - (485) (1,161) (3,896) (2,098) (197,124) (200,538) 4,697 4,731 959,187 967,787 18,151 (13,915) 13,467 (9,103) 1,457,805 1,489,423 (498,618) (521,636) Net book amount 4,236 4,364 959,187 967,787 Motor vehicle and equipment operating leases reported as property, plant and equipment Operating leases terminating within 12 months Operating leases terminating after more than 12 months Net book amount of property, plant and equipment Plant and equipment Fixture and fittings Consolidated 2020 $’000 2019 $’000 284,045 268,656 583,119 690,531 867,164 959,187 2,277 3,752 6,029 4,236 4,364 8,600 Total property, plant and equipment 873,193 967,787 94 - 95 Key estimate and judgement: Leased property The Group owns assets where the residual value of the asset and useful life of the asset needs to be assessed at each reporting date. The residual value of the asset is impacted by the condition, age, usage of the asset and the demand for the asset at the end of its useful life. The Group uses internal and external data to calculate the residual value of the asset and the expected useful life of the asset. The residual value and useful life of the asset is used to calculate the depreciation and net book value of the asset. The actual value to be realised on the final disposal of the asset will impact the profit and loss on sale of the asset in the period that the sale occurs. 3.2 Right-of-use assets Recognition and measurement The Group has initially applied AASB 16 at 1 October 2019, using the modified retrospective 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. Please refer to note 1.0 for the impact on application. 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 the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the term of the lease. (i) Movements in net book value of right-of-use assets Balance at 1 Oct 2019 Depreciation charge for the year Additions to right-of-use assets Net foreign currency exchange differences Balance at 30 September 2020 Leases terminating within 12 months Leases terminating after more than 12 months Buildings Equipment $’000 25,290 (4,230) 197 (50) 21,207 $’000 - (60) 418 - 358 Total $’000 25,290 (4,290) 615 (50) 21,565 2020 $’000 3,895 17,670 21,565 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities (continued) 3.3 Finance leases Recognition and measurement Amounts due from lessees under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any guaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease. Assets leased under finance leases are classified and presented as lease receivables. Gross investment Unearned income Expected credit allowance Consolidated 2020 $’000 2019 $’000 423,607 475,508 (39,599) (56,101) (13,709) (11,865) 370,299 407,542 Amount expected to be recovered within 12 months 142,622 153,484 Amount expected to be recovered after more than 12 months 227,677 254,058 The future lease payments under non-cancellable leases are disclosed in note 4.6(a). 370,299 407,542 96 - 97 3.4 Trade receivables and other assets Recognition and measurement Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is disclosed as part of credit risk. Refer to note 4.2. Net trade receivables Trade receivables Expected credit loss Sundry debtors Prepayments Other assets Current tax receivable Total trade receivables and other assets Consolidated 2020 $’000 46,650 (2,182) 44,468 2019 $’000 54,618 (1,187) 53,431 17,500 7,933 6,532 17,415 34 - 47 2,892 68,534 81,718 A significant portion of the above amounts are expected to be recovered within 12 months. The net carrying value of trade receivables is considered a reasonable approximation of fair value. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities (continued) 3.5 Trade and other liabilities Recognition and measurement These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Trade payables Customer related liabilities Accrued expenses Current tax liabilities Maintenance income received in advance Contingent and deferred consideration Other payables Deferred Revenue Consolidated 2020 $’000 2019 $’000 34,295 32,513 3,725 4,726 11,350 20,927 3,189 11,056 231 26,513 17,412 - 7,776 483 26,311 18,491 Total trade and other liabilities 107,771 111,227 Amount expected to be settled within 12 months Total trade and other liabilities Consolidated 2020 $’000 2019 $’000 107,771 111,227 107,771 111,227 98 - 99 3.6 Lease liabilities Recognition and measurement Lease liabilities are measured at the present value of the lease payments to be made over the lease term as at the commencement of the lease. The present value is calculated by discounting the lease payments using the lessee’s incremental borrowing rate. The incremental borrowing rate is the rate that the Group would have to pay to borrow funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment, with similar terms, security and conditions. Application of the incremental borrowing rate is adopted where the interest rate implicit in the lease cannot be readily determined, which is generally the case for leases in the Group. Lease payments due within the next 12 months are recognised within current lease liabilities; payments due after 12 months are recognised within non-current lease liabilities. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest expense on the lease liability is a component of finance cost and presented in the statement of profit or loss. The Group leases buildings and equipment. Lease liabilities include the net present value of the following lease payments: Fixed payments, less any lease incentives receivable; and Payments of penalties for the termination of the lease, if the lease term reflects the lessee exercising that option. (i) Maturity analysis - contractual undiscounted cash flow Less than one year One to five years More than five years Total undiscounted lease liabilities as 30 September (ii) Lease liabilities included in the statement of financial position at 30 September Leases terminating within 12 months Leases terminating after more than 12 months (iii) Amounts recognised in profit or loss Lease liabilities interest Income from sub-leasing right-of-use assets (iv) Amounts recognised in statement of cash flow Financing cash outflow relating to the principal portion of lease payments Operating cash outflow relating to the interest expense portion of lease payments Total cash outflow for leases 2020 $’000 5,240 13,731 9,072 28,043 4,260 19,514 23,774 (1,052) 226 4,161 1,144 5,305 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities (continued) 3.7 Intangibles Recognition and measurement Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired controlled entities at the date of acquisition. Goodwill on acquisitions of controlled entities are included in intangible assets. Goodwill is not amortised. Instead, goodwill 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 a cash-generating unit (CGU) for the purpose of impairment testing. The allocation is made to those CGU’s that are expected to benefit from the business combination in which the goodwill arose. Customer relationships and brand names Other intangible assets include customer relationships and brand names acquired as part of business combinations and recognised separately from goodwill. Customer relationships are amortised over 10 years on a straight line basis. Brand names are amortised over 20 years on a straight line basis. Software Software 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. 100 - 101 Brand Names Customer relationships Software Goodwill $’000 $’000 $’000 $’000 Total $’000 2020 Opening net book amount 1,837 13,301 19,345 440,819 475,302 Additions - - 2,117 Amortisation charge - continuing operations (123) (1,655) (5,402) Impairment charge - continuing operations Foreign exchange variation - - (398) - - (10) - - - (525) 2,117 (7,180) (398) (535) Closing net book amount 1,714 11,248 16,050 440,294 469,306 2020 Cost 18,721 29,342 73,120 538,382 659,565 Accumulated amortisation and impairment (17,007) (18,094) (57,070) (98,088) (190,259) Net book amount 1,714 11,248 16,050 440,294 469,306 Brand Names Customer relationships Software Goodwill $’000 $’000 $’000 $’000 Total $’000 2019 Opening net book amount 36,050 23,152 62,084 708,345 829,631 Additions - - 8,769 Amortisation charge (119) (3,547) (6,800) Impairment charge - continuing operations - (3,458) (24,200) - - - 8,769 (10,466) (27,658) Impairment charge - discontinued operations (12,787) Amortisation charge - discontinued operations (1,777) (357) (263) (6,319) (159,338) (178,801) (3,726) - (5,766) Disposed as part of discontinued operation (19,530) (2,266) (10,713) (109,552) (142,061) Foreign exchange variation - 40 250 1,364 1,654 Closing net book amount 1,837 13,301 19,345 440,819 475,302 2019 Cost 18,721 29,342 71,165 538,907 658,135 Accumulated amortisation and impairment (16,884) (16,041) (51,820) (98,088) (182,833) Net book amount 1,837 13,301 19,345 440,819 475,302 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 3.0 Operating Assets and Liabilities (continued) 3.7 Intangibles (continued) (i) Impairment of assets For the year ending 30 September 2020, the Group recognised impairments of $0.4 million against customer relationships upon annual impairment review. For the year ending 30 September 2019, the Group recognised impairments upon annual impairment review following restructure of the group, new leadership and implementation of The Simplication Plan for renewed focus on the Core business. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they 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 (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period. For the purpose of annual impairment testing, goodwill is allocated to the following CGUs, which are the units expected to benefit from the synergies of the business combinations in which the goodwill arises. Australia Commercial Novated New Zealand Commercial Goodwill allocation at 30 September Consolidated 2020 $’000 2019 $’000 282,493 282,493 46,475 46,475 111,326 111,851 440,294 440,819 The recoverable amount of each of the Group’s CGUs was determined based on value-in-use calculations, consistent with the methods used as at 30 September 2019. These calculations require the use of assumptions, which includes business unit’s approved budget and three-year projected cash flows. Goodwill is reviewed on an annual basis or more frequently if events or changes in circumstances indicate a potential impairment. The Group tested for impairment at 31 March 2020 as a result of the COVID-19 pandemic which was expected to have an impact on the future cash flows and earnings. The impairment test is applied consistently to all CGUs that have goodwill allocated. The value in use is determined by discounting projected future cash flows. Cash flows are projected based on budgets approved by the Board, with an extrapolation of expected cash flows into perpetuity using the growth rates determined by management. The following table sets out the key assumptions for each of the Group’s CGUs. 102 - 103 30 September 2020 30 September 2019 Australia Commercial Novated New Zealand Commercial Australia Commercial Novated New Zealand Commercial Long term growth rate Post-tax discount rate 2.5% 11.4% 2.5% 2.0% 2.5% 2.5% 12.0% 12.3% 11.0% 12.0% 2.0% 11.5% Growth rates are reviewed based on data available in the market and adjusted based on forecasted expectations of the industry performance, historical data and risks to these expectations. Long term growth rates are based on target rates of the Reserve Bank of Australia and Reserve Bank of New Zealand while considering the economic data from the International Monetary Fund. Based on the methodology outlined above, the recoverable amount in New Zealand Commercial, Australia Commercial and Novated CGU’s were higher than the carrying amount of those CGU’s and therefore no impairment was recognised. The Australia Consumer CGU was renamed to Novated. The change was made to more accurately reflect the activities carried on in this CGU where historically this included activities associated with CarLoans which was disposed on 6 May 2020. The New Zealand Commercial CGU has seen a material improvement in Cash net profit after tax, where the CGU has seen an increase in cash net profit after tax from $7.5m in 2019 to $14.3m in 2020, this represents an increase of $6.8m. This material increase has decreased the probability of an impairment of goodwill allocated to the New Zealand CGU. The Group tested various scenarios as to the level that value-in-use would be equal to carrying value: For New Zealand Commercial a decrease in annual cash flow of 25.6%, terminal negative growth rate, or an increase in discount rate to 15.3% will result in its value in use being equal to carrying value. For Australia Commercial a decrease in annual cash flow of 18.7%, terminal growth rate to 0.5% or an increase in discount rate to 13.0% will result in the value in use being equal to carrying value. For Australia Commercial a decrease in annual cash flow of 18.7%, terminal growth rate to 0.5% or an increase in discount rate to 13.0% will result in the value in use being equal to carrying value. Key estimate and judgement: Impairment of goodwill The testing of goodwill requires management to make estimates as to the future cash flows of the CGU’s. Where the actual cash flows of the CGU are lower than the estimated cash flows, the Group may recognise an impairment on goodwill. To address this risk management tests for likely scenarios which could impact the cash flows of the CGU’s and makes an assessment on the likelihood of this to occur based on internal and external data.. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management This section provides information relating to the Group’s capital structure and its exposure to financial risk, how they affect the Group’s financial position and performance, and how the risks are managed. The capital structure of the Group consists of debt and equity. 4.1 Borrowings Recognition and measurement Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method. 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 end of the reporting period. Fair value approximates carrying value in relation to borrowings except for the fixed term loan (refer to note 4.2 for details). The secured borrowings may be drawn at any time and is subject to annual review. Subject to the continuance of satisfactory credit ratings, the borrowing facilities may be drawn at any time and have an average maturity of 15 months (2019: 16 months). Bank loans Notes payable Borrowing costs Total secured borrowings Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Consolidated 2020 $’000 2019 $’000 155,000 285,700 1,199,899 1,331,640 (9,907) (12,635) 1,344,992 1,604,705 373,089 369,537 971,903 1,235,168 1,344,992 1,604,705 Bank loans Bank loans are secured by fixed and floating charge over the assets of the Company and all wholly owned subsidiaries. The carrying amount of assets pledged as security was $148,764,000 (2019: $221,433,000). Notes payable Notes payable are secured by fixed and floating charge over the motor vehicles and equipment that are leased to customers. The carrying amount of assets pledged as security was $1,389,485,000 (2019: $1,509,273,000). 104 - 105 Financing arrangements The Group had access to the following undrawn borrowing facilities at the end of the reporting period: Loan facilities used at reporting date Loan facilities unused at reporting date Total loan facilities available Financial covenants Consolidated 2020 $’000 2019 $’000 1,354,899 1,617,340 342,730 218,587 1,697,629 1,835,927 The Group has complied with financial covenants of its borrowing facilities during the 2020 and 2019 reporting periods. Reconciliation of movements of liabilities to cash flows arising from financing activities Liabilities arising from financing activity Borrowing balance 30 Sep 2019 Proceeds from borrowings Repayments of borrowings Non cash movements Foreign exchange Amortisation of capital borrowing cost Borrowing balance 30 Sep 2020 Borrowing $’000 1,604,705 383,139 (643,586) (1,958) 2,692 1,344,992 4.2 Financial risk management This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s future financial performance. Current year profit or loss information has been included where relevant to add further context. Risk management The Group’s 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 is exposed to a variety of financial risks: market risk (this includes foreign exchange risk and interest rate risk), credit risk and liquidity risk. 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 risk, and ageing analysis for credit risk. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.2 Financial risk management (continued) Market risk (i) Foreign exchange risk The Group operates in Australia and in New Zealand and is exposed to foreign exchange risk arising primarily with respect to the New Zealand dollar. 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 and net investments in foreign operations. The Group manages its exposures to the New Zealand dollar by ensuring that its assets and liabilities in New Zealand are predominantly in New Zealand dollars. For sensitivity measurement purposes, a +/- 10% (2019:10%) sensitivity in foreign exchange rates to the Australian dollar has been selected as this is considered realistic given the current levels of exchange rates, the recent levels of volatility and market expectations for future movements in exchange rates. Based on the financial instruments held at 30 September 2020, had the Australian dollar weakened/strengthened by 10% (2019:10%) against the New Zealand dollar compared to year-end rates, with other variables held constant, the consolidated entity’s after-tax profits for the year and equity would have been $994,129 (2019: $529,736) higher/lower, as a result of exposure to exchange rate fluctuations of foreign currency operations. All foreign exchange risk is due to the translation of the New Zealand entities on consolidation. (ii) Interest rate risk 2020 2019 Weighted average interest rate % Weighted average interest rate % Balance $’000 Balance $’000 7.100% 53,570 6.350% 65,000 Borrowings - Fixed interest rate - Floating interest rate 2.544% 1,291,423 3.456% 1,539,705 Interest rate swaps (notional principal amount) 1.613% (1,277,323) 2.141% (1,416,929) Unhedged variable debt 14,100 122,776 Interest rate risk results principally from repricing risk from the Group lease portfolio and borrowings. The Group’s lease receivables are fixed rate lease contracts. The interest rate is fixed for the life of the contract. Lease contracts are typically originated with an average maturity of between four to five years. The borrowings to fund the leases are variable rate borrowings where the rates are regularly reset to current market rates. Interest rate risk is managed by entering into interest rate swaps, whereby the Group pays fixed rate and receives floating rate. The Group settles monthly net interest receivable or payable. The Group remeasures the hedging instruments at fair value and recognises a gain or loss in other comprehensive income and deferred to the hedging reserve, where the hedge is effective. It is reclassified into the Income Statement if the hedging relationship ceases. In the year ended 30 September 2020, an expense of $1.7m was reclassified into profit and loss (2019: $3.8m). The Group recognised a gain on hedge ineffectiveness of $1.3m (2019: loss of $2.3m). 106 - 107 The Group hedges 100% of the lease book that is financed through the Group’s funding structures. This 100% hedging strategy results in hedge ineffectiveness where the Group provides funding and no external borrowing is used. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date and assuming that the rate change occurs at the beginning of the financial year and is then held constant throughout the reporting period. The selected basis points (bps) increase or decrease represents the Group’s assessment of the possible change in interest rates. A positive number indicates a before-tax increase in profit and equity and a negative number indicates a before-tax decrease in profit and equity. Sensitivities have been based on an increase in interest rates by 100 bps (2019: 100 bps) and a decrease by 100 bps (2019: 100 bps) across the yield curve. 2020 Interest rate risk Carrying amount -100 bps Profit/equity +100 bps Profit/equity $’000 $’000 $’000 Financial assets Cash and cash equivalents 207,798 (2,078) 2,078 Finance leases - Fixed interest rate Total (decrease)/increase Financial liabilities Borrowings - Fixed interest rate - Floating rate Trade and other liabilities Derivatives used for hedging Total increase/(decrease) 370,299 578,097 - (2,078) - 2,078 53,570 - - 1,291,423 12,914 (12,914) 107,771 - 28,091 (12,773) 1,480,855 141 - 12,773 (141) ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.2 Financial risk management (continued) 2019 Interest rate risk Carrying amount -100 bps Profit/equity +100 bps Profit/equity $’000 $’000 $’000 Financial assets Cash and cash equivalents 239,678 (2,397) 2,397 Finance leases - Fixed interest rate Total (decrease)/increase Financial liabilities Borrowings - Fixed interest rate - Floating rate Trade and other liabilities Derivatives used for hedging Total increase/(decrease) Credit risk 407,542 647,220 - (2,397) - 2,397 65,000 - - 1,539,705 15,397 (15,397) 111,227 - 31,369 (14,216) 1,747,301 1,181 - 14,216 (1,181) The recoverability of finance lease receivables and trade and other receivables is reviewed on an ongoing basis. A loss allowance account (provision for impairment) is recognised when there is a difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows the Group expects to receive (ie all cash shortfalls), discounted at the original effective interest rate (or credit- adjusted effective interest rate for purchased or originated credit-impaired financial assets). To manage credit risk the Group has a credit assessment process. Leases are provided to novated and commercial customers. Credit underwriting typically includes the use of either an application scorecard and credit bureau report or a detailed internal risk profile review, including a review of the customer against a comprehensive credit database. Internal credit review and verification processes are also used depending on the applicant. The credit risk function consists of dedicated credit employees who apply the Group’s credit and underwriting policy within specific approval authorities. The credit risk team monitors the performance of the portfolio and considers the macro environment to manage exposure to specific clients and specific sectors. The Group has a specialist collections function, which manages all delinquent accounts. The provision for impairment under AASB 9: Financial Instruments applies to the Group’s net investment in finance lease receivables and trade and other receivables. The Group will recognise provision for impairments using the simplified approach and record lifetime expected credit losses, as allowed under AASB 9 for lease receivables and trade and other receivables. 108 - 109 Measurement To measure the expected credit loss (ECL) the group uses a credit loss model developed at a product level based on shared risk characteristics. The key model inputs used in measuring the ECL include: Exposure at Default (EAD): represents the calculated exposure in the event of a default. The EAD for finance leases is the principal amount outstanding at reporting date. Probability of Default (PD): the development of PDs is developed at a product level considering shared credit risk characteristics. In calculating the PD, 24 months of historical delinquency transition matrices are used to develop a point in time PD estimate. Loss Given Default (LGD): the LGD is the magnitude of the ECL in a default event. The LGD is estimated using three years of historical recovery experience. Macroeconomic scenarios The assessment of credit risk, and the estimation of ECL, will be unbiased and probability weighted, and incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable information about future events and economic conditions at the report date. The Group has established a process whereby forward-looking macroeconomic scenarios and probability weightings are developed for ECL calculation purposes. The final probability weighted ECL amount will be calculated from a baseline, an upside scenario and a downside scenario. The weightings of each scenario as applied for 2020 and 2019 are as below: Scenario Expectation Weighting 2019 Weighting 2020 Base Case This scenario is reflective of the economy as-is with minor volatility. Upside This scenario is reflective of a scenario that is benign as compared to the baseline scenario Downside This scenario is reflective of an adverse economic period as compared to the baseline scenario 60% 20% 20% 50% - 50% In calculating an ECL the Group includes forward looking information. The Group has identified a number of key indicators that are considered, the most significant of which are unemployment rate, gross domestic product, interest rates and inflation. The predicted relationships between these key indicators and the key model inputs in measuring the ECL have been developed by analysing historical data as part of the model build, calibration and validation process. These indicators are assessed semi-annually. Three possible scenarios are applied: Base Case, Upside and Downside. The forward-looking inputs are applied to the macroeconomic scenarios. Definition of default Default is generally defined as the point when the borrower is unlikely to pay its credit obligations in full or the borrower is more than 90 days past due. Write-off Balances are written off, either partially or in full, against the related allowance when there is no reasonable expectation of recovery. For all balances, write-off takes place only at the completion of collection procedures, or where it no longer becomes economical to continue attempts to recover. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.2 Financial risk management (continued) Impairment provisions The Group’s total impairment provisions from 1 October 2019 to 30 September 2020 is set out below, reconciling the opening loss allowance to the closing loss allowance. Except as disclosed in note 1, no significant changes to estimation techniques or assumptions were made during the reporting period. Opening loss allowance as at 1 October 2018 calculated under AASB 9 Increase / (Decrease) in loss allowance Write-offs Balance derecognised at disposal and held for sale Opening loss allowance as at 1 October 2019 calculated under AASB 9 Increase / (Decrease) in loss allowance Write-offs Balance derecognised at disposal and held for sale Net investment in finance lease receivables Trade and other receivables $’000 11,485 5,984 (2,477) (3,127) 11,865 3,170 $’000 7,296 (495) (3,539) (2,075) 1,187 2,245 (1,326) (1,250) Closing loss allowance as at 30 September 2020 – calculated under AASB 9 13,709 2,182 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. To mitigate against liquidity risk, the Group maintains cash reserves and committed undrawn credit facilities to meet anticipated funding requirements for new business. In addition, the Group can redraw against its committed credit limits if the principal outstanding is reduced by the contractual amortisation payments. Details of unused available loan facilities are set out in note 4.1. Management monitors rolling forecasts of the Group’s liquidity reserve (comprising the undrawn borrowing facilities) and cash and cash equivalents on the basis of expected cash flows. In addition, the Group’s liquidity management policy involves projecting cash flows 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. Amounts due to funders are repaid directly by rental and repayments received from the Group’s customers. The table below analyses the Group’s contractual financial liabilities into relevant maturity groupings. The amounts disclosed below are the contractual undiscounted cash flow. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. For interest rate swaps, the cash flows have been estimated using forward interest rates applicable at the end of the reporting period. 110 - 111 Contractual maturities of financial liabilities Less than 1 year Between 1and 2 years Between 2 and 5 years 2020 Non-derivatives $’000 $’000 $’000 Over 5 years $’000 Total contractual cash flows Carrying amount $’000 $’000 Trade and other liabilities (107,771) - - - (107,771) (107,771) Borrowings Provisions (397,218) (315,892) (659,285) (28,916) (1,401,311) (1,344,992) (7,786) (2,024) - - (9,810) (9,810) Total non-derivatives (512,775) (317,916) (659,285) (28,916) (1,518,892) (1,462,573) Derivatives Interest rate swaps (15,567) (7,869) (4,781) Total derivatives (15,567) (7,869) (4,781) (60) (60) (28,277) (28,091) (28,277) (28,091) Contractual maturities of financial liabilities Less than 1 year Between 1and 2 years Between 2 and 5 years 2019 Non-derivatives $’000 $’000 $’000 Over 5 years $’000 Total contractual cash flows Carrying amount $’000 $’000 Trade and other liabilities (111,227) - - - (111,227) (111,227) Borrowings Provisions (412,235) (373,929) (888,010) (32,371) (1,706,545) (1,604,705) (6,990) (2,293) - - (9,283) (9,283) Total non-derivatives (530,452) (376,222) (888,010) (32,371) (1,827,055) (1,725,215) Derivatives Interest rate swaps (15,388) (10,774) (5,585) (138) (31,885) (31,369) Total derivatives (15,388) (10,774) (5,585) (138) (31,885) (31,369) ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.2 Financial risk management (continued) Fair value risk This section explains the judgements and estimates made in determining the fair values of the assets and liabilities that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its assets and liabilities into the three levels prescribed under the accounting standards. An explanation of each level follows underneath the table. 2020 Financial liabilities Derivatives used for hedging Total financial liabilities 2019 Financial liabilities Derivatives used for hedging Total financial liabilities Level 1 $’000 - - Level 1 $’000 - - Level 2 $’000 28,091 28,091 Level 2 $’000 31,369 31,369 Level 3 $’000 - - Level 3 $’000 - - Total $’000 28,091 28,091 Total $’000 31,369 31,369 There were no transfers between levels for recurring fair value measurements during the year. With the exception of the fixed term loan, fair value of financial liabilities and financial assets approximates the carrying value. The fixed term loan has a carrying value of $53,570,000 and a fair value of $52,376,000. A description of the level in the hierarchy is as follows: Level 2: The fair value of assets and liabilities that are not traded in an active market (for example, over-the- counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an asset or liability are observable, these are included in level 2. Valuation techniques used to determine fair values The fair values of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of interest rates swaps are included in level 2. No other assets or liabilities held by the Group are measured at fair value. 112 - 113 4.3 Cash and cash equivalents Recognition and measurement For the purpose of presentation in the statement of cash flows, 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 bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. Restricted cash, that represents cash held by the entity as required by funding arrangements, is disclosed separately on the statement of financial position and combined for the purpose of presentation in the statement of cash flows. Unrestricted Operating accounts Restricted Collections accounts Liquidity reserve accounts Vehicle servicing and maintenance reserve accounts Cash and bank and on hand Total as disclosed in the statement of cash flows Consolidated 2020 $’000 55,776 55,776 52,316 54,153 45,553 2019 $’000 97,134 97,134 61,909 47,263 33,372 152,022 142,544 207,798 239,678 The weighted average interest rate received on cash and cash equivalents for the year was 0.23% (2019: 1.25%). Liquidity reserve, maintenance reserve, vehicle servicing, collateral and customer collection accounts represent cash held by the entity as required under the funding arrangements and are not available as free cash for the purposes of operations of the Group until such time as the obligations of each trust are settled. Term deposit accounts are also not available as free cash for the period of the deposit. 4.4 Derivative financial instruments Recognition and measurement Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.4 Derivative financial instruments (continued) (i) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other income or other expense. Amounts accumulated in equity are recycled in the statement of profit or loss and other comprehensive income in the periods when the hedged item will affect profit or loss (for instance, when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. (ii) Derivatives that do not qualify for hedge accounting Where a derivative instrument does not qualify for hedge accounting or hedge accounting has not been adopted, changes in the fair value of these derivative instruments are recognised immediately in the statement of profit or loss and other comprehensive income. (iii) Derivatives Derivatives are only used for economic hedging purposes (to hedge interest rate risk) and not as trading or speculative instruments. The Group has the following derivative financial instruments: Interest rate swaps - cash flow hedges Total derivative financial instrument liabilities Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Total derivative financial instrument liabilities Consolidated 2020 $’000 28,091 28,091 15,053 13,038 28,091 2019 $’000 31,369 31,369 14,908 16,461 31,369 114 - 115 4.5 Contributed equity Recognition and measurement Ordinary fully paid shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Share capital Fully paid ordinary shares 315,090,932 319,111,693 654,765 654,765 2020 Shares 2019 Shares 2020 $’000 2019 $’000 Other equity securities Treasury shares Total issued equity Movements in ordinary share capital 4,545,761 525,000 - - 319,636,693 319,636,693 654,765 654,765 1 October 2019 Opening balance 1 October 2019 319,111,693 654,765 1 October 2019 Purchase of treasury shares 23 April 2020 Purchase of treasury shares 21 July 2020 Loan shares vested 23 July 2020 Loan shares vested 31 July 2020 Purchase of treasury shares 4 August 2020 Purchase of treasury shares (2,641,579) (1,475,000) 119,018 433,092 (85,657) (370,635) - - - - - - Balance 30 September 2020 315,090,932 654,765 Treasury shares Treasury shares are shares in Eclipx Group Limited that are held by Eclipx Group Limited Employee Share Trust or by staff under loans. These shares are issued under the Eclipx Group Limited Employee Share scheme and the executive LTI plan. The shares that have not been settled in cash are funded with a loan and are in substance an option and are reflected with zero value until such time that they are settled in cash so as to exercise the option. Details Opening balance Shares transferred to fully paid ordinary shares Purchase of treasury shares Closing balance Number of shares Number of shares 2020 2019 525,000 525,000 (552,110) 4,572,871 - - 4,545,761 525,000 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.6 Commitments a. Lease commitments: Group as lessee On adoption of AASB16 in 2020, the Group recognised all leases for which the Group contracted as lessee in financial statements as right-of-use assets and lease liabilities. Please refer to note 3.2 and note 3.6 for details. Following table sets out the lease commitments as at 30 September 2019. i. Operating leases The Group leases equipment and commercial premises under non-cancellable operating leases expiring within the next five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments in relation to leases contracted for at the end of each reporting period but not recognised as liabilities, are as follows: Details Within one year Later than one year but not later than five years Later than five years Consolidated 2019 $’000 7,281 15,323 12,453 35,057 ii. Finance leases The Group leases fixed assets with lease expiring within the next five years. Commitments in relation to leases contracted for at the end of each reporting period and recognised as liabilities, are as follows: Details Within one year Later than one year but not later than five years Consolidated 2019 $’000 1,664 1,749 3,413 b. Lease commitments: Group as lessor i. Finance leases Future lease payments due to the Group under non-cancellable leases, are as follows: Commitments in relation to finance leases are receivable as follows: Within one year Later than one year but not later than five years Later than five years ii. Operating leases Lease payments receivable on leases of motor vehicles are as follows: Lease payments under non-cancellable operating leases of motor vehicles not recognised in financial statements are receivable as follows: Within one year Later than one year but not later than five years Later than five years 116 - 117 Consolidated 2020 $’000 2019 $’000 166,276 175,242 257,317 300,173 14 93 423,607 475,508 Consolidated 2020 $’000 2019 $’000 280,724 287,288 308,911 361,753 11,686 13,394 601,321 662,435 c. Contractual commitments for the acquisition of property, plant or equipment The Group had contractual commitments for the acquisition of property, plant or equipment totalling $43,889,996 (2019: $50,885,687). These commitments are not recognised as liabilities as the relevant assets have not yet been received. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 4.0 Capital Management (continued) 4.7 Dividends Recognition and measurement Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, before or at the end of the financial year but not distributed at balance date. Details of dividends paid and proposed during the financial year are as follows: Final dividends paid No dividends paid in 2020 (2019: 2018 final dividend paid on 25 January 2019; 8.00 cents per ordinary share franked to 100%) Total dividends paid Consolidated 2020 $’000 - - 2019 $’000 25,571 25,571 118 - 119 5.0 Employee Remuneration and Benefits Recognition and measurement Long service leave The liability for long service leave 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 using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Retirement benefit obligations The Group makes payments to employees’ superannuation funds in line with the relevant superannuation legislation. Contributions made are recognised as expenses when they arise. A total of expense of $3.7 million (2019: $4.3 million) was recognised in the financial year. 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. Bonus plans The Group recognises a liability and an expense for bonuses on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 5.1 Share based payments Share based payments Share based compensation benefits are provided to employees via the Eclipx Group LTI plan. The fair value of options granted under the Eclipx Group LTI plan is recognised as an expense by the employing entity that receives the employee’s services. With a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options (vesting period). The fair value at grant date is determined using a Black-Scholes Option Pricing Model or Monte-Carlo Simulation that takes into account the: exercise price; term of the option; share price at grant date; expected volatility of the underlying share; expected dividend yield and the risk free interest rate for the term of the option. Non-market and service based vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. At the end of each reporting period, the Group revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the statement of profit or loss and other comprehensive income, with a corresponding adjustment to equity. In the event a share scheme is cancelled, the remaining unexpensed fair value of the original grant for those options still vesting at the date of cancellation is taken as a charge to the statement of profit or loss and other comprehensive income. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 5.0 Employee Remuneration and Benefits (continued) 5.1 Share based payments (continued) Loan shares Eclipx Group Limited issued shares to senior management employees of the Group with consideration satisfied by loans to the employees granted by Eclipx Group Limited. These arrangements are considered to be “in substance options” and treated as share-based payments. Whilst the above awards have been made by Eclipx Group Limited, the employees provide services to other entities within the Group, and therefore the associated expenses are borne by those entities that receive the relevant employees’ services. Options Eclipx Group Limited issued options to key employees of the Group. Whilst the above awards have been made by Eclipx Group Limited, the employees provide services to other entities within the Group, and therefore the associated expenses are borne by those entities that receive the relevant employees’ services. Options do not carry a right to receive any dividends. If options vest and are exercised to receive shares, these shares will be eligible to receive any dividends. Rights Eclipx Group Limited issued rights to employees of the Group. Whilst the above awards have been made by Eclipx Group Limited, the employees provide services to other entities within the Group, and therefore the associated expenses are borne by those entities that receive the relevant employees’ services. Rights do not carry a right to receive any dividends. If rights vest and are exercised to receive shares, these shares will be eligible to receive any dividends. Options and rights are subject to the same performance hurdles. The performance hurdles include “total share holder return” (“TSR”) and earnings per share (“EPS”) components, in addition to a service condition. TSR is a performance measure based on returns to shareholders, relative to other ASX-listed companies. TSR measures the percentage growth in the company’s share price plus the value of dividends received during the period, assuming that all of those dividends are re-invested into new shares. EPS is based on the compound annual growth rate (“CAGR”) of the Group’s earnings per share. Refer to remuneration report for further details of these performance hurdles. (i) Long Term Incentive Plan For the year ended 30 September 2020, the following awards were provided under the following employee share ownership plans: Options and rights The awards granted will be subject to testing against earnings per share (EPS) and individual performance or they will only be subject to remaining in the service of the Group at the time of vesting. 120 - 121 Set out below are summaries of options granted under each plan: Loan shares Grant date Exercise price Weighted average exercise price Balance at start of the year Granted during the year Forfeited during the year Vested and exercised during the year Unvested balance at end of the year Vested balance not exercised Number Number Number Number Number Number 2020 25-Sep-08 $0.90 08-May-13 $2.03 $0.90 $2.03 33,645 129,744 25-Sep-14 $1.25 - $1.65 $2.30 8,668,207 10-Mar-15 $2.30 22-Apr-15 $2.30 2019 25-Sep-08 $0.90 08-May-13 $2.03 $2.30 $2.30 $0.90 $2.03 250,000 5,000,000 33,645 129,744 25-Sep-14 $1.25 - $1.65 $2.30 9,307,311 10-Mar-15 $2.30 22-Apr-15 $2.30 $2.30 $2.30 330,000 5,200,000 - - - - - - - - - - - - (33,645) (129,744) (679,162) (910,809) - (250,000) (5,000,000) - - - - - - - - (639,104) (80,000) (200,000) - - - - - - - - - - - - 7,078,236 - - 33,645 129,744 8,668,207 250,000 5,000,000 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Options Expected vesting date Exercise price Grant date Weighted average exercise price Balance at start of the year Granted during the year Forfeited during the year Vested and exercised during the year Unvested balance at end of the year Vested option not exercised Number Number Number Number Number Number 2020 22-Apr-15 - $2.30 $2.30 700,000 10-Nov-15 30-Sep-18 $3.06 $3.06 995,000 19-Feb-16 30-Sep-18 $3.06 $3.06 400,000 - - - (700,000) (995,000) (400,000) 5-Sep-16 30-Sep-19 $3.80 $3.80 1,000,000 - (1,000,000) 4-Nov-16 30-Sep-19 $3.60 $3.60 2,740,000 - (2,740,000) 17-Feb-17 30-Sep-19 $3.60 $3.60 880,000 - (880,000) 08-Nov-17 30-Sep-20 $4.18 $4.18 2,250,000 - (1,695,000) 22-Feb-18 30-Sep-20 $4.18 $4.18 632,000 24-Aug-18 30-Sep-20 $4.18 $4.18 300,000 - - (632,000) (150,000) - - - - - - - - - - - - - - - 555,000 - 150,000 8-Jan-19 30-Sep-21 $2.54 $2.54 2,520,000 - (1,280,000) - 1,240,000 11-Feb-19 30-Sep-21 $2.54 $2.54 1,160,000 - (1,160,000) - - - - - - - - - - - - - 31-May-19 23-May-20 $1.20 $1.20 1,690,822 24-May-19 24-May-22 $1.20 $1.20 9,204,547 - - (241,546) (433,092) - 1,016,184 - - 9,204,547 18-Jul-19 17-Jul-22 $1.60 $1.60 3,448,275 - (1,091,954) - 2,356,321 27-Nov-19 27-Nov-22 $1.63 4-Apr-20 30-Sep-21 $0.75 4-Apr-20 30-Sep-21 $0.85 2019 $1.63 $0.75 $0.85 - 14,117,344 (1,932,786) - 12,184,558 - 12,361,635 (204,402) - 12,157,233 - 14,452,206 238,970) - 14,212,236 22-Apr-15 - $2.30 $2.30 775,000 - (75,000) 10-Nov-15 30-Sep-18 $3.06 $3.06 3,455,000 - (2,460,000) 19-Feb-16 30-Sep-18 $3.06 $3.06 1,625,000 - (1,225,000) - - - 995,000 400,000 - 700,000 5-Sep-16 30-Sep-19 $3.80 $3.80 1,000,000 - - - 1,000,000 4-Nov-16 30-Sep-19 $3.60 $3.60 4,210,000 - (1,470,000) - 2,740,000 17-Feb-17 30-Sep-19 $3.60 $3.60 1,760,000 - (880,000) - 880,000 08-Nov-17 30-Sep-20 $4.18 $4.18 3,640,000 - (1,390,000) - 2,250,000 22-Feb-18 30-Sep-20 $4.18 $4.18 1,264,000 24-Aug-18 30-Sep-20 $4.18 $4.18 300,000 - - (632,000) - - - 632,000 300,000 8-Jan-19 30-Sep-21 $2.54 11-Feb-19 30-Sep-21 $2.54 31-May-19 23-May-20 $1.20 24-May-19 24-May-22 $1.20 18-Jul-19 17-Jul-22 $1.60 $2.54 $2.54 $1.20 $1.20 $1.60 - 4,100,000 (1,580,000) - 2,520,000 - 2,320,000 (1,160,000) - 1,160,000 - 1,690,822 - 9,204,547 - 3,448,275 - - - - 1,690,822 - 9,204,547 - 3,448,275 - - - - - - - - - - - - - - - - - - 122 - 123 Rights Grant date Expected vesting date Balance at start of the year Granted during the year Forfeited during the year Vested and exercised during the year Unvested balance at end of the year Vested option not exercised Number Number Number Number Number Number 2020 10-Nov-15 30-Sep-18 19-Feb-16 30-Sep-18 4-Nov-16 30-Sep-19 17-Feb-17 30-Sep-19 08-Nov-17 30-Sep-20 22-Feb-18 30-Sep-20 24-Aug-18 17-Aug-21 252,500 92,500 321,000 143,000 625,000 158,000 200,000 08-Jan-19 30-Sep-21 1,180,000 11-Feb-19 30-Sep-21 31-May-19 31-May-20 27-Nov-19 27-Nov-20 27-Nov-19 15-Nov-21 9-Dec-19 9-Dec-19 4-Apr-20 4-Apr-21 2019 10-Nov-15 30-Sep-18 19-Feb-16 30-Sep-18 4-Nov-16 30-Sep-19 17-Feb-17 30-Sep-19 290,000 312,500 - - - - 835,000 370,000 479,000 286,000 08-Nov-17 30-Sep-20 1,050,000 316,000 200,000 22-Feb-18 30-Sep-20 24-Aug-18 17-Aug-21 08-Jan-19 30-Sep-21 11-Feb-19 30-Sep-21 31-May-19 31-May-20 (i) Fair value of options granted - - - - - - - - - - (252,500) (92,500) (321,000) (143,000) (467,500) (158,000) - (620,000) (290,000) - - - - - - - - - (44,642) (218,572) - - - - 157,500 - 200,000 560,000 - - - - - - - - - - - 49,286 461,986 (33,438) 295,268 (88,328) - - 428,548 206,940 368,898 - (368,898) 243,898 (243,898) - - - - - - - (582,500) (277,500) (158,000) (143,000) (425,000) (158,000) - - - - 1,820,000 (640,000) 580,000 (290,000) 312,500 - - - 252,500 92,500 321,000 143,000 625,000 158,000 200,000 1,180,000 290,000 312,500 - - - - - - - - - - - - - - - - - - - - - - - - - The fair value for awards granted under Relative TSR vesting conditions is independently determined using the Monte-Carlo simulation pricing model, whilst the fair value for awards granted under EPS Hurdle vesting conditions is independently determined using the Binomial tree pricing model. Fair value of awards granted subject only to service conditions is independently determined using the Black-Scholes pricing model. The models take into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option. The model inputs for options and rights granted during current and previous years are as follows: ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 e t a d t n a r G e p y t d r a w A t s e t t s r i F e t a d g n i t s e V e t a d e t a d y r i p x E e c i r p e r a h S t n a r g t a i e s c r e x E e c i r p 4 Apr 2020 4 Apr 2020 4 Apr 2020 9 Dec 2019 27 Nov 2019 27 Nov 2019 27 Nov 2019 18 Jul 2019 31 May 2019 31 May 2019 24 May 2019 11 Feb 2019 11 Feb 2019 08 Jan 2019 08 Jan 2019 08 Jan 2019 Options Options Rights Rights Options Rights Rights Options Rights Options Options Options Rights Options Rights Rights N/A N/A N/A N/A 30 Sep 2022 30 Sep 2021 30 Sep 2020 N/A N/A N/A N/A 30 Sep 2021 30 Sep 2021 30 Sep 2021 N/A 30 Sep 2021 30 Sep 2021 30 Sep 2021 4 Apr 2020 9 Dec 2019 27 Nov 2022 27 Nov 2021 27 Nov 2020 18 Jul 2022 17 Nov 2019 17 Nov 2019 23 May 2022 30 Nov 2021 30 Nov 2021 30 Nov 2021 30 Nov 2021 30 Nov 2021 18 Jul 23 31 May 21 31 May 21 23 May 23 08 Jan 24 08 Jan 24 08 Jan 24 08 Jan 24 08 Jan 24 $0.65 $0.65 $0.65 $1.61 $1.59 $1.59 $1.59 $1.49 $1.12 $1.12 $0.91 $2.40 $2.40 $2.43 $2.43 $2.43 $0.75 $0.85 Nil Nil $1.63 Nil Nil $1.60 Nil $1.20 $1.20 $2.54 Nil $2.54 Nil Nil d e t c e p x E e 2 f i l years 2 years 1 year N/A 3.5 years 2 years 1 year 3.5 years 1.2 years 1.2 years 3.5 years 2.8 years 2.8 years 2.9 years 4.0 years 4.0 years y t i l i t a o V l e t a r t s e r e t n i e e r f k s R i . ) a p ( d e y i l d n e d v D i i 57.30%57.30% - 40% - - - 50% 50% 50% 50% 27% 27% 27% 27% 27% 0.24% 0.24% 0.24% 0.65% 0.65% 0.65% 0.65% 0.91% 1.12% 1.12% 1.12% 1.64% 1.64% 1.88% 1.88% 1.88% 5.05% 5.05% - - 5.05% 5.05% 5.05% 2.60% 2.60% 2.60% 2.60% 5.71% 5.71% 5.67% 5.67% 5.67% r i a f d e s s e s s a e g a r e v A t n e m u r t s n i r e p e u a v l $0.14 $0.12 $0.65 $1.61 $0.31 $1.51 $1.59 $0.43 $1.12 $0.20 $0.22 $0.24 $1.64 $0.27 $2.07 $1.73 N/A: Not Applicable 124 - 125 (ii) 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: Awards issued to employees of controlled entities during the year Consolidated 2020 $’000 5,984 2019 $’000 2,238 (iii) Terms and conditions of Share Schemes The share based payments issued are subject to vesting conditions described above. Refer to the remuneration report for details of these vesting conditions. 5.2 Key management personnel disclosure Short-term employee benefits Post-employment benefits Termination benefits Long-term employee benefits Share-based payments Consolidated 2020 $’000 2,189 105 - 60 2,582 4,936 2019 $’000 3,333 143 450 72 760 4,758 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 6.0 Other 6.1 Reserves Recognition and measurement Share-based payment reserve The share based payment reserve is used to recognise: the fair value of options and rights issued to Directors and employees but not exercised; the fair value of shares issued to Directors and employees; and other share-based payment transactions. Cash flow hedge reserve The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised in other comprehensive income. Amounts are reclassified to profit or loss when the associated hedge transaction affects profit or loss. Treasury reserve Treasury shares are unpaid loan shares in Eclipx Group Limited that have been issued as part of the Eclipx Group Share scheme and the executive LTI plan. See note 5.1 for further information. Foreign currency translation reserve The foreign currency translation reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian Dollars. Dividend reserve The earnings generated by the Group prior to the write offs and losses on disposal have been transferred to the dividend reserve. 126 - 127 Consolidated 2020 $’000 2019 $’000 (18,039) (19,698) 8,838 110 7,015 401 27,857 21,873 158,206 158,206 176,972 167,797 (19,698) (5,939) 2,153 (494) (19,655) 5,896 (18,039) (19,698) 21,873 19,635 Reconciliation of reserves Hedging reserve - cash flow hedges (a) Treasury reserve Foreign currency translation reserve Share based payments reserve (b) Dividend reserve (c) Total reserve Movements in reserves (a) Hedging reserve - cash flow hedges Balance at 1 October Revaluation Deferred tax Balance as at 30 September (b) Share based payments reserve Balance at 1 October Awards issued to employees of controlled entities during the year 5,984 2,238 Balance at 30 September 27,857 21,873 (c) Dividend reserve Balance at 1 October Transfer from retained earnings Dividend paid Balance at 30 September 158,206 - - - 183,777 (25,571) 158,206 158,206 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 6.0 Other (continued) 6.2 Parent entity information (ii) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders equity Issued share capital Reserve Retained earnings Profit/(loss) for the year Consolidated 2020 $’000 2019 $’000 158 299 596,412 702,197 596,570 702,496 (9,231) (8,043) (167,007) (280,238) (176,238) (288,281) 654,765 654,765 85,098 76,189 (319,531) (316,739) 420,332 414,215 (2,792) (316,739) (iii) Guarantees entered into by the parent entity As at 30 September 2020 there were cross guarantees given by Eclipx Group Limited, Pacific Leasing Solutions (Australia) Pty Limited, Leasing Finance (Australia) Pty Limited, Fleet Holding (Australia) Pty Limited, PLS Notes (Australia) Pty Limited, Fleet Partners Pty Limited, Fleet Aust Subco Pty Limited, Fleet Partners Franchising Pty Limited, Car Insurance Pty Limited, FleetPlus Holdings Pty Limited, Fleet Choice Pty Ltd, FleetPlus Pty Limited, FleetPlus Novated Pty Limited, PackagePlus Australia Pty Limited, Eclipx Insurance Pty Ltd, CarInsurance.com.au Pty Ltd, Eclipx MMF Finance Pty Ltd and Accident Services Pty Ltd No liability was recognised by the parent entity or the consolidated entity in relation to the above guarantee as the fair value of the guarantee is immaterial. (iv) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 September 2020 or 2019. For information about guarantees given by the parent entity, see above. 6.3 Related party transactions (i) Controlling entity The parent entity of the Group is Eclipx Group Limited. 128 - 129 (ii) Interest in other entities The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated: Australia Fleet Aust Subco Pty Ltd FP Turbo Trust 2007-1 (Australia) Pacific Leasing Solutions (Australia) Pty Ltd FP Turbo Series 2014-1 Trust Leasing Finance (Australia) Pty Ltd FP Turbo Warehouse Trust 2014-1 (Australia) PLS Notes (Australia) Pty Ltd Fleet Partners Franchising Pty Ltd Fleet Holding (Australia) Pty Ltd Eclipx Insurance Pty Ltd Fleet Partners Pty Ltd CarInsurance.com.au Pty Ltd FleetPlus Holdings Pty Limited Car Insurance Pty Ltd FleetPlus Pty Ltd CLFC Pty Ltd (a) FleetPlus Novated Pty Ltd CarLoans.com.au Pty Ltd (a) PackagePlus Australia Pty Ltd Fleet Choice Pty Ltd CLFC Media Holdings Pty Ltd (a) Accident Services Pty Ltd Eclipx Commercial Pty Ltd FleetPlus Asset Securisation Pty Ltd (c) Right2Drive Pty Ltd (b) Anrace Pty Ltd (b) FP Turbo Government Lease Trust 2016-1 Eclipx MMF Finance Pty Ltd FP Turbo Series 2016-1 Trust Eclipx - MIPS Member Finance Trust New Zealand FleetPlus Ltd (NZ) CarLoans.co.nz Ltd (a) Fleet NZ Limited Fleetpartners NZ Trustee Ltd Truck Leasing Ltd FP Ignition Trust 2011-1 New Zealand Eclipx Pacific Leasing Solutions (NZ) Limited FleetPartners NZ Trust Eclipx Leasing Finance (NZ) Limited FPNZ Warehouse Trust 2015-1 PLS Notes (NZ) Ltd FP Ignition 2017 Warehouse Trust Right2Drive (New Zealand) Ltd (b) FP Ignition 2017 B Trust Eclipx NZ Ltd Eclipx Fleet Holding (NZ) Ltd (a) On 6 May 2020, the Group completed the 100% disposal of CLFC Pty Ltd, CarLoans.com.au Pty Ltd, CLFC Media Holdings Pty Ltd and Carloans.co, nz Ltd. (b) On 6 August 2020, the Group completed the 100% disposal of Right2Drive Pty Ltd, Anrace Pty Ltd and Right2Drive (New Zealand) Ltd. (c) The Group does not have control of FleetPlus Asset Securisation Pty Ltd. (iii) Transactions with other related parties Except for the matters disclosed above, there were no material transactions with other related parties. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 6.0 Other (continued) 6.4 Government subsidies At the time of the announcement of the government subsidies the Group worked with its advisors to assess its eligibility under the schemes. Where the Group met the requirements, it applied for the available government subsidies. The Group was able to retain all its employees and no staff were furloughed as a result of COVID-19. While not a requirement under JobKeeper the Group’s actual trading performance was tested against the estimated turnover on a monthly basis and the Group stopped making claims under the scheme where actual performance was better than estimated. For the year ended 30 September 2020 the Group received the following government subsidies. Subsidy name JobKeeper Payment Country Australia COVID-19 Wage Subsidy New Zealand Continuing operations Discontinued operations 2020 $’000 2,022 640 2,662 2020 $’000 1,733 94 1,827 The subsidies have been accounted for as a reduction to employee benefit expense in the Statement of Profit or Loss and Other Comprehensive Income. 130 - 131 6.5 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the Group. Consolidated 2020 $ 2019 $ (a) Audit and assurance services Audit Services KPMG Australian firm: Audit and review of financials 1,029,145 1,502,809 (b) Non-audit services KPMG Australian firm: Proposed merger with McMillan Shakespeare Limited Transactional services Debt restructuring Total remuneration for non-audit services for KPMG Total remuneration for KPMG 6.6 Deed of cross guarantee - - 968,008 62,259 81,298 353,488 81,298 1,383,755 1,110,443 2,886,564 Eclipx Group Limited, Pacific Leasing Solutions (Australia) Pty Limited, Leasing Finance (Australia) Pty Limited, Fleet Holding (Australia) Pty Limited, PLS Notes (Australia) Pty Limited, Fleet Partners Pty Limited, Fleet Aust Subco Pty Limited, Fleet Partners Franchising Pty Limited, Car Insurance Pty Limited, FleetPlus Holdings Pty Limited, Fleet Choice Pty Ltd, FleetPlus Pty Limited, FleetPlus Novated Pty Limited, PackagePlus Australia Pty Limited, Eclipx Insurance Pty Ltd, CarInsurance.com.au Pty Ltd, Eclipx MMF Finance Pty Ltd and Accident Services Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, pursuant to ASIC Corporations (Wholly Owned Companies) Instrument 2016/785, the wholly owned entities have been relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ reports. The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Eclipx Group Limited, they also represent the ‘Extended Closed Group’. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 6.0 Other (continued) 6.6 Deed of cross guarantee (continued) Set out below is a statement of profit or loss and other comprehensive income for the year of the Closed Group. Statement of profit or loss and other comprehensive income Revenue from continuing operations Cost of revenue Lease finance costs Consolidated 2020 $’000 2019* $’000 451,887 329,298 (288,280) (158,329) (36,323) (35,926) Net operating income before operating expenses and impairment charges 127,284 135,043 Impairment losses on loans and receivables Software Impairment Other Intangible Impairment Fixture and fittings Impairment Total impairment Employee benefit expense Depreciation and amortisation expense Operating overheads Total overheads Operating finance costs Profit/(loss) before income tax Income tax expense Profit/(loss) for the year from continuing operations Discontinued operations Profit/(loss) for the year, net of tax Other comprehensive income/(loss), net of tax Total comprehensive income/(loss) for the year * Comparatives have been re-presented to reclassify CarLoans to discontinued operations. (1,300) (1,304) - (11,547) (398) - - (965) (1,698) (13,816) (50,430) (45,084) (9,464) (9,340) (23,342) (86,427) (83,236) (140,851) (18,601) (17,427) 23,749 (37,051) (7,051) 2,884 16,698 (34,167) (9,421) (327,905) 7,277 (362,072) 1,815 9,092 (11,179) (373,251) 132 - 133 Set out below is a consolidated statement of financial position as at reporting date of the Closed Group. ASSETS Cash and cash equivalents Restricted cash and cash equivalents Trade and other receivables Asset held for sale Inventory Finance leases Consolidated 2020 $’000 2019 $’000 33,968 74,788 107,758 102,908 56,311 - 9,401 55,488 41,516 21,267 338,608 366,672 Operating leases reported as property, plant and equipment 495,899 563,384 Property, plant and equipment Receivables - advances to related parties Deferred tax assets Right-of-use assets Intangibles Total assets LIABILITIES Trade and other liabilities Provisions Derivative financial instruments Liabilities held for sale Other Borrowings Lease liabilities Payable - advances from related parties Deferred tax liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity 2,948 6,991 151,950 173,290 26,620 37,563 7,502 - 348,377 350,423 1,579,342 1,794,290 85,224 68,218 7,582 8,169 18,923 22,231 - - 3,457 2,828 960,748 1,180,755 8,651 16,870 9,563 - 15,401 38,597 1,107,561 1,339,656 471,781 454,634 654,765 654,765 171,808 161,938 (354,792) (362,069) 471,781 454,634 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Notes to the Financial Statements (continued) F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 6.0 Other (continued) 6.7 Reconciliation of cash flow from operating activities Profit/(loss) after tax for the year Loss from disposal of discontinued operations Depreciation and amortisation Amortisation of capitalised borrowing costs Doubtful debts Impairment expenses Share based payments expense Fleet and stock impairment Net gain on sale of non-current assets Hedging (gain) / loss Exchange rate variations on New Zealand cash and cash equivalents Consolidated 2020 $’000 2019 $’000 18,205 (341,457) 12,025 294,104 193,996 212,050 2,692 4,428 398 5,984 321 2,920 1,281 61,640 2,238 485 (25,057) (21,039) (1,258) (280) 2,314 212 Net cash inflow from operating activities before change in assets and liabilities 211,454 214,748 Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Principal settlement of finance leases Increase in deferred tax assets/ liabilities Increase/(decrease) in trade and other liabilities Decrease in current provisions Decrease in other current liabilities Net cash inflow from operating activities 28,004 (6,143) 178,463 209,565 (2,413) (11,963) 3,598 (22,867) (1,512) (775) (443) (335) 416,819 382,562 6.8 Events occurring after the reporting period There were no matters or circumstances that occurred since the end of the reporting period that may materially affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. E CLIPX GROUP LIMITE D | ANN UAL R EPO RT 202 0 134 - 135 Directors’ Declaration F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Directors’ Declaration In the opinion of the Directors of Eclipx Group Limited (Group): (a) The consolidated Financial Statements and notes of the Group that are set out on pages 34 to 93 are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of the Group’s financial position as at 30 September 2020 and of its performance for the financial year ended on that date; and ii. Complying with Australian Accounting Standards (including the Australian Accounting Interpre- tations) and the Corporations Regulations 2001; and (b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. (c) There are reasonable grounds to believe that the Group and the group entities identified in Note 6.6 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785. (d) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 September 2020. (e) The Directors draw attention to note 1 of the consolidated financial statements which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Kerry Roxburgh Kerry Roxburgh Chairman Sydney Independent Auditor’s Report To the shareholders of Eclipx Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Eclipx Group 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 finan- cial position as at 30 September 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 Statement of financial position as at 30 September 2020; Consolidated Statement of profit or loss and other comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended; Notes including a summary of significant ac- counting policies; and 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. Key Audit Matters The Key Audit Matters we identified are: Valuation of goodwill Setting of vehicle residual values Revenue recognition in relation to mainte- nance income 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. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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 136 - 137 Valuation of goodwill ($440.3m) Refer to Note 3.7 Intangibles to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter was the Group’s annual testing of goodwill for impairment, given the size of the balance (being 22% of total assets) and the higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. We focused on the significant forward-looking assumptions the Group applied in their value in use models, including: forecast cash flows, growth rates and terminal growth rates – the Group has experienced busi- ness disruption and competitive market conditions in the current year, as a result of COVID-19. This impacted the Group through lower levels of new business writings as a result of increased lease extensions, decreased demand for new leases and global supply chain disruption, impacting brokerage income. Credit impairments increased due to re- vised weighting of the impairment model’s multiple economic scenarios (MES) to reflect uncertainty surrounding the effect from COVID-19. Demand for second-hand vehicles increased reducing inven- tory and increasing end of lease income. These conditions and the uncertainty of their continuation increase the possibility of goodwill being impaired, plus the risk of inaccurate forecasts or a signifi- cantly wider range of possible outcomes for us to consider. We focused on the expected rate of re- covery for the Group and what the Group considers as their future business model when assessing the feasibility of the Group’s forecast cashflows; and discount rates, which are complex in nature and may vary according to the conditions and the environment the specific CGUs are subject to from time to time. In addition to the above, the carrying amount of the net assets of the Group exceeded the Group’s market capitalisation at year-end, increasing the possibility of goodwill being impaired. This further increased our audit effort in this key audit area. We involved valuation specialists to supplement our senior audit team members in assessing this Key Audit Matter. Our procedures included: We assessed the Group’s determination of CGU assets for consistency with the assumptions used in the forecast cash flows and the require- ments of the accounting standards. We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill for impairment against the requirements of the accounting standards. We assessed the integrity of the value in use mod- el used, including the accuracy of the underlying calculation formulas. We met with management/those charged with governance to understand the impact of COVID-19 to the Group, the impact of government response programs to the FY20 results and po- tential future impacts to the Group. We compared the forecast cash flows contained in the value in use model to the Group’s budget approved by the Board. We challenged the Group’s cash flow forecast and growth assumptions, including those relating to the ability to write new business going forward to offset the reduction in the current period and COVID-19 recovery period using our knowledge of the Group. We also used our knowledge of the Group’s industry and past performance including under COVID-19 conditions, industry growth pro- jections and inflation expectations across differ- ent geographies to assess the cash flow forecast. We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the model. We considered the sensitivity of the model by varying key assumptions, such as forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range. We consid- ered the interdependencies of key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. We did this to identify those CGUs at higher risk of impairment and those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Independent Auditor’s Report F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Valuation of goodwill ($440.3m) (cont.) How the matter was addressed in our audit (cont.) Working with our valuation specialists we chal- lenged the Group’s growth assumptions in light of the expected continuation of uncertainty of busi- ness disruption. We compared forecast growth rates and terminal growth rates to authoritative published studies of industry trends and expecta- tions, and considered differences for the Group’s operations. Working with our valuation specialists we independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in. Working with our valuation specialists we as- sessed an appropriate takeover premium to be applied to the current market capitalisation and compared that to the total Group value-in-use premium above the market capitalisation as at re- porting date. We compared the market capitalisa- tion at and around reporting date to the carrying value of net assets of the Group. We assessed the disclosures in the Financial Report using our understanding of the Group ob- tained from our testing against the requirements of the relevant accounting standards. 138 - 139 Setting of vehicle residual values Refer to Critical Accounting Estimates and Assumptions and disclosures over residual values in the context of property, plant and equipment in Note 3.1 Property, plant and equipment in the Financial Report. The key audit matter How the matter was addressed in our audit Residual value setting relating to fleet vehicles is a Key Audit Matter due to: the significant audit effort required and the high degree of judgement applied by us in assessing the Group’s valuation of residual values; the flow on impact residual value setting has on a number of key accounts in the Group’s Financial Report, including vehicle depreciation and im- pairment; and the timing of revenue recognition across the term of a lease may be affected by setting different residual values as it impacts the level of revenue recognised during the term of the lease compared to at the end of the lease. We focused on vehicle impairment testing as well as the robustness of the residual value setting process as indicators of the Group’s ability to set accurate residual values. We considered the Group’s following significant judgements used in the vehicle impairment model: expected forecast residual value at the end of the lease term, in particular how the economic impacts of the COVID-19 pandemic may alter residual values and the adequacy of the Group’s overlay to address this impact; periodical future lease-related fee cash flow as- sumptions; and assumptions on the timing and future condition of vehicles returned at the end of the lease, and associated cash flows. Our procedures included: Understanding the process by which residual values are set by the Group and testing a sample of key controls over the Group’s residual valuation process, such as the monthly review and approval of residual value changes by senior management. Comparing a sample of approved residual value changes to the updated residual values in the lease system. Assessing the Group’s judgement on future lease-related fee cash flows and end of lease cash flow assumptions. The assessment is based on the expected timing and future condition of returned vehicles applied in the Group’s vehi- cle impairment model, including the economic impact of COVID-19 on the extension of leases and comparing the estimated cash flows to the historical cash flow experience for a sample of previous leases. Assessing the forecast sales prices ascribed to vehicles at the end of their lease and the associat- ed cash flows against recent prices achieved and trends in the market. Assessing the adequacy of the Group’s COVID-19 overlay to address the economic impact of the COVID-19 pandemic and how this reflects the relationship between current sales prices of vehi- cles and forecast sales prices. Assessing the Group’s ability to forecast vehicle residual values by selecting a statistical sample of vehicles disposed of during the year. We com- pared the sale price achieved to sales invoices for accuracy, and then compared it to the recorded written down values as assessed in prior periods, enabling us to assess the ability of the Group to accurately estimate values of assets forecast into the end of the lease term. Comparing a sample of the current recorded residual values of vehicles against the current market value of those vehicles sourced from an independent database of used vehicle valuations. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Independent Auditor’s Report F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Revenue recognition in relation to maintenance and management income ($99.9m) Refer to Note 2.3 Revenue to the Financial Report The key audit matter How the matter was addressed in our audit Maintenance income, which is a component of maintenance and management income presented in Note 2.3 of the financial report, includes a high level of estimation and accounting complexity. This area is a Key Audit Matter due to increased audit effort arising from: Stage of completion accounting which inherently requires judgement by the Group to determine where in the lifecycle of maintenance the vehicle is at reporting date, along with potential re-estima- tions of total lifecycle maintenance. Increased estimation uncertainty particularly in forecasting the timing and cost of lifetime main- tenance services, due to the recent reduction in maintenance spend of customers, likely from the economic impacts of the COVID-19 pandem- ic, compared to historic patterns. This includes the adequacy of the Group’s overlay to address these impacts. We focused on the Group’s key assumptions of the average age, term and usage of the vehicle fleet, as well as the proportion of maintenance costs incurred compared to expected for the vehicle type. Our procedures included: Assessing the Group’s revenue recognition poli- cies against relevant accounting standards. Recalculating and assessing the Group’s esti- mates of the stage of completion of the contract- ed maintenance for a sample of leased assets. We checked the mathematical accuracy of the stage of completion model. For a sample of maintenance leases, we checked the average age, term and usage assumptions in the model for consistency with the servicing and maintenance profile, which is based on internal lease portfolio statistics of the vehicle type. The completeness and accuracy of these statistics of the internal lease portfolio was assessed through the testing of relevant IT application controls. Challenging the Group’s judgement in determining the key assumptions by comparing the average cost of lifetime maintenance activities performed to publicly available market costs of servic- ing vehicles. Assessing the reasonableness of the assump- tions associated with the COVID-19 maintenance overlay by comparing the profit margins on maintenance work performed to historical mainte- nance profit margins. We assessed the disclosures in the financial report against the requirements of the accounting standards. 140 - 141 Other Information Other Information is financial and non-financial information in Eclipx Group 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. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, and the Remuneration Report. The About Eclipx Group, The Chairman’s Letter, Chief Executive Officer’s Letter, Business Overview, Year in Review, Environmental Social and Governance, Board of Directors, Corporate Directory and Shareholder Information sections of the Annual Report are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will 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 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 mis- statement, 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 the 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. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Independent Auditor’s Report F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 2 0 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Eclipx Group Limited for the year ended 30 September 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 the Remuneration Report included in pages 19 to 33 of the Directors’ report for the year ended 30 September 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG KPMG Dean Waters Partner Melbourne Peter Zabaks Partner Sydney 10 November 2020 10 November 2020 142 - 143 Shareholder Information Investor information Additional information required by the ASX and not shown elsewhere in this report is as follows, and is current as at 7 December 2020. Distribution of holders of quoted equity securities Fully paid ordinary shares Range of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL Number of shareholders % of shareholders Ordinary shares held % of ordinary shares 2,532 1,280 529 501 73 51.52% 456,222 26.04% 3,521,694 10.76% 4,093,662 10.19% 13,205,782 0.14% 1.10% 1.28% 4.13% 1.49% 298,359,333 93.34% 4,915 100% 319,636,693 100% Distribution of holders of unquoted equity securities LTI Options Range of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL LTI Rights Range of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL Number of option holders % of option holders Options held % of options 0 2 1 5 25 33 0% 6.06% 3.03% 0 10,000 10,000 15.15% 140,000 0% 0.02% 0.02% 0.27% 75.76% 52,233,987 99.69% 100% 52,393,987 100% Number of option holders % of option holders Options held % of options 0 4 2 19 2 27 0% 14.81% 7.41% 0 15,000 20,000 0% 1.18% 1.58% 70.37% 636,940 50.25% 7.41% 100% 595,634 46.99% 1,267,574 100% ECLIPX GROUP LIMITED | ANNUAL REPORT 2020 Shareholder Information Substantial Shareholder Notices (as disclosed to the ASX) Shareholders Ordinary shares held % of issued shares Date of notice Victorian Funds Management Corporation 15,987,221 5.002 30.11.2020 Yarra Funds Management Limited ACN 005 885 567 (YFM); Yarra Capital Management Holdings Pty Ltd ACN 614 782 795 (YCMH); Yarra Management Nominees Pty Ltd ACN 616 681 068 (YMN); AA Australia Finco Pty Ltd ACN 614 781 172 (Finco); Ta Sp Australia Topco Pty Ltd ACN 612 486 452 (Topco); TA Universal Investment Holdings Ltd (Universal) 40,368,678 12.6296 8.10.2020 H.E.S.T Australia Limited as Trustee for Health Employees Superannuation Trust Australia 16,008,693 5.01 22.09.2020 Vinva Investment Management Mitsubishi UFJ Financial Group, Inc. JPMorgan Chase & Co. and its affiliates H.E.S.T Australia Limited as Trustee for Health Employees Superannuation Trust Australia Renaissance Smaller Companies Pty Ltd Macquarie Group Limited (‘MQG’); and its controlled bodies corporate listed in Annexure A 16,223,222 16,225,941 21,996,798 16,495,696 16,471,438 19,813,096 5.08 5.08 6.88 5.16 5.15 6.19 3.09.2020 4.06.2020 29.05.2020 15.05.2020 24.03.2020 2.03.2020 Commonwealth Bank of Australia ACN 123 123 124 (CBA) and its related bodies corporate listed in annexure A 16,023,374 5.01 14.02.2020 Twenty largest shareholders Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED CS THIRD NOMINEES PTY LIMITED ARGO INVESTMENTS LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 SOLIUM NOMINEES (AUSTRALIA) PTY LTD G HARVEY NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED GMCM INVESTMENTS PTY LTD MR IRWIN DAVID KLOTZ UBS NOMINEES PTY LTD NETWEALTH INVESTMENTS LIMITED CITICORP NOMINEES PTY LIMITED YOOGALU PTY LTD BRISPOT NOMINEES PTY LTD 07 Dec 2020 81,874,056 59,806,790 40,616,586 21,326,889 14,484,576 12,086,416 7,309,728 5,816,216 5,609,791 4,398,061 4,285,394 3,947,616 3,636,329 3,539,118 3,538,954 3,452,251 3,072,251 2,352,000 1,630,434 1,302,956 Total 284,086,412 Balance of register 35,550,281 144 - 145 %IC 25.61 18.71 12.71 6.67 4.53 3.78 2.29 1.82 1.76 1.38 1.34 1.24 1.14 1.11 1.11 1.08 0.96 0.74 0.51 0.41 88.88 11.12 Grand total 319,636,693 100.00 Unmarketable parcel of shares The number of shareholders holding less than a marketable parcel of ordinary shares is 1,908. 281 shares comprise a marketable parcel at Eclipx Group’s closing share price of $1.78. Securities subject to escrow arrangements No securities remain subject to escrow arrangements. On-market buy-back There is no current on-market buy-back in relation to Eclipx Group securities. ECLIPX GROUP LIMITED | ANNUAL REPORT 2020On-market purchases During FY2020, the Company purchased: 85,657 ordinary shares on-market for the purposes of its Non-Executive Director Salary Sacrifice Share Rights Plan, at an average price per ordinary share of $1.41; and 370,635 ordinary shares on-market for the purposes of its Employee Share Scheme, at an average price per ordinary share of $1.40. Voting Rights Ordinary Shares – on a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each ordinary share shall have one vote. Options – No voting rights. Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 SEPTEMBER 2020146 - 147 ECLIPX GROUP LIMITED | ANNUAL REPORT 2020Level 6, 601 Pacific Highway, St Leonards, NSW 2065 T: +61 2 8973 7272 | F: +61 2 8973 7171 info@eclipx.com | www.eclipx.com 

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