ABN 75 122 574 583 AnnuAl RepoRt 2011 ContentS HiGHliGHtS 1 CHAiRmAn’S RepoRt 2 CHief e xeCutive offiCeR’S RepoRt 4 BoARd of diReCtoRS 6 exeCutive mAnAGement teAm 8 opeRAtionAl RepoRt 10 ouR people 12 finAnCiAl RepoRt 14 CoRpoRAte diReCtoRy IBC Well positioned for Strong Growth FlexiGroup is a diversified financial services group providing no interest ever, leasing, vendor programs and other payment solutions to consumers and businesses. Through its network of 11,000 merchant, vendor and retail partners the Group has extensive access to three key markets; Business to Consumer, Business to Business and Retail to consumers and small business customers. FlexiGroup operates in Australia, New Zealand and Ireland through its four business units Flexirent, Certegy, FlexiCommercial and Blink mobile broadband. HigHligHts Volume and NPAT have more than doubled since the IPO in Dec 2006 Volume1 Cash NPaT2 m 5 9 6 $ 1 1 Y F +124% m 0 1 3 $ 7 0 Y F . m 9 2 5 $ 1 1 Y F +130% m 3 2 $ 7 0 Y F m 5 9 6 $ 7 0 Y F 1 1 Y F A high performance culture of innovation and excellence delivers exceptional results and receives industry accolades. It was a successful fiscal 2011 as the Group’s strategy of diversification continued to drive strong growth in volume and profit. > Cash net profit after tax increases 27% > New businesses now contribute 37% of to $52.9 million cash NPAT as diversification strategy delivers > Earnings per share up 14.6% to 19.6c > A total dividend of 10.5c, with dividend growth of 40% over prior years > Strong volume growth of 27% across all four businesses > Aon Hewitt Best Employer award fulfils strategic goal of an engaged workforce > Culture of excellence recognised with ATA Contact Centre of the Year Award and ICMG Best IT Architecture Award 1 Volume is all volumes for leases, loans, vendor finance, Certegy and gross revenue for Blink Mobile Broadband. 2 Cash NPAt excludes intangible amortisation of $1.1 million. 1 CHAirMAN’s rePort Diversity delivers strong results It is a great pleasure to report fiscal 2011 was another year of success for FlexiGroup, with double-digit revenue and profit results. 2 Diversity delivers strong results Dear shareholder, it is a great pleasure to report fiscal 2011 was another year of success for Flexigroup, with double-digit revenue and profit results. Flexigroup’s cash net profit after tax1 for the year ended 30 June 2011 was $52.9 million, representing a 27% increase on the prior year, while volumes2 also grew 27% to $695 million. the cash net profit result was 12% above the guidance provided a year ago. DiVersifiCaTioN sTraTegy DeliVers As many shareholders are aware, Flexigroup has significantly evolved from its initial public offering just five years ago. What was then a single business unit, notably dependent on volumes from key retailers, has become a diversified financial services group with four strong business units. in my view, the tremendous change and success at Flexigroup can be attributed primarily to three things: diversification, a high performance culture of excellence across the workforce, and a prudent approach to risk. three years ago, Flexigroup embarked on a strategy of diversification. that strategy was vindicated in fiscal 2011, with strong results achieved in a challenging economic retail environment. the diversification at Flexigroup has protected you, our shareholders, by broadening our revenue sources and expanding our customer base beyond the retail sector. the original Flexirent business has developed new growth opportunities, and all businesses in the group contributed to the 27% volume growth. Most pleasing was the increasing contribution of the three newer businesses (interest Free, Mobile Broadband and Vendor Finance). in fiscal 2011, these three businesses accounted for 66% of volume. Moreover, thanks to Certegy interest Free and Blink Mobile Broadband, almost 60% of our revenue base is now non-interest income. it is worth singling out the success of Certegy as an example of what can be achieved when management and employees are aligned to build a business – cash profit rose 80% to $13.7 million, or 26% of the group total. since acquisition, Certegy’s net profit after tax has more than trebled and is on track to repay the $31 million acquisition cost in a little over three years. CulTure of exCelleNCe While broadening our business base has been an essential element of Flexigroup’s strategy and success, the group has been just as committed to developing an engaged workforce capable of delivering outstanding results for shareholders. Fostering a culture of excellence at the group is crucial to maximising shareholder returns for the long term. the Board is proud that Flexigroup’s focus on excellence, led by Chief executive John Delano, was recognised by the receipt of three prestigious awards during the past year. the awards included being recognised as one of Australia’s Best employers, Australia’s Best Contact Centre, and for Best it Architecture Worldwide. While the financial results achieved by Flexigroup’s employees spoke volumes for the culture of high performance, the awards from respected organisations are a further endorsement of the quality of the Flexigroup team. Value for shareholDers since our iPo in 2006, Flexigroup has more than doubled net profit after tax and volumes. in fiscal 2011 the group ranked eighth for total shareholder return among s&P/ AsX300 non-mining companies. over the past two years the group has been in the top 20% for earnings per share growth and the top 10% for dividend per share growth. the fully franked final dividend of 5.5 cents per share (which was paid on october 13), when combined with the interim dividend of 5 cents, represents annual dividend growth of 40%. PosiTiVe ouTlook For fiscal 2012, the group has committed funding facilities and a strong balance sheet to support growth, as well as to provide capacity to consider any value accretive acquisition opportunities that might arise. Finally, on behalf of the Board of Directors, i would like to thank all of Flexigroup’s customers, partners, funders and shareholders for their continuing support. i especially wish to thank the entire team at Flexigroup for their ongoing dedication and excellence. margareT JaCksoN ChairmaN 1 Cash NPAt excludes intangible amortisation of $1.1 million. 2 Volume is all volumes for leases, loans, vendor finance, Certegy and gross revenue for Blink Mobile Broadband. 3 CHieF eXeCutiVe oFFiCer’s rePort sound strategy, well executed Our fiscal 2011 results show that the diversification strategy set out three years ago is driving growth and delivering value to shareholders. DiVersifiCaTioN aND ProDuCT iNNoVaTioN DriViNg growTh our fiscal 2011 results show that the diversification strategy set out three years ago is driving growth and delivering value to shareholders. in a difficult retail environment, the group achieved 27% growth in volume2 and cash net profit after tax,1 an exceptional result that involved strong performances from all four business units. importantly, the three businesses we have acquired or grown organically since october 2008 – Certegy interest Free, Flexi Commercial Vendor Finance and Blink Mobile Broadband – comprise 47% of receivables and contribute 37% of cash NPAt.1 the strong contribution from these new businesses meant Flexigroup not only withstood the challenging retail conditions, but was able to prosper as it found new opportunities for growth. our ability to develop and deliver innovative products, and our “too easy” culture helped us continue to deliver a high level of performance. our balance sheet management remains strong. We have a strong capital position and highly diversified funding with committed facilities from Australian and international financial institutions to support our growth. 4 All four of our business units assisted our strong fiscal 2011 performance. the highlights were: Certegy Interest Free (October 2008 acquisition) Certegy, our no interest ever payment plan provider, delivered a standout performance in fiscal 2011, particularly in the home improvement, fitness and solar energy sectors. since its acquisition in 2008, Certegy has had strong volume and net profit after tax growth. in fiscal 2011 volumes increased 30% to $375 million. Cash profit rose 80% to $13.7 million, which was 26% of the group’s total cash profit. the Lay-Buy Express processing service was successfully introduced in a number of retail stores, including the toys-r-us group in Australia. the new product offers the traditional features of lay-by but allows consumers to self- manage their repayments and removes operational and administrative costs for retailers. Customer take-up of the service has exceeded expectations with Lay-Buy Express contributing more than 10% of Certegy’s June transaction volume. its contribution is expected to increase in fiscal 2012. Flexi Commercial Vendor Finance (December 2009 organic start-up) Flexi Commercial Vendor Finance, a two-year old business that provides commercial equipment financing and vendor programs, delivered a strong result. the result was underpinned by the signing of formal program agreements with 11 new vendors, maturing vendor relationships and the conversion of business development activity. Volumes increased an impressive 221% to $61 million. Net Profit after tax (NPAt) for Vendor Finance doubled to $2.6 million. Blink Mobile Broadband (February 2009 organic start-up) the Blink business, which provides fast and reliable mobile broadband plans, increased its active customer base by 37% to 74,000 and now has more than 35% market share in key retail channels. NPAt improved $4 million to 6% of the group’s total. the rollout of the Blink Mobile Broadband tablet Plan in key retailers across the country was a highlight during the year. this unique product offers consumers an alternative to paying by cash or credit for a tablet device. under Blink’s innovative model, consumers receive the device for $0 upfront when they take out a Blink mobile broadband plan. We expect growth to continue as tablet stock in retail stores becomes more freely available in fiscal 2012 in a market estimated at one million units. Flexirent the group’s original point of sale leasing business again outperformed in a challenging retail environment, delivering a 6% increase in sales volumes to $238 million. Diversification into the non-retail commercial sector provided growth opportunities and led to higher average transaction amounts. growth accelerated in the fourth quarter, with the volume contribution of the non-retail commercial sector increasing from 15% to 29%. furTher imProVemeNT iN CreDiT meTriCs our ongoing prudent approach to risk underpinned the net impairment result. losses in fiscal 2011 declined to 3.8% of average net receivables, down from 4.4% in fiscal 2010, despite 19% growth in receivables. the result reflects the efforts of our award- winning collections team, combined with continued investment in new technology platforms. the experience gained from more than 20 years providing consumer and business credit is embedded in Flexigroup’s credit scoring systems. CoNTiNueD growTh in fiscal 2012 we anticipate continued strong growth as we leverage our core capabilities, develop innovative products and systems, and capitalise on new opportunities. growth in fiscal 2012 will be assisted by: • a full-year volume contribution from Lay-Buy Express – Certegy; • increasing contribution to small ticket leasing from non-retail segments – Flexirent; • a full-year performance from Vendor Finance new partner programs – FlexiCommercial; • further signing of new Certegy interest Free retailers – Certegy; • development of a product to penetrate the significant market opportunities for deferred internet payment processing – online; and • a continued focus on value accretive acquisition opportunities. CaPabiliTy To DeliVer our energetic and dedicated team has embraced the significant change experienced by the group over the past few years to deliver impressive results in fiscal 2011. i would like to thank them for their ongoing support and effort and also congratulate our award-winning Contact Centre, Collections and it teams. one of our goals is to make Flexigroup the best place our people have ever worked. therefore it is extremely pleasing that we were recognised this year as one of Aon Hewitt’s Best employers. our Board and senior management believe that companies with engaged, committed people achieve strong financial performance, and our results in fiscal 2011 support that view. We recruit the best talent, and that strategy continues to drive superior results for our workforce, customers, partners and shareholders. JohN DelaNo maNagiNg DireCTor aND Ceo 1 Cash NPAt excludes intangible amortisation of $1.1 million. 2 Volume is all volumes for leases, loans, vendor finance, Certegy and gross revenue for Blink Mobile Broadband. 5 BoArD oF DireCtors Value to shareholders The Board is committed to maintaining FlexiGroup’s strong track record of growth and delivering shareholder value. 6 margareT JaCksoN, aC ChairmaN, iNDePeNDeNT, NoN-exeCuTiVe bec, mba, hon llD (monash), fCa Margaret was appointed a Director of the Company in November 2006. Margaret is also a Director of Billabong international limited, President of Australian Volunteers international and Chairman of the Advisory Board for the salvation Army southern territory. JohN DelaNo NoN-iNDePeNDeNT, exeCuTiVe, Chief exeCuTiVe offiCer ba John has been Chief executive officer and Managing Director of the Company since september 2003. aNDrew aberCrombie fouNDiNg DireCTor NoN-iNDePeNDeNT, NoN-exeCuTiVe bec, llb, mba Andrew became a Director of the original Flexirent business in 1991. He was appointed a Director of the Company in November 2006. Andrew is an experienced commercial and tax lawyer. r JohN skiPPeN iNDePeNDeNT, NoN-exeCuTiVe aCa John was appointed a Director of the Company in November 2006. John was previously the Finance Director and Chief Financial officer of Harvey Norman Holdings limited for 12 years. raJeeV DhawaN iNDePeNDeNT, NoN-exeCuTiVe bCom, aCa, mba rajeev represented Colonial First state Private equity (“CFsPe”) on the Board of Flexirent Holdings Pty limited from February 2003 to December 2004. upon CFsPe’s exit he continued in an advisory capacity and was appointed a Director of the company in November 2006. 7 eXeCutiVe MANAgeMeNt teAM A talented team The talent and diversity of experience of the executive management team is a key driver of the Group’s success. 8 oPPosiTe lefT To righT JohN DelaNo maNagiNg DireCTor aND Chief exeCuTiVe offiCer below lefT To righT Neil roberTs heaD of NaTioNal sales aND busiNess DeVeloPmeNT garry mCleNNaN Chief fiNaNCial offiCer Pearl laughToN Chief iNformaTioN offiCer DoC kloTZ heaD of oPeraTioNs marilyN CoNyer heaD of markeTiNg DaViD sTeVeNs fiNaNCial CoNTroller aND ComPaNy seCreTary miChelle PombarT heaD of humaN resourCes aNThoNy roberTs heaD of sales – VeNDor fiNaNCe graCe silVio heaD of learNiNg aND DeVeloPmeNT 9 oPerAtioNAl rePort Diversity equals success FlexiGroup’s four businesses offer a broad set of products and services to an extensive distribution network of 11,000 merchant, vendor and retail partners. A key to the Group’s success is the ability to develop or adapt products to meet these partners’ needs. It is this ability to innovate that drives profit and growth. certegy ezi-pay interest free Certegy provides no interest ever and lay-by products to consumers through a diverse network of merchants. More than 1.5 million purchases have been processed using Certegy Ezi-Pay Express, a no interest ever continuous credit service. Certegy Lay-Buy Express (new in 2011) provides all the traditional features of lay-by and provides the self management of repayments and online tracking of payment history. this also removes the administration costs from the retailer. highlighTs • Strong performance from home, fitness and solar energy sectors • Release of new lay-by product attracts major retailer toys-r-us • Strong growth in second half fiscal 2011 Volume 2011 $375m retail Point of sale Vendor finance telecommunications Flexirent provides leases at point of FlexiCommercial offers vendor finance Blink makes fast and reliable mobile sale to business and consumers for programs for suppliers, manufacturers broadband plans available from point computing and electrical items. Major and distributors, allowing these of sale at leading retailers. Consumers retail partners include Harvey Norman, businesses to provide their customers can choose from a range of month-to- Bing lee, the good guys, Noel with an affordable commercial leasing month or contract plans, with alerts leeming and Apple. Flexirent bundles unique loaner and protect services to provide option that can be tailored to suit their and online tools that monitor usage equipment and service offering. to ensure consumers avoid excessive FlexiCommercial also provides useage charges. temporary or permanent replacement commercial equipment financing and Blink tablet Plans (new in 2011) make of equipment if it needs repair or is leasing direct to businesses. Businesses it more affordable to have the latest damaged, lost or stolen. Blink Mobile can access equipment for an affordable tablet device. Customers can bundle Broadband can also be bundled at a monthly fee and choose to own or the cost of the tablet with a mobile heavily discounted price to provide upgrade it at the end of the lease. broadband data plan into one easy payment with $0 upfront. highlighTs highlighTs • Achieved volume growth in a • 11 new vendor relationships originated • Scale produces $4m profit challenging retail environment and formal agreements signed improvement • Increased contribution from the • Growth driven by maturing vendor • Market share in key retail partners non-retail commercial segment (trade equipment, refrigeration, servers/networking and telephony) relationships and conversion of business development activity exceeds 35% • Strong focus on internal cost reduction as volume builds Volume Volume Volume (aCCess reVeNue) 2011 $238m 2011 $61m 2011 $21m increased value. highlighTs 2010 $19m 2010 $290m 2010 $226m 2010 $14m Volume growth of 30% for FY2011, with outstanding second half growth of +38% growth of +6% outperformed growth of 221% with strong the retail market. Contribution from contribution from print/copier, non-retail segment accelerated in photo lab, telephony, office growth of 50% derived from an active base of customers which increased 37% to 74,000 Cash NPaT $13.7m versus $7.6m in the prior year growth of 80% growTh ouTlook Lay-buy Express contribution to Certegy volume is forecast to increase and to contribute $1 million to NPAt Ezi-pay Express growth is expected to continue – driven by the green energy industries, the home improvement sectors and repeat business strategies the second half Cash NPaT networking and software NPaT NPaT $33m versus $33.4m in the prior year $2.6m versus $1.3m in the prior year $3.4m versus –$0.7m in the prior year Flat to prior year growth of 100% High growth growTh ouTlook growTh ouTlook growTh ouTlook Continue to identify and capitalise strong volume and receivables strong growth expected as tablet on non-retail opportunities growth is forecast to continue stocks become more freely available. target the “tablet opportunity” An increasing ratio of NPAt to with $0 upfront Blink/Flexi plans average net receivables expected target the opportunity with $0 upfront Blink/Flexi plans 10 interest free Certegy provides no interest ever and lay-by products to consumers through a diverse network of merchants. More than 1.5 million purchases have been processed using Certegy Ezi-Pay Express, a no interest ever continuous credit service. Certegy Lay-Buy Express (new in 2011) provides all the traditional features of lay-by and provides the self management of repayments and online tracking of payment history. this also removes the administration costs from the retailer. highlighTs • Strong performance from home, fitness and solar energy sectors • Release of new lay-by product attracts major retailer toys-r-us • Strong growth in second half fiscal 2011 Volume 2011 $375m 2010 $290m Volume growth of 30% for FY2011, with outstanding second half growth of +38% Cash NPaT $13.7m versus $7.6m in the prior year growth of 80% growTh ouTlook Lay-buy Express contribution to Certegy volume is forecast to increase and to contribute $1 million to NPAt Ezi-pay Express growth is expected to continue – driven by the green energy industries, the home improvement sectors and repeat business strategies retail Point of sale Vendor finance telecommunications Flexirent provides leases at point of sale to business and consumers for computing and electrical items. Major retail partners include Harvey Norman, Bing lee, the good guys, Noel leeming and Apple. Flexirent bundles unique loaner and protect services to provide temporary or permanent replacement of equipment if it needs repair or is damaged, lost or stolen. Blink Mobile Broadband can also be bundled at a heavily discounted price to provide increased value. highlighTs • Achieved volume growth in a challenging retail environment • Increased contribution from the non-retail commercial segment (trade equipment, refrigeration, servers/networking and telephony) FlexiCommercial offers vendor finance programs for suppliers, manufacturers and distributors, allowing these businesses to provide their customers with an affordable commercial leasing option that can be tailored to suit their equipment and service offering. FlexiCommercial also provides commercial equipment financing and leasing direct to businesses. Businesses can access equipment for an affordable monthly fee and choose to own or upgrade it at the end of the lease. Blink makes fast and reliable mobile broadband plans available from point of sale at leading retailers. Consumers can choose from a range of month-to- month or contract plans, with alerts and online tools that monitor usage to ensure consumers avoid excessive useage charges. Blink tablet Plans (new in 2011) make it more affordable to have the latest tablet device. Customers can bundle the cost of the tablet with a mobile broadband data plan into one easy payment with $0 upfront. highlighTs • 11 new vendor relationships originated highlighTs • Scale produces $4m profit and formal agreements signed improvement • Growth driven by maturing vendor relationships and conversion of business development activity • Market share in key retail partners exceeds 35% • Strong focus on internal cost reduction as volume builds Volume Volume Volume (aCCess reVeNue) 2011 $238m 2011 $61m 2011 $21m 2010 $19m 2010 $226m 2010 $14m growth of +6% outperformed the retail market. Contribution from non-retail segment accelerated in the second half growth of 221% with strong contribution from print/copier, photo lab, telephony, office networking and software growth of 50% derived from an active base of customers which increased 37% to 74,000 Cash NPaT $33m versus $33.4m in the prior year NPaT $2.6m versus $1.3m in the prior year NPaT $3.4m versus –$0.7m in the prior year Flat to prior year growth of 100% High growth growTh ouTlook Continue to identify and capitalise on non-retail opportunities growTh ouTlook strong volume and receivables growth is forecast to continue target the “tablet opportunity” with $0 upfront Blink/Flexi plans An increasing ratio of NPAt to average net receivables expected growTh ouTlook strong growth expected as tablet stocks become more freely available. target the opportunity with $0 upfront Blink/Flexi plans 11 our PeoPle A culture of excellence FlexiGroup’s culture of excellence relies on the talent of our people, where innovation, flexibility and the ability to execute have been recognised and rewarded both internally and externally. FlexiGroup’s journey to Aon Hewitt’s Best Employer has seen increased levels of engagement mirrored by significant growth. Recruiting top talent, for whom it is important to be employed in the best possible workplace, underpins FlexiGroup’s success. PEOPLE CustOMErs tECHNOLOGY aoN hewiTT besT emPloyers of The year 2011 • Specifically recognised for strong leadership and high performance culture ausTralia’s CoNTaCT CeNTre of The year 2010 • Secured three of the seven categories in the AtA Awards • ATA represents more than 3,800 • Hewitt provides the most Australian contact centres extensive engagement survey covering 200 organisations and 124,000 employees • Finalists included some of the country’s largest and best known companies: CBA, iAg, Amex, and energex iNTerNaTioNal iCmg besT iT arChiTeCTure awarD 2010 • Joint winner of the Architecture excellence Award in the category for service-oriented Architecture (soA) • Over 100 nominations from 21 countries • Competing in this category were iBM, sAP Ag, oracle and lg electronics 12 Community spirited “ I am proud of our people and the way they have embraced the opportunities provided by our partners through the Flexi Connects program. Using their skills to give back is significantly contributing to building sustainable community partnerships”. JohN DelaNo Ceo flexi CoNNeCTs We recognise that community organisations need monetary donations and fundraisers. As welcome as that financial assistance is, Flexigroup believes the establishment of genuine partnerships between community organisations and businesses are vital. it was a desire to create effective and long lasting links with the community that led to the creation of Flexi Connects, a program that focuses on skilled volunteering. We wanted to share our knowledge, skills, resources and systems to deliver exciting and sustainable outcomes for our community partners. Flexigroup is delighted to have established partnerships with organisations including the starlight Children’s Foundation, tour de Cure, Fair Business, rozelle Neighbourhood Centre and the salvation Army. Flexigroup has made a difference in the community through long-term projects involving specialised and cross functional teams, individual pro bono work as well as individual secondments. the outcomes have been beneficial for both our partners and Flexigroup’s employees. Highlights from Flexi Connects include: • providing Tour de Cure with the expertise of Flexigroup’s 10-person marketing team and its specialist agencies; • a FlexiGroup finance employee seconded two days a week to assist Fair Business; and • setting up, housing and providing operational support for starlight Children’s Foundation as it launched its first call centre. the centre continues to operate from Flexigroup’s head office. PassioN Days one of our goals is to make Flexigroup the best place our people have ever worked. We actively encourage our people to participate in our Passion Day community support program. this initiative provides two additional days of paid annual leave for employees to volunteer their time and assist our partners. We have completed more than 3,000 hours of community work since the program launched late last year. By establishing true partnerships we receive a return on our investment, valuable new skills are bought back to our business and these unique career experiences drive higher levels of staff engagement. 13 As At 30 JuNe 2011 Financial report 14 contents Directors’ report Auditor’s independence Declaration Corporate governance statement Financial statements Notes to the Financial statements Directors’ Declaration independent Audit report shareholder information Corporate Directory Page 16 39 40 44 50 97 98 100 iBC FleXigrouP liMiteD FiNANCiAl rePort 2011 15 As At 30 JuNe 2011 Directors’ report Your Directors present their report on the consolidated entity (referred to hereafter as the group) consisting of Flexigroup limited and the entities it controlled at the end of, or during, the year ended 30 June 2011. Directors the following persons were Directors of Flexigroup limited during the year and up to the date of this report: Margaret Jackson John Delano Andrew Abercrombie rajeev Dhawan r John skippen Company secretary David stevens Principal activities the principal activities during the year continued to be the provision of: • lease and rental financing services for office, technology and related equipment interest-free loans • • mobile broadband products and plans No significant change in the nature of these activities occurred during the year. Dividends Dividends paid to members during the financial year were as follows: Final ordinary dividend of 4.5 cents (2010: 3 cents) per fully paid share was paid on 15 october 2010. the total amount paid was $12,396,267. interim ordinary dividend for the year ended 30 June 2011 of 5 cents (2010: 3 cents) per fully paid share paid on 15 April 2011. total amount paid was $13,783,125. the Directors declare a final ordinary dividend of 5.5 cents (2010: 4.5 cents) per fully paid ordinary share on 5 August 2011. this dividend has a record date of 14 september 2011 and is expected to be paid on 13 october 2011. 16 review of operations the group’s net profit after tax for the year ended 30 June 2011 was $51.8m (2010: $58.9m), a decrease of $7.1m over the prior year. this decrease is the result of the recognition of a one-off tax credit in the 2010 year as detailed in the prior year statutory accounts. excluding this one-off tax credit net profit after tax increased in 2011 by $11.3m (28%) over the prior year. this increase in profit continues to result from the group’s focus on growth of the leasing, interest-free, vendor finance and Blink businesses. the group is to continue to grow these areas in the future as it aims to takes advantage of the parts of the market currently under serviced. Flexigroup continues to be well placed to take advantage of such opportunities with $247.2m of unused funding facilities as at 30 June 2011 (refer to note 22). significant changes in state of affairs there were no significant changes in the Company’s state of affairs in the year. matters subsequent to end of the financial year there were no matters subsequent to the end of the financial year. likely developments and expected results of operation information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. environmental regulation the group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. FLEXIGROUP LIMITED FInancIaL REPORT 2011 Information on Directors Margaret Jackson, AC (Age 58) Chairman, Independent, Non-Executive John Delano (Age 51) Andrew Abercrombie (Age 55) Non-Independent, Executive, Chief Executive Officer Founding Director Non-Independent, Non-Executive BEc, MBA, Hon LLD (Monash), FCA BA BEc, LLB, MBA Experience andrew became a Director of the original Flexirent business in 1991. He was appointed a Director of the company in november 2006. andrew is an experienced commercial and tax lawyer and was a founding partner in a legal firm operating in both Sydney and Melbourne. Following several years in property investment and tax consulting, he became involved in the Flexirent business in 1991 and until 2003 was chief Executive Officer. Other current directorships none Former directorships in last three years none Special responsibilities chair of nomination committee and Member of Remuneration committee Interests in shares and options 81,263,302 ordinary shares in FlexiGroup Limited Experience Margaret was appointed a Director of the company in november 2006. Margaret is also a Director of Billabong International Limited. Margaret is also President of australian Volunteers International and chairman of the advisory Board for the Salvation army Southern Territory. Before beginning her career as a full time company Director in 1992, Margaret was a Partner of KPMG Peat Marwick’s Management consulting Division. Other current directorships Billabong International Limited Former directorships in last three years australia and new Zealand Banking Group Limited Special responsibilities Member of Remuneration committee, nomination committee and audit & Risk committee. Interests in shares and options 3,126,012 ordinary shares in FlexiGroup Limited Experience John has been chief Executive Officer of the company since December 2006, and was appointed a Director of the company in november 2006. John has been chief Executive Officer of Flexirent Holdings Pty Limited since September 2003. John started his career with avis Inc. in the United States before progressing to the position of Managing Director of avis australia. John was subsequently involved as Senior Vice President of Operations with Travel Services International, a naSDaQ listed company which successfully completed a roll-up of 23 leisure travel companies. Other current directorships none Former directorships in last three years none Special responsibilities chief Executive Officer Interests in shares and options Shares 4,028,461 ordinary shares in FlexiGroup Limited Options, performance rights and deferred shares 4,250,395 performance options in FlexiGroup Limited (detailed description on page 24) 7,046,753 performance options in FlexiGroup Limited (detailed description on page 25) 455,314 performance rights in FlexiGroup Limited (detailed description on page 26) 7,500,000 deferred shares in FlexiGroup Limited (detailed description on page 28) 17 aS aT 30 JUnE 2011 Directors’ Report (continued) Rajeev Dhawan (Age 45) R John Skippen (Age 63) Independent, Non-Executive Independent, Non-Executive BCom, ACA, MBA ACA Experience Rajeev represented colonial First State Private Equity managed funds (“cFSPE”) on the Board of Flexirent Holdings Pty Limited from February 2003 to December 2004. Upon cFSPE’s exit from Flexirent Holdings in December 2004, Rajeev continued in an advisory capacity to the Flexirent business. currently a partner of Equity Partners, Rajeev has 18 years’ venture capital and private equity experience and has been a Director of a number of listed and unlisted portfolio companies. Other current directorships none Former directorships in last three years Snowball Group Limited Traffic Technologies Limited Portland Orthopaedics Limited (alternate director) Special responsibilities chair of Remuneration committee, Member of audit & Risk committee and nomination committee. Interests in shares and options 889,099 ordinary shares in FlexiGroup Limited Experience John was appointed a Director of the company in november 2006. John was the Finance Director and chief Financial Officer of Harvey norman Holdings Limited for 12 years. John was involved in the establishment of the original agreement between Flexirent Holdings Pty Limited and Harvey norman in 1995. John has over 30 years’ experience as a chartered accountant. Other current directorships Emerging leaders Investment Limited Briscoe Group Limited (new Zealand) Super Retail Group Limited Slater & Gordon Limited Former directorships in last three years Mint Wireless Ltd Special responsibilities chair of audit & Risk committee, Member of Remuneration committee and nomination committee Interests in shares and options 410,078 ordinary shares in FlexiGroup Limited 18 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Meetings of Directors M Jackson J DeLano a abercrombie R Dhawan R J Skippen FlexiGroup Limited Scheduled Board meetings Audit & Risk Committee Nomination Committee Remuneration Committee Held Attended Held Attended Held Attended Held Attended 12 12 12 12 12 12 12 11 10 12 4 + + 4 4 4 + + 3 4 – – – – – – – – – – 4 + 4 4 4 4 + 4 4 4 + not a member of the relevant committee Company Secretary The company Secretary is David Stevens. David was appointed to the position of company Secretary in august 2008. David has over 12 years’ experience in financial services and professional services. Remuneration Report The remuneration report is set out under the following main headings: a. Principles used to determine the nature and amount of remuneration B. Details of remuneration c. Service agreements D. Share-based compensation – FlexiGroup Limited arrangements E. additional information The information provided in this remuneration report has been audited as required by section 308(3c) of the Corporations Act 2001. A. Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive rewards with achievement of strategic objectives and the creation of value for shareholders and conforms to market best practice for delivery of reward. The Board ensures that executive remuneration satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage/alignment of executive compensation transparency • • capital management In consultation with external remuneration consultants, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. alignment to shareholders’ interests: • has economic profit as a core component of plan design focuses on sustained growth in shareholder wealth as • measured by growth in earnings per share and other financial and non-financial performance indicators • attracts and retains high calibre executives alignment to program participants’ interests: • • rewards capability and experience reflects competitive reward for contribution to growth in shareholder wealth • provides a clear structure for earning rewards • provides recognition for contribution The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. as executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of “at risk” rewards. Non-Executive Directors Fees and payments to non-Executive Directors reflect the demands that are made on, and the responsibilities of, the non-Executive Directors. non-Executive Directors’ fees and payments are reviewed annually and benchmarked where appropriate by the Board. non-Executive Directors do not receive share options. non-Executive Directors may opt each year to receive a percentage of their remuneration in FlexiGroup Limited shares which would be acquired on–market. Shareholders approved this arrangement on 20 november 2006 but no Directors have as yet elected to participate in the arrangement. 19 aS aT 30 JUnE 2011 Directors’ Report (continued) Non-Executive Directors’ fees The current base remuneration was set when the company listed on 12 December 2006. non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit of $1.2 million. The following fee structure has applied since listing: Base fees (per annum) M Jackson (chairman) a abercrombie Other non-Executive Directors Additional fees (per annum) audit & Risk committee – chairman nomination committee – chairman Remuneration committee – chairman $150,000 $120,000 $80,000 $10,000 $10,000 $10,000 On 20 July 2011, the Board approved the first increase in 5 years to the non-Executive Directors fees, to apply from 1 July 2011 as follows: Base fees (per annum) M Jackson (chairman) a abercrombie Other non-Executive Directors Additional fees (per annum) audit & Risk committee – chairman Remuneration committee – chairman $250,000 $160,000 $120,000 $25,000 $25,000 These increased Director fees from 1 July 2011 remain within the aggregate Directors’ fee pool limit of $1.2 million. In addition to the above fees, Directors also receive superannuation contributions required under government legislation. a Director is entitled to reimbursement for reasonable travelling, accommodation and other expenses in attending meetings and carrying out their duties. Under clause 10.11 of the company’s constitution, subject to the Listing Rules and corporations act, the company may pay a former Director, or the personal representatives of a Director who dies in office, a retirement benefit in recognition of past services of an amount determined by the Directors. The company may also enter into a contract with a Director providing for payment of the retiring benefit. no such contracts have been entered into to date. Despite having this clause in the company’s constitution, the company does not intend to pay such benefits to Directors. Executive pay The executive pay and reward framework has four components: • base pay and benefits • • short-term performance incentives long-term incentives through participation in the FlexiGroup Long Term Incentive Plan, and • other remuneration such as superannuation The combination of these comprises the executive’s total remuneration. Base pay Executives are offered a competitive salary that comprises the components of base pay and benefits. Base pay for senior executives is reviewed annually by the Remuneration committee to ensure the executive’s pay is competitive with the market. an executive’s pay is also reviewed on promotion. Superannuation Superannuation is provided to employees under the terms of the current federal government legislation. Short-term performance incentives Short-term performance incentives (“STIs”) vary according to individual contracts; however for senior executives they are broadly based as follows: • a component of the STI is linked to the individual performance of the executive (this is based on a number of factors, including performance against budgets, achievement of Key Performance Indicators (“KPIs”) and other personal objectives). • a component of the STI is linked to the financial performance of the business or measured against budgets determined at the beginning of each financial year. all STI payments to senior executives are approved by the Remuneration committee and are usually paid in late august or early September of the following financial year. Using various profit performance targets and personal performance objectives assessed against KPIs, the company ensures variable reward is only paid when value has been created for shareholders. For middle and lower level management, total STIs are linked to individual performance measures and also to the financial performance of the business. The short-term bonus payments may be adjusted up or down in line with under or over achievement against the target performance levels. This is at the discretion of the Remuneration committee. The STI target annual payment is reviewed annually. Long-term incentives Long-term incentives to the chief Executive Officer and certain senior employees are provided via the FlexiGroup Long Term Incentive Plan (“LTIP”). Information on the plan is detailed in Section D of this report. 20 FLEXIGROUP LIMITED FInancIaL REPORT 2011 B. Details of remuneration Amounts of remuneration Details of the remuneration of the Directors and the Key Management Personnel (as defined in australian accounting Standards Board (“aaSB”) 124 Related Party Disclosures) of FlexiGroup Limited and its subsidiaries are set out in the following tables. The cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed Short-term performance incentives above. The Key Management Personnel of FlexiGroup Limited are the Directors and certain executives that report directly to the chief Executive Officer. This includes the five FlexiGroup executives who received the highest remuneration for the year ended 30 June 2011. The following amounts were paid to the Key Management Personnel during the 2011 year as part of their ongoing remuneration: 2011 Name Short-term employee benefits Post- employment benefits Cash salary and fees $ Cash bonus $ Super- annuation $ Long-term benefits Share-based payments Options, performance rights and deferred shares $ Long service leave $ Total $ Non-Executive Directors of FlexiGroup Limited M Jackson (chairman) a abercrombie R Dhawan R J Skippen Executives of FlexiGroup J DeLano Director and chief Executive Officer G McLennan chief Financial Officer D Klotz Head of Operations P Laughton chief Information Officer n Roberts Head of national Sales 150,000 130,000 90,000 90,000 – – – – 13,500 11,700 8,100 8,100 – – – – – – – – 163,500 141,700 98,100 98,100 504,587 687,000 45,413 15,866 508,932 * 1,761,798 368,174 202,798 30,055 2,835 104,713 708,575 399,406 112,554 18,474 2,440 113,380 646,254 433,951 66,048 21,256 4,096 78,901 604,252 334,038 94,631 21,212 7,578 114,867 572,326 2,500,156 1,163,031 177,810 32,815 920,793 4,794,605 * In addition to the above there is a share-based payments expense arising from options issued to J DeLano of $270,360 by the former shareholders of Flexirent Holdings Pty Limited. Refer to page 25 for further details of this arrangement. 21 aS aT 30 JUnE 2011 Directors’ Report (continued) The following amounts were paid to the Key Management Personnel during the 2010 year as part of their ongoing remuneration: 2010 Name Short-term employee benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ Cash bonus $ Super- annuation $ Long service leave $ Options, performance rights and deferred shares $ Total $ Non-Executive Directors of FlexiGroup Limited M Jackson (chairman) a abercrombie R Dhawan R J Skippen Executives of FlexiGroup J DeLano Director and chief Executive Officer G McLennan chief Financial Officer D Klotz Head of Operations n Roberts Head of national Sales P Laughton chief Information Officer 150,000 130,000 90,000 90,000 – – – – 13,500 11,700 8,100 8,100 – – – – – – – – 163,500 141,700 98,100 98,100 514,388 627,015 46,295 10,919 610,338 * 1,808,955 350,918 195,000 31,583 1,659 147,043 726,203 403,338 104,753 15,619 2,087 190,963 716,760 327,472 140,007 20,158 4,424 197,325 689,386 345,733 74,467 26,616 5,023 135,995 587,834 2,401,849 1,141,242 181,671 24,112 1,281,664 5,030,538 * In addition to the above there is a share-based payments expense arising from options issued to J DeLano of $547,457 by the former shareholders of Flexirent Holdings Pty Limited. Refer to page 25 for further details of this arrangement. as a result, the total Director and Key Management Personnel compensation for 2011 and 2010 was as follows: cash salary and fees cash bonus Post-employment benefits – superannuation Long service leave Share-based payments expense – options, performance rights and deferred shares 2011 $ 2010 $ 2,500,156 2,401,849 1,163,031 1,141,242 177,810 32,815 181,671 24,112 1,191,153 1,829,121 5,064,965 5,577,995 22 FLEXIGROUP LIMITED FInancIaL REPORT 2011 The relative proportions of ongoing remuneration that are linked to performance and those that are fixed are as follows: Name Executives of FlexiGroup J DeLano chief Executive Officer G McLennan chief Financial Officer n Roberts Head of national Sales D Klotz Head of Operations P Laughton chief Information Officer C. Service agreements Fixed remuneration At Risk – STI At Risk – LTI 2011 % 2010 % 2011 % 2010 % 2011 % 2010 % 32 56 63 65 76 31 53 50 58 63 39 29 17 17 11 35 27 20 15 13 29 15 20 18 13 34 20 30 27 24 Remuneration and other terms of employment for the chief Executive Officer and the other Key Management Personnel are formalised in service agreements. Each of these agreements can provide for the provision of short-term performance incentives, eligibility for the FlexiGroup Long Term Incentive Plan (“LTIP”), other benefits including the use of a company motor vehicle, tax advisory fees, payment of benefits forgone at a previous employer, relocation, living, tax equalisation, travel and accommodation expenses while an executive is required to live away from their normal place of residence. all employment agreements are unlimited in term but capable of termination on up to three months notice by either the company or the executive. The company can make a payment in lieu of notice. In the event of retrenchment, the executives listed in the table on page 21 are entitled to the payment provided for in the service agreement. The employment of the executives may be terminated by the company without notice by payment in lieu of notice. The service agreements also contain confidentiality and restraint of trade clauses. D. Share-based compensation – FlexiGroup Limited arrangements The FlexiGroup Long-Term Incentive Plan (“LTIP”) is part of FlexiGroup’s remuneration strategy and is designed to align the interests of FlexiGroup management and shareholders and assist FlexiGroup in the attraction, motivation and retention of executives. In particular, the LTIP is designed to provide relevant executives with an incentive for future performance, with conditions for the vesting and exercise of options and performance rights under the LTIP encouraging those executives to remain with FlexiGroup and contribute to the future performance of the Group. The company’s founding shareholders approved the terms, the implementation and the operation of the LTIP on 20 november 2006. Under the LTIP, eligible persons participating in the LTIP may be granted options and/or performance rights on terms and conditions determined by the Board from time to time. an option and a performance right are both rights to acquire a share, subject to the satisfaction of applicable vesting and/or exercise conditions. The main difference between an option and a performance right is that an exercise price as determined by the Board is required to be paid to exercise a vested option, whereas a performance right has nil exercise price unless otherwise determined by the Board. Options and performance rights granted under the plan carry no dividend or voting rights. 23 aS aT 30 JUnE 2011 Directors’ Report (continued) The Board is responsible for administering the LTIP in accordance with the LTIP Rules and the terms and conditions of specific grants of options and/or performance rights to participants in the LTIP. The Board may determine which persons will be eligible to participate in the LTIP from time to time. Eligible persons may be invited to apply to participate in the LTIP. The Board may in its discretion accept such applications. The terms and conditions of the options and the performance rights are summarised below: Details of the options Instrument Exercise price Vesting conditions EPS performance target Each option represents an entitlement to one ordinary share. Determined at the time of invitation and payable by the option holder at the time of exercise. Vesting to occur upon the satisfaction of the EPS and KPI performance conditions as summarised in this table and on page 25. Following the satisfaction of the performance hurdles described below, the options comprising each tranche will vest on, and become exercisable on or after, the relevant vesting date. The basic EPS (“Basic EPS”) for the purpose of the options is equal to 13.0 cents per share, being the pro forma forecast earnings per share of FlexiGroup for FY2007 as calculated under aaSB 133 less the share-based payments expenses (as determined under aaSB 2) relating to the grants of options over shares from Eighth SRJ Pty Limited and Viewlove Pty Limited (former shareholders of Flexirent Holdings Pty Limited) to certain senior executives of the Group and adjusted for extraordinary items as determined by the Board. Performance testing (“testing date”) against the EPS hurdle will take place on the date of announcement of the relevant annual financial results of FlexiGroup. For some but not all tranches, retesting will occur at the retesting date in respect of the next financial year-end date immediately following the relevant initial testing date. Options that do not vest on retesting will be taken to have lapsed. The applicable EPS hurdle for each test period is measured on an annual compounding basis to the relevant performance test date, using the Basic EPS as the base line number. The Board has the discretion to vary at any time the EPS hurdle applicable to all or part of the options. Why the EPS performance target was chosen EPS was chosen as a performance condition as it is aligned to earnings growth and the generation of value to shareholders. KPI performance target The KPI hurdles may include any combination of operational, volume and product mix, cultural, financial and other measures as determined and modified by the Board from time to time. In determining whether the KPI performance hurdles have been satisfied, a report is prepared for the Remuneration committee detailing each KPI performance hurdle and the performance of the executive against the hurdle. The Remuneration committee approves that rating for all KPI performance hurdles. Why the KPI performance target was chosen KPI hurdles were included in the determination of awarding options to ensure that financial and non-financial measures are aligned and drive shareholder value. Vesting date Following the satisfaction of the performance hurdles applying to an option, the option vests on, and becomes exercisable on or after, a date predetermined by the Board (“vesting date”). The vesting date is effectively the tenure condition. It means that an option holder may only exercise options that vest following the satisfaction of the applicable performance hurdles on or after the vesting date provided that they remain employed by FlexiGroup as at this date. If an option holder ceases to be employed by FlexiGroup or any of its subsidiaries for any reason on or prior to the vesting date relating to a tranche of options, all options in the tranche will lapse immediately unless the Board makes a determination that those options have vested. Following the vesting date or the accelerated vesting of an option, the vested option may be exercised by the executive subject to any exercise conditions and the payment of the exercise price (if any), and the executive will then be allocated or issued shares on a one-for-one basis. Exercise period Vesting date to expiry date Expiry date 31 December 2011 or 31 December 2012 depending upon the tranche. 24 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Summary of performance targets for options EPS hurdle – % of tranche options vesting (applicable to 80% of each tranche) % of tranche tied to KPI hurdle Equal to prospectus forecast EPS % 5% or more than prospectus forecast EPS % 60 100 – – – – – – Equal to 5% EPS growth % Equal to 10% EPS growth % Equal to 15% EPS growth % – 10 10 15 – 33 33 50 – 75 75 100 Equal to or more than 20% EPS growth % – 100 100 – % 20 20 20 20 Tranche 1 2 3 4 not all options have a Tranche 1. Where performance falls between target EPS thresholds (e.g. more than 5% EPS but less than 10% EPS) then pro-rata vesting will apply. EPS is measured on an annual compounding basis to the relevant performance testing date using the Basic EPS of 13.0 cents per share detailed above as the base line number. Where performance falls between target EPS thresholds (e.g. more than 5% EPS but less than 10% EPS) then pro-rata vesting will apply. Retesting of the EPS hurdle for any unvested Tranche 1 options will not be permitted. Tranche 1 options that do not vest on the measurement of the EPS hurdle will be taken to have lapsed under the LTIP rules. Retesting of the EPS hurdle for any unvested Tranche 2, 3 and 4 options will occur at the testing date in respect of the next financial year-end date immediately following the relevant initial testing date, with the measurement period taken from the date of grant of the options to the relevant retesting date. Performance will be measured on a compounding basis. The options that do not vest on retesting will be taken to have lapsed under the LTIP rules. Options granted by former shareholders of Flexirent Holdings Pty Limited to John DeLano Eighth SRJ Pty Limited as Trustee of the Philadelphia Trust and Viewlove Pty Limited as Trustee of David Berkman Family Trust, both former shareholders of Flexirent Holdings Pty Limited, agreed at the time of the IPO to grant options over shares owned by them. The options are over 5,665,779 shares and 1,380,974 shares respectively and are in favour of John DeLano. These options are subject to the same terms and conditions, including achievement of performance hurdles and rights to exercise, as the options issued on 8 December 2006 to the Directors of the company and Key Management Personnel. a share-based payment expense relating to the options granted by the former shareholders is included in the statement of profit and loss and also in the total Key Management Personnel remuneration note on page 21. 25 aS aT 30 JUnE 2011 Directors’ Report (continued) Details of the performance rights The details of the performance rights issued to J DeLano are set out below: Instrument Each performance right represents an entitlement to one ordinary share. Exercise price nil Vesting conditions Vesting will occur on the achievement of one of the following conditions: • EPS of the company for a financial year ending on or before 30 June 2011 is at least 24.6 cents per share. The EPS target number may be adjusted as the Board reasonably determines. The actual EPS for a financial year will be that set out in the company’s annual audited accounts for the relevant financial year; • The company’s market capitalisation before 30 June 2011 is at least $1.2 billion for a continuous period of six months based on the existing capital structure. The market capitalisation target will be adjusted for any new share issues (excluding any shares issued for the exercise of these performance rights); or • a change of control of the company occurs before 30 June 2011 under a transaction that implies a market capitalisation value of the company greater than $1.2 billion based on the existing capital structure. The market capitalisation target will be adjusted for any new share issues (excluding any shares issued for the exercise of these performance rights). The Board will confirm in writing to the performance rights holders when any of the above conditions have been satisfied (‘’confirmation notice”). Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Vesting date Date the company gives a confirmation notice. If one of the vesting conditions is met, the performance rights will vest. Should the performance rights holders cease to be employed on or prior to the performance rights vesting, all of the performance rights will lapse immediately unless the Board makes a determination that those performance rights have vested. any performance rights that do not vest following the measurements of performance against the hurdles described above will lapse on the expiry date if not earlier. Exercise period Vesting date to expiry date Expiry date 31 December 2012 26 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Details of the performance rights The details of the performance rights issued to Key Management Personnel are set out below: Instrument Each performance right represents an entitlement to one ordinary share. Exercise price nil Vesting conditions EPS performance target Performance rights will vest on, and become exercisable on or after, the Vesting Date to the extent that certain performance conditions that are based on the financial performance of FlexiGroup and the achievement of pre-determined Key Performance Indicators (“KPI Hurdle”) have been satisfied over the performance measurement period. The measure used to determine FlexiGroup’s financial performance is Earnings Per Share growth targets (“EPS hurdle”). Eighty percent (80%) of each tranche of performance rights will be subject to the EPS hurdle, while the remaining twenty percent (20%) will be subject to the KPI hurdle. The basic EPS (“Basic EPS”) for the purposes of the grant of performance rights under this invitation is 13.0 cents per share. The applicable EPS hurdle for each test period is measured on an annual compounding basis to the relevant performance test date, using the Basic EPS as the base line number. Performance testing (“testing date”) against the EPS hurdle will take place on the date of announcement of the relevant annual financial results of FlexiGroup. For some but not all tranches, retesting will occur at the retesting date in respect of the next financial year-end date immediately following the relevant initial testing date. Performance rights that do not vest on retesting will be taken to have lapsed. The applicable EPS hurdle for each test period is measured on an annual compounding basis to the relevant performance test date, using the basic EPS as the base line number. The Board has the discretion to vary at any time the EPS hurdle applicable to all or part of the performance rights. Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. KPI performance target The KPI hurdle may include any combination of operational, volume and product mix, cultural, financial and other measures as determined and modified by the Board from time to time. The KPI hurdle will be performance tested against these measures over each relevant financial year unless otherwise determined by the Board. The relevant KPI hurdle for each year will be determined by the Board by 30 September of the relevant financial year. The KPI hurdles will be performance tested against those measures over each relevant financial year unless otherwise determined by the Board. In determining whether the KPI performance hurdles have been satisfied, a report is prepared for the Remuneration committee detailing each KPI performance hurdle and the performance of the executive against the hurdle. The Remuneration committee approves that rating for all KPI performance hurdles. Vesting date Tranches 1, 2 and 3 – 1 September 2010 at 5.00pm (Sydney time) Exercise period Tranche 1 – From vesting date to expiry date Tranche 4 – 1 September 2011 at 5.00pm (Sydney time) Tranche 2 – From vesting date to expiry date Tranche 3 – From vesting date to expiry date Tranche 4 – From vesting date to expiry date Expiry date Tranches 1, 2 and 3 – 31 December 2012 at 5.00pm (Sydney time) Disposal restriction no disposal restriction imposed at the time of this grant. Tranche 4 – 31 December 2013 at 5.00pm (Sydney time) 27 aS aT 30 JUnE 2011 Directors’ Report (continued) Summary of performance targets for performance rights Tranche 1 2 3 4 Size (percentage of initial grant) % Vesting date 25 25 25 25 1 Sep 2010 1 Sep 2010 1 Sep 2010 1 Sep 201 1 EPS hurdle – % of tranche performance rights vesting (applicable to 80% of each tranche) Equal to 5% EPS growth % Equal to 10% EPS growth % Equal to 15% EPS growth % 10 25 25 25 33 75 75 100 75 100 100 – Equal to or more than 20% EPS growth % 100 – – – % of tranche tied to KPI hurdle % 20 20 20 20 EPS is measured on an annual compounding basis to the relevant performance testing date using the Basic EPS of 13.0 cents per share detailed above as the base line number. Where performance falls between target EPS thresholds (e.g. more than 5% EPS but less than 10% EPS) then pro-rata vesting will apply. Retesting of the EPS hurdle for any unvested Tranche 1 performance rights will not be permitted. Tranche 1 performance rights that do not vest on the measurement of the EPS hurdle will be taken to have lapsed under the plan rules. Retesting of the EPS hurdle for any unvested Tranche 2, 3 and 4 performance rights will occur at the testing date in respect of the next financial year end date immediately following the relevant initial testing date, with the measurement period taken from the grant date of the performance rights to the relevant retesting date. Performance will be measured on a compounding basis. The performance rights that do not vest on retesting will be taken to have to have lapsed under the plan rules. Details of the deferred shares The details of the deferred shares issued to J DeLano are set out below: Instrument Each deferred share represents an entitlement to one ordinary share. Exercise price nil Tranche components 50% of each tranche of deferred shares relates to vesting condition 1 50% of each tranche of deferred shares relates to vesting condition 2 28 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Vesting conditions Vesting condition 1 The performance hurdle set by the Board in relation to vesting condition 1 for each tranche is based on total shareholder return (“TSR”) of the company for the relevant performance period. If the TSR of the company equals: • 10% or higher for the performance period between 1 July 2008 to 1 July 2009 (“performance period 1”); or 15% or higher for the performance periods between 1 July 2009 to 30 June 2010 (“performance period 2”) and 1 July 2010 to 30 June 2011 (“performance period 3”), • all of the deferred shares for the relevant tranche that are subject to vesting condition 1 will vest. The TSR for performance periods 2 and 3 is determined by calculating the amount by which the sum of the 30 day volume weighted average price (“VWAP”) for FlexiGroup’s ordinary shares in the period up to and including 30 June (that is the end) of the relevant performance period and the dividends paid on an ordinary share in FlexiGroup during the performance period exceeds the 30 day VWaP for FlexiGroup’s ordinary shares in the period up to and including 1 July (that is the beginning) of the performance period, expressed as a percentage (note: there was a minor typographical error in the 2008 annual General Meeting notice of meeting between the TSR start date and end date). Vesting condition 2 The performance hurdle set by the Board in relation to vesting condition 2 for each Tranche is based on TSR growth of the company measured against other companies in the S&P/aSX 300 Index (not including resources companies) TSR growth for the relevant performance period. TSR for the company for a performance period will be measured in the same way as for vesting condition 1. The same 30 day VWaP calculations will be used to determine the TSR for a performance period of the other companies in the S&P/aSX 300 Index (not including resources companies). The performance hurdle for vesting condition 2 will be considered satisfied in accordance with the following percentages of the tranches earned: Nil – if the company’s TSR ranked in the 4th quartile (i.e. 76th to 100th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 25% – if the company’s TSR equals performance of the 75th ranking company in the S&P/aSX 300 Index (excluding resources companies). Pro-rata between 25% and 50% – if the company’s TSR ranked in the 3rd quartile (i.e. 51st to 75th ranking) of companies in the S&P/aSX 300 Index (excluding resources companies). Pro-rata between 50% and 100% – if the company’s TSR ranked in the 2nd quartile (i.e. 26th to 50th ranking) of companies in the S&P/aSX 300 Index (excluding resources companies). 100% – if the company’s TSR ranked in the 1st quartile (i.e. 1st to 25th ranking) of companies in the S&P/aSX 300 Index (excluding resources companies). Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Retention date 1 September 2011 at 5.00pm (Sydney time) Distributions/Dividends Participants are entitled to receive distributions/dividends made in respect of the deferred shares. Performance period Tranche 1 – Performance period 1 (being 1 July 2008 to 30 June 2009) Tranche 2 – Performance period 2 (being 1 July 2009 to 30 June 2010) Tranche 3 – Performance period 3 (being 1 July 2010 to 30 June 2011) Disposal restriction Deferred shares that vest in accordance with the applicable vesting conditions will be subject to a restriction on disposal until the retention date of 1 September 2011. 29 aS aT 30 JUnE 2011 Directors’ Report (continued) Details of the deferred shares The details of the deferred shares issued to G McLennan, n Roberts, P Laughton and D Klotz are set out below: Instrument Each deferred share represents an entitlement to one ordinary share. Exercise price nil Tranche components 33.33% of each tranche of deferred shares relates to vesting condition 1 33.33% of each tranche of deferred shares relates to vesting condition 2 33.33% of each tranche of deferred shares relates to vesting condition 3 Vesting condition 1 The performance hurdle set by the Board in relation to vesting condition 1 for each Tranche is based on TSR of the company for the relevant performance period. If the TSR of the company equals: • 10% or higher for the performance period between 1 July 2008 to 1 July 2009 (“performance period 1”); or 15% or higher for the performance periods between 1 July 2009 to 30 June 2010 (“performance period 2”) and 1 July 2010 to 30 June 2011 (“performance period 3”), • all of the deferred shares for the relevant tranche that are subject to vesting condition 1 will vest. The TSR for performance periods 2 and 3 is determined by calculating the amount by which the sum of the 30 day volume weighted average price (“VWAP”) for FlexiGroup’s ordinary shares in the period up to and including 30 June (that is the end) of the relevant performance period and the dividends paid on an ordinary share in FlexiGroup during the performance period exceeds the 30 day VWaP for FlexiGroup’s ordinary shares in the period up to and including 1 July (that is the beginning) of the performance period, expressed as a percentage. Vesting condition 2 The performance hurdle set by the Board in relation to vesting condition 2 for each Tranche is based on TSR growth of the company measured against other companies in the S&P/aSX 300 Index (not including resources companies) TSR growth for the relevant performance period. TSR for the company for a performance period will be measured in the same way as for vesting condition 1. The same 30 day VWaP calculations will be used to determine the TSR for a performance period of the other companies in the S&P/aSX 300 Index (not including resources companies). The performance hurdle for vesting condition 2 will be considered satisfied in accordance with the following percentages of the tranches earned: Nil – if the company’s TSR ranked in the 4th quartile (i.e. 76th to 100th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 25% – if the company’s TSR equals performance of the 75th ranking company in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 25% and 50% – if the company’s TSR ranked in the 3rd quartile (i.e. 51st to 75th ranking) of companies in the S&P/aSX 300 Index (excluding resources companies). Pro-rata between 50% and 100% – if the company’s TSR ranked in the 2nd quartile (i.e. 26th to 50th ranking) of companies in the S&P/aSX 300 Index (excluding resources companies). 100% – if the company’s TSR ranked in the 1st quartile (i.e. 1st to 25th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Vesting condition 3 The performance hurdle in relation to vesting condition 3 is based on personal key performance indicators (“KPIs”) applicable set by the Board with respect to each performance period. a KPI hurdle may include any combination of operational, volume/product mix, cultural, financial and other measures as determined by the Board and notified from time to time. The KPI hurdle will be performance tested over each relevant performance period unless otherwise determined by the Board. Vesting conditions 30 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Retention date 1 September 2011 at 5.00pm (Sydney time) Distributions/Dividends Participants are entitled to receive distributions/dividends made in respect of the deferred shares. Performance period Tranche 1 – Performance period 1 (being 1 July 2008 to 30 June 2009) Tranche 2 – Performance period 2 (being 1 July 2009 to 30 June 2010) Tranche 3 – Performance period 3 (being 1 July 2010 to 30 June 2011) Disposal restriction Deferred shares that vest in accordance with the applicable vesting conditions will be subject to a restriction on disposal until the retention date of 1 September 2011. Details of the performance rights issued in September 2010 The details of the performance rights issued to G McLennan, n Roberts, P Laughton and D Klotz are set out below: Instrument Each performance right represents an entitlement to one ordinary share. Exercise price nil Vesting conditions Performance rights will vest on, and become exercisable on or after, the Vesting Date to the extent that certain performance conditions that are based on the financial performance of FlexiGroup. The measure used to determine FlexiGroup’s financial performance is Earnings Per Share growth targets (“EPS hurdle”) and Total Shareholder Return (“TSR hurdle”). 66.66% of each tranche of performance rights will be subject to the EPS hurdle, while the remaining 33.34% will be subject to the TSR hurdle. EPS performance target The basic EPS (“Basic EPS”) for the year ending 30 June 2011 is 19.55 cents per share and for 30 June 2012 is 21.99 cents per share. Performance testing (“testing date”) against the EPS hurdle will take place on the date of announcement of the relevant annual financial results of FlexiGroup. There will be no retesting of performance rights under the EPS target. Performance rights that do not vest will be taken to have lapsed. The Board has the discretion to vary at any time the EPS hurdle applicable to all or part of the performance rights. TSR performance target The performance hurdle set by the Board in relation to each Tranche is based on TSR growth of the company measured against other companies in the S&P/aSX 300 Index (not including resources companies) TSR growth for the relevant performance period. The TSR for FlexiGroup will be determined by calculating the amount by which the sum of: • the 30 day volume weighted average price (“VWAP”) for FlexiGroup shares in the period up to and including 30 June at the end of the relevant Performance Period; and the dividends paid on a FlexiGroup share during the relevant performance period, • exceeds the 30 day VWaP for FlexiGroup shares in the period up to and including 1 July at the beginning of the relevant performance period, expressed as a percentage. Nil – if the company’s TSR ranked in the 4th quartile (i.e. 76th to 100th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 25% – if the company’s TSR equals performance of the 75th ranking company in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 25% and 50% – if the company’s TSR ranked in the 3rd quartile (i.e. 51st to 75th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 50% and 100% – if the company’s TSR ranked in the 2nd quartile (i.e. 26th to 50th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 100% – if the company’s TSR ranked in the 1st quartile (i.e. 1st to 25th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 31 aS aT 30 JUnE 2011 Directors’ Report (continued) Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Vesting date Tranche 1 – 1 September 2012 Tranche 2 – 1 September 2013 Exercise period Tranches 1 & 2 – From vesting date to expiry date Expiry date Tranche 1 & 2 – 31 December 2014 Disposal restriction no disposal restriction imposed at the time of this grant. Retesting – performance rights – TSR If the TSR vesting condition is not met for any Tranche 1 performance rights when measured on the testing date for performance period 1 and those performance rights have not otherwise lapsed, those performance rights may be exercised during the exercise period for Tranche 2 if the TSR hurdle is met on the testing date for performance period 2. For these purposes, the performance period will be from 1 July 2010 (the beginning of performance period 1) to 30 June 2012 (the end of performance period 2). If the TSR vesting condition is not met for any Tranche 2 performance rights when measured on the testing date for performance period 2 and those performance rights have not otherwise lapsed, those performance rights may be exercised during the exercise period for Tranche 2 if the TSR hurdle is met on the testing date for performance period 2 with the performance period measured for these purposes from 1 July 2010 (the beginning of performance period 1) to 30 June 2012 (the end of performance period 2). Details of the performance rights issued in June 2011 The details of the performance rights issued to G McLennan and D Klotz are set out below: Instrument Each performance right represents an entitlement to one ordinary share. Exercise price nil Vesting conditions Performance rights will vest on, and become exercisable on or after, the Vesting Date to the extent that certain performance conditions that are based on the financial performance of FlexiGroup. The measure used to determine FlexiGroup’s financial performance is Earnings Per Share growth targets (“EPS hurdle”) and Total Shareholder Return (“TSR hurdle”). Fifty percent (50%) of each tranche of performance rights will be subject to the EPS hurdle, while the remaining fifty percent (50%) will be subject to the TSR hurdle. EPS performance target The basic EPS (“Basic EPS”) for the year ending 30 June 2012 is 21.0 cents per share, 30 June 2013 is 24.3 cents per share and 30 June 2014 is 27.9 cents per share. Performance testing (“testing date”) against the EPS hurdle will take place on the date of announcement of the relevant annual financial results of FlexiGroup. Retesting will occur at the retesting date in respect of the next financial year-end date immediately following the relevant initial testing date. Performance rights that do not vest on retesting will be taken to have lapsed. The applicable EPS hurdle for each test period is measured on an annual compounding basis to the relevant performance test date, using the basic EPS as the base line number. The Board has the discretion to vary at any time the EPS hurdle applicable to all or part of the performance rights. 32 FLEXIGROUP LIMITED FInancIaL REPORT 2011 TSR performance target The performance hurdle set by the Board in relation to each Tranche is based on TSR growth of the company measured against other companies in the S&P/aSX 300 Index (not including resources companies) TSR growth for the relevant performance period. The TSR for FlexiGroup will be determined by calculating the amount by which the sum of: • the 30 day volume weighted average price (“VWAP”) for FlexiGroup shares in the period up to and including 30 June at the end of the relevant performance period; and the dividends paid on a FlexiGroup share during the relevant performance period, • exceeds the 30 day VWaP for FlexiGroup shares in the period up to and including 1 July at the beginning of the relevant performance period, expressed as a percentage. Nil – if the company’s TSR ranked in the 4th quartile (i.e. 76th to 100th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 25% – if the company’s TSR equals performance of the 75th ranking company in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 25% and 50% – if the company’s TSR ranked in the 3rd quartile (i.e. 51st to 75th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 50% and 100% – if the company’s TSR ranked in the 2nd quartile (i.e. 26th to 50th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 100% – if the company’s TSR ranked in the 1st quartile (i.e. 1st to 25th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Vesting date Tranche 1 – 1 December 2012 Tranche 2 – 1 December 2013 Tranche 3 – 1 December 2014 Exercise period Tranches 1, 2 & 3 – From vesting date to expiry date Expiry date Tranche 1 – 31 December 2014 Tranche 2 – 31 December 2015 Tranche 3 – 31 December 2016 Disposal restriction no disposal restriction imposed at the time of this grant. Retesting – performance rights – Basic EPS If the Basic EPS performance rights vesting condition is not met for any Tranche 1 performance rights when measured on the testing date for performance rights performance period 1 and those Tranche 1 performance rights have not otherwise lapsed, those Tranche 1 performance rights may be exercised during the performance rights exercise period for Tranche 2 performance rights if the Basic EPS hurdle is met on the testing date for performance rights performance period 2. If the Basic EPS performance rights vesting condition is not met for any Tranche 2 performance rights when measured on the testing date for performance rights performance period 2 and those Tranche 2 performance rights have not otherwise lapsed, those Tranche 2 performance rights may be exercised during the performance rights exercise period for performance rights Tranche 3 if the Basic EPS hurdle is met on the testing date for performance rights performance period 3. There is no retesting for Tranche 3 performance rights if the Basic EPS performance rights vesting condition is not met for any Tranche 3 performance rights when measured on the testing date for performance rights performance period 3. Retesting – performance rights – TSR If the TSR performance rights vesting condition is not met for any Tranche 1 performance rights when measured on the testing date for performance rights performance period 1 (as set out above) and those Tranche 1 performance rights have not otherwise lapsed, those Tranche 1 performance rights may be exercised during the performance rights exercise period for Tranche 2 performance rights if the TSR hurdle is met on the testing date for performance rights performance period 2. For these purposes, the performance rights performance period will be from 1 July 2011 (the beginning of performance rights performance period 1) to 30 June 2013 (the end of performance rights performance period 2). 33 aS aT 30 JUnE 2011 Directors’ Report (continued) If the TSR performance rights vesting condition is not met for any Tranche 2 performance rights when measured on the testing date for performance rights performance period 2 and those Tranche 2 performance rights have not otherwise lapsed, those Tranche 2 performance rights may be exercised during the performance rights exercise period for performance rights Tranche 3 if the TSR hurdle is met on the testing date for performance rights performance period 3. For these purposes, the performance rights performance period will be from 1 July 2012 (the beginning of performance rights performance period 2) to 30 June 2014 (the end of performance rights performance period 3). There is no retesting for Tranche 3 performance rights if the TSR performance rights vesting condition is not met for any Tranche 3 performance rights when measured on the testing date for performance rights performance period 3. Details of the options issued in June 2011 The details of the options issued to G McLennan, D Klotz and P Laughton are set out below: Instrument Each option represents an entitlement to one ordinary share. Exercise price $2.11 Vesting conditions Options will vest on, and become exercisable on or after, the Vesting Date to the extent that certain performance conditions that are based on the financial performance of FlexiGroup. The measure used to determine FlexiGroup’s financial performance is Earnings Per Share growth targets (“EPS hurdle”) and Total Shareholder Return (“TSR hurdle”). Fifty percent (50%) of each tranche of options will be subject to the EPS hurdle, while the remaining fifty percent (50%) will be subject to the TSR hurdle. EPS performance target The basic EPS (“Basic EPS”) for the year ending 30 June 2014 is 27.9 cents per share. Performance testing (“testing date”) against the EPS hurdle will take place on the date of announcement of the relevant annual financial results of FlexiGroup. There will be no retesting of options. Options that do not vest will be taken to have lapsed. The Board has the discretion to vary at any time the EPS hurdle applicable to all or part of the options. TSR performance target The performance hurdle set by the Board in relation to each Tranche is based on TSR growth of the company measured against other companies in the S&P/aSX 300 Index (not including resources companies) TSR growth for the relevant performance period. The TSR for FlexiGroup will be determined by calculating the amount by which the sum of: • the 30 day volume weighted average price (“VWAP”) for FlexiGroup Shares in the period up to and including 30 June at the end of the relevant Performance Period; and the dividends paid on a FlexiGroup share during the relevant Performance Period, • exceeds the 30 day VWaP for FlexiGroup shares in the period up to and including 1 July at the beginning of the relevant Performance Period, expressed as a percentage. Nil – if the company’s TSR ranked in the 4th quartile (i.e. 76th to 100th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 25% – if the company’s TSR equals performance of the 75th ranking company in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 25% and 50% – if the company’s TSR ranked in the 3rd quartile (i.e. 51st to 75th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Pro-rata between 50% and 100% – if the company’s TSR ranked in the 2nd quartile (i.e. 26th to 50th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). 100% – if the company’s TSR ranked in the 1st quartile (i.e. 1st to 25th ranking) of companies in S&P/aSX 300 Index (excluding resources companies). Why vesting conditions were chosen The vesting conditions were chosen as performance conditions as they reflect, at the date they were granted, the generation of significant shareholder value. Vesting date 1 December 2014 Exercise period From vesting date to expiry date Expiry date 31 December 2016 Disposal restriction no disposal restriction imposed at the time of this grant. 34 FLEXIGROUP LIMITED FInancIaL REPORT 2011 The terms and conditions of each grant of options, performance rights and deferred shares affecting remuneration in the previous, this or future reporting periods are as follows: Value per option, performance right deferred share at grant date Exercise pricea $ Grant date 8 Dec 2006 19 apr 2007 29 nov 2007 3 apr 2008 3 apr 2008 1 Oct 2008 1 Oct 2008 27 nov 2008 31 Mar 2009 15 Sep 2010 3 June 2011 3 June 2011 Tranche number 1 2 3 4 1 2 3 1 1 2 3 4 1 1 2 3 1 1 2 3 1 2 3 1 2 1 2 3 1 Date vested and exercisable 1 Sep 2010 1 Sep 2010 1 Sep 2010 1 Jun 2011 1 Sep 2008 1 Sep 2009 1 Sep 2010 b 1 Sep 2010 1 Sep 2010 1 Sep 2010 1 Sep 2011 1 Sep 2010 1 Sep 2010 1 Sep 2010 1 Sep 2011 1 Sep 2010 1 Sept 2011 1 Sept 2011 1 Sept 2011 1 Sep 2011 1 Sep 2011 1 Sep 2011 1 Sep 2012 1 Sep 2013 1 Dec 2012 1 Dec 2013 1 Dec 2014 1 Dec 2014 Expiry date 31 Dec 2011 31 Dec 2011 31 Dec 2011 31 Dec 2012 31 Dec 2011 31 Dec 2011 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2013 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2013 31 Dec 2012 23 Dec 2018 23 Dec 2018 23 Dec 2018 31 Mar 2019 31 Mar 2019 31 Mar 2019 31 Dec 2014 31 Dec 2014 31 Dec 2014 31 Dec 2015 31 Dec 2016 1.98 1.98 1.98 1.98 2.91 2.91 2.91 nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil a b The exercise price must be paid by the option holder to exercise the options when the option vests. Vesting date is the date the company gives a “confirmation notice”. The performance right is exercisable on the vesting date. 31 Dec 2016 $2.11 $0.40 $0.40 $0.40 $0.41 $0.51 $0.53 $0.58 $0.25 $0.34 $0.34 $0.34 $0.34 $0.34 $0.39 $0.39 $0.36 $0.39 $0.16 $0.19 $0.19 $0.33 $0.33 $0.33 $1.06 $0.95 $1.74 $1.645 $1.455 $0.51 35 aS aT 30 JUnE 2011 Directors’ Report (continued) Details of options over ordinary shares in the company provided as remuneration to each Director of FlexiGroup Limited and each of the Key Management Personnel of the parent entity and the group are set out below. When exercisable, each option and performance right is convertible into one ordinary share of FlexiGroup Limited. Further information on the options and performance rights is set out in note 37 to the financial statements. Name Directors of FlexiGroup Limited M Jackson J DeLano a abercrombie R Dhawan R J Skippen Executives of FlexiGroup Limited G McLennan n Roberts D Klotz P Laughton Number of options and performance rights granted during the year Value of options and performance rights granted during the year Number of options and performance rights vested during the year Number of options and performance rights lapsed during the year Value at lapse date * – – – – – – – – – – – – 11,297,148 ** 87,256 – 2,181 – – – – – – – – – – – 1,100,000 1,042,078 727,455 350,000 351,750 773,241 535,649 214,260 1,000,000 950,395 1,149,859 – – 550,000 453,750 1,029,240 8,561 3,424 * ** The value at lapse date of the options and performance rights that were granted as part of remuneration and that lapsed during the year because a vesting condition was not satisfied. The value is determined at the time of lapsing, but assuming the condition was satisfied. Options granted over 7,046,753 shares by former shareholders of Flexirent Holdings Pty Limited in favour of John DeLano of the company are not dilutive as the shares have already been issued. The assessed fair value at grant date of options, performance rights and deferred shares granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration table on page 21. Fair values at grant date are independently determined using a binomial tree option pricing methodology that takes into account the exercise price, the term of the options and performance rights, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the options and performance rights. The model inputs for performance rights and deferred shares granted during the year ended 30 June 2011 included: a) Exercise price: various per performance rights and deferred shares granted b) Grant date: various per performance rights and deferred shares granted c) Expiry date: various per performance rights and deferred shares granted d) Share price at grant date: various per performance rights and deferred shares granted e) Expected price volatility of the company’s shares: 40% (2010: n/a) f) Expected dividend yield: 5% – 5.5% (2010: n/a) g) Risk-free interest rate: 4.38% – 4.97% (2010: n/a) Shares provided on exercise of remuneration options no ordinary shares in the company were issued as a result of the exercise of any remuneration options. 36 FLEXIGROUP LIMITED FInancIaL REPORT 2011 E. Additional information Details of remuneration: cash bonuses and options, performance rights and deferred shares For each cash bonus and grant of options, performance rights and deferred shares, the percentage of the available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. The options, performance rights and deferred shares vest in accordance with the vesting schedules detailed on page 35. no options and/or performance rights and/or deferred shares will vest if the conditions are not satisfied, hence the minimum value of the rights yet to vest is nil. The maximum value of the rights yet to vest has been determined as the amount of the fair value at grant date of the rights that are yet to be expensed. 2011 Cash bonus Name Paid % Forfeited % Year granted Vested % Executive Directors of FlexiGroup Limited J DeLano (chief Executive Officer) 100 0 Executives of FlexiGroup G McLennan 100 0 n Roberts 53 47 D Klotz 100 0 P Laughton 78 22 2009 2008 2007 2011 2011 2011 2009 2009 2011 2009 2008 2007 2011 2011 2011 2009 2008 2008 2011 2011 2009 2008 2007 – – 100 – – – – 100 – – 100 – – – – – 100 100 – – – 100 97 Financial years in which options, performance rights and deferred shares may vest Forfeited % Maximum total value of grant yet to vest $ – 30/6/2012 1,350,000 4 30/6/2010 11,383 – 30/6/2011 – – 30/6/2015 229,500 – 30/6/2013 410,578 – 30/6/2013 402,000 – 30/6/2012 132,000 – 30/6/2011 – – 30/6/2013 351,750 – 30/6/2012 72,000 – 30/6/2011 100 30/6/2011 – – – 30/6/2015 204,000 – 30/6/2013 369,520 – 30/6/2013 376,875 – 30/6/2012 90,000 – 30/6/2011 – 30/6/2010 – – – 30/6/2015 127,500 – 30/6/2013 351,750 – 30/6/2012 72,000 – 3 30/6/2011 30/6/2011 – – 37 aS aT 30 JUnE 2011 Directors’ Report (continued) Shares under options, performance rights and deferred shares as at the date of this report, there were 17,455,888 unissued ordinary shares of FlexiGroup Limited subject to options or performance rights. Of those unissued ordinary shares, 9,684,842 are subject to option with expiry dates between 31 December 2011 and 31 December 2016 and exercise prices between $1.57 – $2.91, with a weighted average exercise price of $2.11. The remaining 7,771,046 unissued ordinary shares are the subject of performance rights with expiry dates between 31 December 2012 and 31 December 2016. Options granted over 7,046,753 shares by former shareholders of Flexirent Holdings Pty Limited in favour of John DeLano of the company are not included in this calculation as the shares have already been issued. at the date of this report, there are also 11,912,000 deferred shares which are held by the FlexiGroup Tax Deferred Employee Share Plan (note 37 (b) for further information). no option holder has any right under the option to participate in any other share issues of the company or any other entity. Directors’ indemnification During the year ended 30 June 2011, the company paid insurance premiums in respect of a Directors’ and Officers’ Liability insurance contract. Disclosure of the total amount of the premium and the nature of the liabilities in respect of such insurance is prohibited by the policy. Indemnity of auditors The company has indemnified its auditors against any liability (including legal costs) that the auditors incur in connection with any claim by a third party arising from the company’s breach of its agreement with its auditors. Proceedings on behalf of the Company no person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part or those proceedings. The company was not a party to any such proceedings during the year. no proceedings have been brought or intervened in on behalf of the company with leave of the court under section 237 of the Corporations Act 2001. Non-audit services The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important. Details of the amounts paid or payable to the auditor (Pricewaterhousecoopers) for audit and non-audit services provided during the year are set out in note 34 (b) of the financial statements. 38 The Board of Directors has considered the position and, in accordance with advice received from the audit & Risk committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provisions of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirement of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the audit & Risk committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principle relating to auditor independence as set out in aPES 110 code of Ethics for Professional accountants. Declaration of interests Other than as disclosed in the financial statements, no Director of the company has received or become entitled to receive a benefit other than remuneration by reason of a contract made by the company or a related corporation with a Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except that Flexirent capital Pty Limited has rented premises in Melbourne owned by a company associated with Mr a abercrombie. The lease is on standard market terms. Rounding of amounts The company is of a kind referred to in class Order 98/100, issued by the australian Securities and Investments commission, relating to the “rounding off” of amounts in the Directors’ Report. amounts in the Directors’ Report have been rounded off in accordance with that class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. Auditor’s independence declaration a copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 39 and forms part of this report. Auditor Pricewaterhousecoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors. Margaret Jackson chairman Sydney 5 august 2011 auditor’s Independence Declaration FLEXIGROUP LIMITED FInancIaL REPORT 2011 FlexiGroup Limited and its controlled entities Auditors’ Independence Declaration 30 June 2011 PricewaterhouseCoopers ABN 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 Auditor’s Independence Declaration As lead auditor for the audit of FlexiGroup Limited for the year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of FlexiGroup Limited and the entities it controlled during the period. Rob Spring Partner PricewaterhouseCoopers Sydney 5 August 2011 Liability limited by a scheme approved under Professional Standards Legislation 32 39 aS aT 30 JUnE 2011 corporate Governance Composition of the Board Performance assessment at the date of this statement, the Board comprises four non-Executive Directors, three of whom are independent and one Executive Director (chief Executive Officer). The names of the Directors, including details of their qualifications and experience, are set out in the “Information on Directors” section of the 2011 FlexiGroup Limited annual Report. Role of the Board The role of the Board is to provide overall strategic guidance for the company and effective oversight of management. The primary responsibilities of the Board include: • overseeing the development of the company’s corporate strategy including reviewing and approving strategic plans and performance objectives of the company the appointment of the chief Executive Officer and senior executives, monitoring senior management’s performance and approving senior management remuneration policies and practices • • effective communication with shareholders including reporting to shareholders and ensuring that all regulatory requirements are met • establishing and monitoring policies governing the company’s relationship with other stakeholders and the broader community, including establishing and maintaining environmental, employment, occupation, health and safety policies • actively promoting ethical and responsible • decision making reviewing and approving annual and half yearly financial statements, monitoring financial results on an ongoing basis, overseeing the company’s accounting and financial management systems, approving and monitoring major capital expenditure, capital management, major acquisition, divestitures and restructures, and determining dividend policy • establishing and overseeing the company’s controls and systems for identifying, assessing, monitoring and reviewing material risks Independent professional advice Following consultation with the chairman, Directors may seek independent professional advice at the company’s expense. Generally, this advice will be available to all Directors. The Board undertakes an annual self assessment of its collective performance, the performance of the chairman and of its committees. The chairman meets privately with each Director to discuss individual and collective performance of Directors. Re-election of Directors at each annual General Meeting of the company there must be an election of Directors. The Directors who must retire from office (but are eligible to stand for re-election) at the general meeting are as follows: (a) each Director who has held office without re-election i. ii. beyond the third annual General Meeting following the Director’s appointment or last election; or for at least three years, which ever is the longer period (b) each Director who was appointed by the Directors under article 10.7 of the constitution (c) if none of (a) or (b) is applicable, the Director who has served in office longest without re-election. If there are two or more such Directors who have been in office an equal length of time, then in default of agreement, the Director to retire will be determined by lot Conflicts of interest Directors are required to keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the company. Where the Board believes that a significant conflict may exist, the Director concerned does not receive the relevant Board papers and is not present at the meeting while the item is considered. additionally, Directors are required to advise the Board of any Board or executive appointments to other companies and any related party transactions including financial transactions with the Group. Financial reporting The chief Executive Officer and chief Financial Officer have certified to the Board that the company’s financial statements are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and are in accordance with relevant accounting standards. The Board receives monthly reports from management on the financial and operational performance of the Group. 40 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Board committees • external auditor may not provide services to the The Board may delegate responsibility to committees to consider certain issues in further detail and then report back to and advise the Board. committees established by the Board have adopted charters setting out the authority, responsibilities, membership and operation of the committee. There are currently three committees: audit & Risk committee, nomination committee and Remuneration committee. The Board charter is available on the FlexiGroup website. Audit & Risk Committee The role of the committee is to assist the Board in carrying out its accounting, auditing and financial reporting responsibilities, including oversight of: (a) the integrity of the company’s external financial reporting and financial statements (b) the appointment, remuneration, independence and competence of the company’s external auditors (c) the performance of the external audit function and review of its audits (d) the effectiveness of the company’s system of risk management and internal controls and (e) the company’s systems and procedures for compliance with applicable legal and regulatory requirements The audit & Risk committee provides advice to the Board and reports on the status and management of the risks to the company. The purpose of the committee’s risk management process is to ensure that risks are identified, assessed and appropriately managed. The Board has adopted a policy regarding the services that the company may obtain from its external auditor. It is the policy of the company that its: • external auditor firm must be independent of the company, the Directors and senior executives. To ensure this, the Group will require a formal confirmation for independence from its external auditor on an annual basis, and company that are perceived to be materially in conflict with the role of the external auditor. Services which involve the external auditor acting in a managerial or decision-making capacity, or processing or originating transactions, are not appropriate. However, the external auditor may be permitted to provide additional services, which are not perceived to be materially in conflict with the role of the external auditor, if the Board or audit & Risk committee has approved those additional services, or they fall within the terms of any approved policy. Such additional services may include financial audits, audits or reviews undertaken for regulatory purposes, completion audits, tax compliance, advice on accounting standards, and due diligence on certain acquisition or sale transactions. The committee must comprise at least three Directors, all of whom must be non-Executive Directors and a majority of whom must be independent. The chairman of the committee must be an independent non-Executive Director who is not the chairman of the Board. The committee will meet as often as is required to undertake its role effectively. The chief Executive Officer and chief Financial Officer are expected to attend each scheduled meeting of the committee and a standing invitation will be issued to the external auditors. The committee chairperson may also invite Directors who are not members of the committee, other senior managers and external advisors to attend meetings of the committee. The committee may request management and/or others to provide such input and advice as is required. The committee will regularly report to the Board about committee activities, issues and related recommendations. The audit & Risk committee charter is available on the FlexiGroup website. The committee comprises R John Skippen (chair), Margaret Jackson and Rajeev Dhawan. 41 aS aT 30 JUnE 2011 corporate Governance (continued) Remuneration Committee Code of Conduct The role of the Remuneration committee is to review and make recommendations to the Board on remuneration packages and policies related to the Directors, the chief Executive Officer and senior executives and to ensure that the remuneration policies and practices are consistent with the company’s strategic goals and human resource objectives and comply with relevant legal requirements. The committee will consist of at least three members. The company will endeavour to ensure that a majority of the members are independent, non-Executive Directors. The committee will meet as often as is required to perform its functions. The Remuneration committee charter is available on the FlexiGroup website. The committee comprises Rajeev Dhawan (chair), Margaret Jackson, R John Skippen and andrew abercrombie. Nomination Committee The committee assists and advises the Board on (a) Director selection and appointment practices (b) Director performance evaluation processes and criteria (c) Board composition (d) Succession planning for the Board and senior management The committee also ensures that the Board is of size and composition conducive to making decisions expediently, with the benefit of a variety of perspectives and skills, and in the best interests of the company as a whole. The committee will consist of at least three members. The company will endeavour to ensure that a majority of the committee members are independent, non-Executive Directors. The nomination committee charter is available on the FlexiGroup website. The committee comprises andrew abercrombie (chair), Margaret Jackson, R John Skippen and Rajeev Dhawan. The company has adopted a code of conduct. The code of conduct (“code”) sets out the ethical standards and rules of the company and provides a framework for how the company will operate its business in a manner that will protect its stakeholders. The code applies to all Directors, officers, employees, contractors, consultants and associates of the company. The code specifically covers conflicts of interest, corporate opportunities and other benefits, confidentiality, privacy, fair dealing, discrimination, protection of and use of the company’s assets and property, compliance with laws and regulations, approach to disclosure and financial reporting, insider trading and whistleblower protection. The code of conduct is available on the FlexiGroup website. Communications with Shareholders The company communicates with shareholders through the company’s annual reports, annual General Meeting, half–year and full-year results and company website. all announcements are made available on the website. During periods of particular sensitivity, the company’s policy is to avoid any discussion with shareholders, media, analysts or other market operators for thirty days prior to the close of the half and full-year accounting periods to the time of the half and full-year profit announcements. This policy is subordinate to the aSX requirements of continuous disclosure. Continuous disclosure The company Secretary has been nominated as the person responsible for communication with the australian Securities Exchange (“aSX”). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the aSX Listing Rules and overseeing and co-ordinating information disclosure to the aSX, analysts, brokers, shareholders, the media and the public. When analysts are briefed following half-year and full-year results announcements, the material used in the presentations is released to the aSX prior to the commencement of the briefing. The company ensures that if any price sensitive information is inadvertently disclosed, this information is also immediately released to the market. The company is committed to ensuring that all stakeholders and the market are provided with relevant and accurate information regarding its activities in a timely manner. 42 Directors and senior management dealings in Company securities The company’s constitution permits Directors to acquire securities in the company. However, the Board has adopted a Share Trading Policy that prohibits Directors, senior management and staff from dealing in the company’s securities at any time whilst in possession of price sensitive information which is not generally available to the marketplace. The following approvals must also be obtained before a Director or designated person can deal in the company’s securities: Person Chairman Approval required from chairman of the audit & Risk committee and chief Executive Officer Managing Director or Chief Executive Officer chairman Directors (except Chairman) chairman Chief Financial Officer or Company Secretary Direct reports to Chief Executive Officer and other designated persons nominated by the Board chief Executive Officer chief Financial Officer or company Secretary The share dealing policy also extends to dealing in a financial product which operates to limit the economic risk of a holding in the company’s securities. Dealing in those types of products is not permitted. The granting of approval to deal in the company’s securities is co-ordinated by the company Secretary who is also responsible for reporting to the Board all transactions by Directors, senior managers and designated persons. In accordance with the provisions of the Corporations Act 2001 and the aSX Listing Rules, the company advises the aSX of any transaction conducted by Directors in securities in the company. The Share Trading Policy is made available to employees through the company’s internal compliance and governance intranet sites and is also included in the offer of employment to new employees. The Share Trading Policy is also on the FlexiGroup website. FLEXIGROUP LIMITED FInancIaL REPORT 2011 External auditors Pricewaterhousecoopers was appointed as the external auditor in 2005. It is Pricewaterhousecoopers’ policy to rotate audit engagement partners on listed companies at least every five years. The performance of the external auditor is reviewed annually. an analysis of fees paid to the external auditor, including a break down of fees for the non-audit services, is provided in the notes to the full financial statements. It is the policy of the external auditor to provide an annual declaration of independence to the audit & Risk committee. The external auditors are required to attend the annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Indemnification The constitution of the company provides an indemnity (to the maximum extent permitted by law) in favour of current and past Directors, company Secretaries, and all other past and present executive officers when acting in their capacities in respect of: (a) all liabilities to another person (other than the company or related entities) if the relevant officers have acted in good faith, and (b) the costs and expenses of successfully defending legal proceedings Under Deeds of access and Indemnity, the company has agreed to indemnify each current Director and each company Secretary for all liabilities that may arise as a result of the Directors or company Secretary acting in that capacity to the full extent permitted by law. The deed stipulates that the company will meet the full amount of any such liabilities including legal costs. 43 30 JUnE 2011 annual Financial Statements Contents Financial Statements consolidated Income Statement consolidated Statement of comprehensive Income consolidated Balance Sheet consolidated Statement of changes in Equity consolidated Statement of cash Flows notes to the consolidated Financial Statements Directors’ Declaration Independent auditor’s Report to the members Page 44 45 46 47 48 49 50 97 98 These financial statements are the consolidated financial statements of the consolidated entity consisting of FlexiGroup Limited and its subsidiaries. The financial statements are presented in australian currency. FlexiGroup Limited is a company limited by shares, incorporated and domiciled in australia. Its registered office and principal place of business is: Level 8, The Forum 201 Pacific Highway St Leonards nSW 2065 a description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities in the Directors’ Report on page 16, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 5 august 2011. The Directors have the power to amend and reissue these financial statements. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at a minimum cost to the company. all press releases, financial statements and other information are available at Investor Information on our website: www.flexigroup.com.au 44 FOR THE YEaR EnDED 30 JUnE 2011 FLEXIGROUP LIMITED FInancIaL REPORT 2011 consolidated Income Statement Revenue from continuing operations Borrowing costs Employee benefits expense Impairment losses on loans and receivables administration expenses Depreciation and amortisation expenses communications and MIS expenses Marketing and travel expenses Profit before income tax Income tax benefit/(expense) Profit for the year Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share Consolidated 2011 $’000 2010 $’000 Notes 4 222,977 204,217 (52,134) (51,240) (50,240) (44,898) (23,179) (24,431) 5 5 (13,062) (6,183) (4,379) (4,010) 69,790 6 (18,030) 27(b) 51,760 (13,421) (5,382) (4,300) (4,116) 56,429 2,493 58,922 Cents Cents 36 36 19.6 18.8 24.8 23.8 The above consolidated income statement should be read in conjunction with the accompanying notes. 45 FOR THE YEaR EnDED 30 JUnE 2011 consolidated Statement of comprehensive Income Profit for the year Other comprehensive income Exchange differences on transition of foreign operations changes in the fair value of cash flow hedges Other comprehensive income for the year net of tax Total comprehensive income for the year Notes 27(a) 27(a) Consolidated 2011 $’000 2010 $’000 51,760 58,922 (1,105) (228) (1,333) (145) – (145) 50,427 58,777 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 46 aS aT 30 JUnE 2011 FLEXIGROUP LIMITED FInancIaL REPORT 2011 consolidated Balance Sheet Assets Current assets cash and cash equivalents Receivables customer loans Inventories current tax receivable Total current assets Non-current assets Receivables customer loans Plant and equipment Deferred tax assets Goodwill Other intangible assets Total non-current assets Total assets Liabilities Current liabilities Payables Borrowings current tax liability Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Derivative financial instruments Total non-current liabilities Total liabilities Net assets Equity contributed equity Reserves Retained profits Total equity Consolidated 2011 $’000 2010 $’000 Notes 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 55,994 229,574 74,844 215,116 175,603 144,606 258 – 977 19,179 461,429 454,722 221,704 110,152 3,385 8,419 79,876 17,492 191,485 70,037 3,682 8,801 79,876 14,851 441,028 368,732 902,457 823,454 29,686 40,944 324,494 292,847 11,357 3,782 – 3,206 369,319 336,997 265,626 249,987 33,638 30,233 470 228 609 – 299,962 280,829 669,281 617,826 233,176 205,628 26 76,645 74,984 27(a) 27(b) (402) (708) 156,933 131,352 233,176 205,628 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 47 FOR THE YEaR EnDED 30 JUnE 2011 consolidated Statement of changes in Equity Consolidated Balance at 1 July 2009 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Share based payments contributions of equity, net of transaction costs Dividends provided for or paid Balance at 30 June 2010 Balance at 1 July 2010 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Share based payments Transfer from share based payments on issue of shares under Long Term Incentive Plan Dividends provided for or paid Balance at 30 June 2011 Contributed Equity $’000 Reserves $’000 Retained Earnings $’000 Total $’000 35,262 (2,963) 86,780 119,079 – – – – 39,722 – – 58,922 58,922 (145) – (145) (145) 58,922 58,777 2,400 – – – – 2,400 39,722 (14,350) (14,350) 74,984 (708) 131,352 205,628 74,984 (708) 131,352 205,628 – – – – 1,661 – – 51,760 (1,333) – 51,760 (1,333) (1,333) 51,760 50,427 3,300 (1,661) – – 3,300 – – (26,179) (26,179) 76,645 (402) 156,933 233,176 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 48 FOR THE YEaR EnDED 30 JUnE 2011 FLEXIGROUP LIMITED FInancIaL REPORT 2011 consolidated Statement of cash Flows Consolidated 2011 $’000 2010 $’000 Notes Cash flows from operating activities Lease rentals received * customer loan repayments received * Bank interest received Other portfolio income and rental asset disposal proceeds * Payment to suppliers and employees * customer loans advanced Borrowing costs net increase in borrowings Loss reserve payments Taxation received/(paid) Net cash inflow provided from operating activities 31 Cash flows from investing activities Payments for purchase of software and plant and equipment Net cash (outflow) from investing activities Cash flows from financing activities Dividends paid Self funding of leases and loans Share capital raised – net of transaction costs Net cash (outflow) from financing activities net increase/(decrease) in cash and cash equivalents cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year Financing arrangements * Inclusive of GST 7 22 385,826 387,040 285,198 235,034 4,928 4,244 114,838 98,889 (395,237) (350,813) (321,513) (254,890) (52,134) (51,240) 32,861 14,425 18,026 87,218 767 (416) (15,232) 53,383 (8,794) (8,794) (6,417) (6,417) (26,179) (14,350) (71,030) (49,120) – 38,872 (97,209) (24,598) (18,785) 74,844 22,368 52,583 (65) (107) 55,994 74,844 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 49 aS aT 30 JUnE 2011 notes to the Financial Statements Contents 1 Summary of significant accounting policies 2 critical accounting estimates 3 Segment information 4 Revenue 5 Expenses 6 Income tax expense 7 cash and cash equivalents 8 current assets – Receivables 9 current assets – customer loans 10 current assets – Inventories 11 current assets – current tax receivable 12 non–current assets – Receivables 13 non-current assets – customer loans 14 non-current assets – Plant and equipment 15 non-current assets – Deferred tax assets 16 non-current assets – Goodwill 17 non-current assets – Intangible assets 18 current liabilities – Payables 19 current liabilities – Borrowings 20 current liabilities – current tax liabilities 21 current liabilities – Provisions 22 non-current liabilities – Borrowings 23 non-current liabilities – Deferred tax liabilities 24 non-current liabilities – Provisions 25 non-current liabilities – Derivative financial instruments 26 contributed equity 27 Reserves and retained profits 28 Dividends 29 Key Management Personnel disclosures 30 capital and leasing commitments 31 Reconciliation of profit after income tax to net cash inflow from operating activities 32 Subsidiaries 33 Related party transactions 34 Remuneration of auditors 35 contingencies 36 Earnings per share 37 Share-based payments 38 Financial risk management 39 Deed of cross Guarantee 40 Events occurring after the reporting period 41 Parent entity financial information 50 Page 51 60 61 62 62 63 64 64 64 65 65 65 65 66 67 67 68 68 69 69 69 70 72 72 72 73 75 76 77 80 80 81 81 82 82 83 84 88 94 96 96 FLEXIGROUP LIMITED FInancIaL REPORT 2011 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of FlexiGroup Limited and its subsidiaries. a. Basis of preparation These general purpose financial statements have been prepared in accordance with australian accounting Standards, other authoritative pronouncements of the australian accounting Standards Board, Urgent Issues Group (UIG) interpretations and the Corporations Act 2001. Compliance with IFRS The consolidated financial statements of FlexiGroup Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International accounting Standards Board (IaSB). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property plant and equipment and investment property. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement of complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. b. Principles of consolidation i. Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of FlexiGroup Limited (“company” or “parent entity”) as at 30 June 2011 and the results of all the subsidiaries for the year then ended. FlexiGroup Limited and its subsidiaries together are referred to in these financial statements as the Group or the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operational policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(h)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the individual financial statements of FlexiGroup Limited. ii. Employee Share Trust The consolidated entity utilises a trust to administer the consolidated entities employee share scheme. The trust is consolidated into the consolidated entity. c. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive management committee. d. Foreign currency translation i. Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘’the functional currency”). The consolidated financial statements are presented in australian dollars, which is FlexiGroup Limited’s functional and presentation currency. ii. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investments in foreign operations. Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs. all other foreign exchange gains and losses are presented in the income statement on a net basis within other income or other expenses. 51 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 1. Summary of significant accounting policies (continued) Revenue is recognised for the major business activities as follows: non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognised in other comprehensive income. iii. Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • • all resulting exchange differences are recognised in other comprehensive income On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange difference is recognised in the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. e. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. i. Lease finance interest revenue Lease finance interest revenue is recognised by applying discount rates implicit in the leases to lease balances receivable at the beginning of each payment period. Secondary lease income, including rental income on extended rental assets is recognised when it is due on an accruals basis. Proceeds from the sale of rental assets are recognised upon disposal of the relevant assets. Interest income on customer loans ii. Interest income on loans is recognised in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocation of the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. iii. Equipment protection plan revenue The Group operates an equipment protection and debt waiver plan entitled Protect Plan. Protect Plan revenue is recognised in the month it is due on an accruals basis. a provision for outstanding expected claims is recognised in the balance sheet for the cost of Protect Plan claims which have been incurred at year end, but have not yet been notified to the Group, or which have been notified to the Group but not yet paid. iv. Mobile broadband revenue Revenue relating to the sale of modems is recognised when the Group entity has delivered the goods to the dealer. Delivery does not occur until the products have been shipped to the specified location, the risks of obsolescence and loss have transferred to the dealer and the dealer has accepted the products. Revenue relating to the broadband contracts is recognised on an accruals basis over the life of the contract. v. Cheque guarantee revenue Revenue is recognised when the service associated with the guarantee has been provided on an accruals basis. all monthly fees are recognised in revenue in the month to which they relate. vi. Interest income – bank accounts/loss reserves Interest income on bank and loss reserve balances is recognised on an accruals basis. 52 FLEXIGROUP LIMITED FInancIaL REPORT 2011 f. Government grants Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all the attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in current liabilities as other payables and are credited to the income statement on a straight-line basis over the expected lives of the related assets. Income tax g. The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. an exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. no deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in 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. current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation legislation FlexiGroup Limited and its wholly-owned australian controlled entities have implemented the tax consolidation legislation. The head entity, FlexiGroup Limited, and the controlled entities in the tax consolidated group, account for their own current and deferred tax accounts. These tax amounts are measured as if each entity in the tax consolidation was a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, FlexiGroup Limited also recognises the current tax liabilities (assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidation group. assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in note 6. any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidation entities. h. Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. 53 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 1. Summary of significant accounting policies (continued) The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. contingent consideration is classified either as equity or a financial liability. amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. i. Lease receivables – Group is lessor The Group has classified its leases as finance leases for accounting purposes. Under a finance lease, substantially all the risks and benefits incidental to the ownership of the leased asset are transferred by the lessor to the lessee. The Group recognises at the beginning of the lease term an asset at an amount equal to the aggregate of the present value (discounted at the interest rate implicit in the lease) of the minimum lease payments and an estimate of the value of any unguaranteed residual value expected to accrue to the benefit of the Group at the end of the lease term. i. Unearned interest Unearned interest on leases and other receivables is brought to account over the life of the lease contract based on the interest rate implicit in the lease. ii. Initial direct transaction costs Initial direct costs (leases) or transaction costs (loans) incurred in the origination of leases and loans are included as part of receivables in the balance sheet and are amortised in the calculation of lease income and interest income. j. Loan receivables Loan receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides loans to customers via products such as personal loans and certegy Ezi-pay. k. Allowance for losses The collectability of lease and loan receivables is assessed on an ongoing basis. a provision is made for losses based on historical roll rates of arrears and the current delinquency position of the portfolio. l. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest rate method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. an allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the income statement. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. m. Leases – used by the Group Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property or the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. 54 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 30). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. iii. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. The Group had no assets in this category at 30 June 2011. In the event of the Group sub-leasing any of its operating leases, the lease income is recognised on a straight-line basis over the lease term. n. Cash and cash equivalents For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Investments o. The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each reporting period. i. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges. assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise they are classified as non-current. The Group had no assets in this category at 30 June 2011. ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivables. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date (notes 8, 9, 12 and 13). iv. Available-for-sale financial assets available-for-sale financial assets, comprising principally marketable equity securities, are non derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period. Investments are designated as available for sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term. The Group had no assets in this category at 30 June 2011. p. Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates all derivatives held as at 30 June 2011 as hedges of a particular risk associated with the cash flows of recognised assets and liabilities and 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. The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 25. Movements in the hedging reserve in shareholders’ equity are shown in note 27. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. 55 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 1. Summary of significant accounting policies (continued) 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 reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in profit or loss within “finance costs”. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in equity are reclassified from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of inventory, or as depreciation or impairment in the case of fixed assets. 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. q. Inventories i. Rental equipment Rental equipment is carried at the lower of cost and net realisable value and comprises returned rental equipment and items remaining on rental after the end of the contractual rental period. ii. Mobile broadband stock Mobile broadband stock is stated at the lower of cost and net realisable value. r. Plant and equipment Plant and equipment is 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 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. all repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. Depreciation is calculated using the diminishing value method to allocate their cost or revalue amounts, net of their residual values, over their estimated useful lives, as follows: Depreciable assets Plant and equipment Depreciation rate 20–40% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset disposed. These are included in the income statement. s. Intangibles i. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is 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. ii. Software costs incurred on software development projects (relating to the design and testing of new or improved software products) are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technical feasibility, and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including direct labour. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. capitalised development costs are recorded as an intangible asset and amortised from the point at which the asset is ready for use over its useful life, which is assessed at 2.5 to 5 years. 56 FLEXIGROUP LIMITED FInancIaL REPORT 2011 iii. Contractual payments for access rights Payments to dealers or dealer groups that result in the Group acquiring a preference to supply services are capitalised as intangible assets, and amortisation commences from the start of the supply service period. The carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate it might be impaired. The amount disclosed as the balance of access rights in note 17 is amortised over the period from april 2011 to april 2015. iv. Merchant relationships Merchant relationships acquired as part of a business combination are recognised separately from goodwill. The assets are measured at fair value at the date of acquisition less accumulated amortisation and impairment losses. amortisation is calculated based on the timing of the projected cash flows of the relationships, generally 5 years. v. Credit software credit software assets acquired as part of a business combination represent software to assist in the assessment of the credit worthiness of customers. The assets are measured at fair value at the date of acquisition less accumulated amortisation and impairment losses. amortisation is calculated based on the expected useful life of the software, generally 4 years. Impairment of assets t. 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 purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. u. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. v. Borrowings 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 income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. 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 balance sheet date. w. Borrowing costs Borrowing costs are expensed. x. Provisions Provisions for legal claims and service warranties are recognised when the Group has a present legal or constructive obligation as a result of past events if it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. a provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. 57 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 1. Summary of significant accounting policies (continued) y. Employee benefits i. Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating vesting sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. ii. 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 reporting date using the projected unit credit method. consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match as closely as possible the estimated future cash outflows. iii. Profit-sharing and bonus plans The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. iv. Share-based payments Share-based compensation benefits are provided to certain employees. Information relating to these schemes is set out in note 37. The fair value of such instruments is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the relevant party becomes unconditionally entitled to the instruments. Fair values at grant date are independently determined using a binomial tree option pricing methodology that takes into account the exercise price, the term of the options, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the options. The fair value of the instruments granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). non-market vesting conditions are included in assumptions about the number and value of instruments that are expected to become exercisable. The share-based payment expense recognised each period takes into account the most recent estimate. 58 Upon the exercise of instruments, the balance of the share- based payments reserve relating to those instruments is transferred to share capital and the proceeds received (if any), net of any directly attributable transaction costs, are credited to share capital. z. Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of FlexiGroup Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of FlexiGroup Limited. aa. Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date. ab. Earnings Per Share i. 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 ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. ii. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been used for no consideration in relation to dilutive potential ordinary shares. FLEXIGROUP LIMITED FInancIaL REPORT 2011 ac. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from taxation authorities. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. In the balance sheets receivables and payables are stated inclusive of the amount of GST receivable or payable, with the exception of lease receivables, which are shown net of GST on the rentals not yet due. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable, to the taxation authority are presented as operating cash flows. ad. Rounding of amounts The company is of a kind referred to in class Order 98/100, 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 class Order to the nearest thousand dollars. ae. Parent entity financial information The financial information for the parent entity, FlexiGroup Limited, disclosed in note 41 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries i Investments in subsidiaries are accounted for at cost less allowance for impairment in the financial statements of FlexiGroup Limited. ii Tax consolidation legislation FlexiGroup Limited and its wholly owned australian controlled entities have implemented the tax consolidation legislation. The head entity, FlexiGroup Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, FlexiGroup Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement as detailed in note 6 (c). af. New accounting standards certain new accounting standards have been published that are not mandatory for 30 June 2011 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 9 Financial Instruments, AASB 2009–11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010–7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1 January 2013) aaSB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated as at fair value through profit or loss and the Group does not have any such liabilities. (ii) Revised AASB 124 Related Party Disclosures and AASB 2009–12 Amendments to Australian Accounting Standards (effective for annual reporting periods beginning on or after 1 January 2011) In December 2009 the aaSB issued a revised aaSB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party. The Group will apply the amended standard from 1 July 2011. It is not expected to have any effect on the Group’s or the parent entity’s related party disclosures. (iii) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010–2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013) On 30 June 2010 the aaSB officially introduced a revised differential reporting framework in australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. FlexiGroup Limited is listed on the aSX and is therefore not eligible to adopt the new australian accounting Standards – Reduced Disclosure Requirements. as a consequence, the two standards will therefore have no impact on the financial statements of the Group. 59 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 1. Summary of significant accounting policies (continued) (iv) AASB 2010–3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project and AASB 2010–4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective for annual periods beginning on or after 1 July 2010/1 January 2011) In June 2010, the aaSB made a number of amendments to australian accounting Standards as a result of the IaSB’s annual improvements project. The Group does not expect that any material adjustments will be necessary as the result of applying the revised rules. 2. Critical accounting estimates Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. i. Estimation of unguaranteed residuals on leases The Group estimates the value of unguaranteed lease residuals based on its prior experience for similar contracts. ii. Allowance for losses The Group estimates losses incurred on its loans and lease receivables in accordance with the policy set out in note 1(k). iii. Assessment of impairment of goodwill and investment in subsidiaries Under the accounting standards, the Group is required to perform an annual assessment as to whether there has been any impairment of its goodwill. In addition, the Group is required to perform an impairment assessment of other assets in the event it identifies an indicator of impairment. Details of the basis of performance of the assessment is set out in note 16. iv. Fair value of financial instruments all derivatives are recognised and measured at fair value. The derivatives are valued using valuation techniques that utilize observable market inputs. The fair value of financial instruments is included within note 25. (v) IFRS 13 Fair Value Measurement (effective 1 January 2013) IFRS 13 was released in May 2011. The aaSB is expected to issue an equivalent australian standard shortly. IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures. The Group does not use fair value measurements extensively. It is therefore unlikely that the new rules will have a significant impact on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. at this stage, the Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. (vi) Revised IAS 1 Presentation of Financial Statements (effective 1 July 2012) In June 2011, the IaSB made an amendment to IaS 1 Presentation of Financial Statements. The aaSB is expected to make equivalent changes to aaSB 101 shortly. The amendment requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. It will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. The Group intends to adopt the new standard from 1 July 2012. (vii) AASB 2011–4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013) In July 2011 the aaSB decided to remove the individual key management personnel (KMP) disclosure requirements from aaSB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the corporations act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The corporations act requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future. 60 FLEXIGROUP LIMITED FInancIaL REPORT 2011 3. Segment information (a) Description of segments Management has determined the operating segments based on the reports reviewed by the executive management committee that are used to make strategic decisions. The committee considers the business from a product perspective and has identified two reportable segments; the core leasing business (principally Flexirent) and the interest-free loan business (certegy). The Group only operates predominantly in one geographical segment (australasia). (b) Segment information provided to the executive management committee The segment information provided to the executive management committee for the reportable segments for the year ended 30 June 2011 is as below. There are non-reportable components within the disclosed segments that are not removed as they are immaterial at the segment level. 2011 Revenue from continuing operations Borrowing costs Borrowing costs – vendor note Impairment losses on loans and receivables Operating expenditure amortisation of certegy intangibles and access rights Profit before income tax Income tax expense Statutory profit for the year amortisation of certegy intangibles and access rights Cash Net Profit After Tax Total segment assets 2010 Revenue from continuing operations Borrowing costs Borrowing costs – vendor note Impairment losses on loans and receivables Operating expenditure amortisation of certegy intangibles Profit before income tax Income tax benefit/(expense) Statutory profit for the year Leases Interest-free loans Total 162,630 60,347 222,977 (33,100) (17,534) (50,634) – (1,500) (1,500) (14,159) (9,020) (23,179) (63,977) (12,749) (76,726) (63) (1,085) (1,148) 51,331 18,459 69,790 (12,235) (5,795) (18,030) 39,096 12,664 51,760 63 1,085 1,148 39,159 13,749 52,908 573,188 329,269 902,457 Leases Interest-free loans Total 159,731 44,486 204,217 (36,451) (13,374) (49,825) – (1,415) (1,415) (15,402) (9,029) (24,431) (61,199) (9,833) (71,032) – (1,085) (1,085 ) 46,679 5,682 52,361 9,750 56,429 (3,189) 2,493 6,561 58,922 credit relating to the re-setting of the tax cost base of assets (18,400) – (18,400) amortisation of certegy intangibles Cash Net Profit After Tax – 33,961 1,085 7,646 1,085 41,607 Total segment assets 573,540 249,914 823,454 61 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 4. Revenue From continuing operations Gross interest and finance lease income amortisation of initial direct transaction costs (note 1(i) (ii)) Interest on leases and loan receivables Other portfolio income Other revenue Interest income – Banks Sundry income 5. Expenses Profit before income tax includes the following specific expenses: Depreciation – Plant and equipment amortisation – Software – Merchant relationships – credit software – access rights Total depreciation and amortisation expenses Bad debts written off Movement in allowance for losses Losses on loans and receivables Rental expense relating to operating leases: – Minimum lease payments 62 Consolidated 2011 $’000 2010 $’000 157,337 148,474 (31,883) (28,103) 125,454 120,371 84,610 77,439 4,928 7,985 4,244 2,163 222,977 204,217 Consolidated 2011 $’000 2010 $’000 1,375 1,512 3,660 2,785 860 225 63 860 225 – 6,183 5,382 22,285 894 23,179 25,114 (683) 24,431 2,721 2,721 2,693 2,693 FLEXIGROUP LIMITED FInancIaL REPORT 2011 6. Income tax expense (a) Income tax expense/(benefit) current tax Deferred tax Over provision in prior years credit relating to re-setting of tax cost base of assets Income tax expense is attributable to: Profit from continuing operations aggregate income tax (benefit)/expense Deferred income tax (revenue) expense included in income tax expense comprises: Decrease/(increase) in deferred tax assets (note 15) (Decrease)/increase in deferred tax liabilities (note 23) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax Tax at the australian tax rate of 30% Tax effect of amounts which are not deductible (taxable) in calculating taxable income: amortisation of intangibles Sundry items (Over)/under provision in prior years credit relating to re-setting of tax cost base of assets Consolidated 2011 $’000 2010 $’000 17,461 3,787 13,218 3,785 (1,312) (1,096) (1,906) (18,400) 18,030 (2,493) 18,030 18,030 (2,493) (2,493) 382 3,405 3,787 (978) 4,763 3,785 69,790 20,937 56,429 16,929 258 53 258 (184) 21,248 17,003 (1,312) (1,096) (1,906) (18,400) 18,030 (2,493) (c) Tax consolidation legislation FlexiGroup Limited and its wholly-owned australian controlled entities implemented the tax consolidation legislation from December 2006. The accounting policy on implementation of the legislation is set out in note 1(g). On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing- agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, FlexiGroup Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate FlexiGroup Limited for any current tax payable assumed and are compensated by FlexiGroup Limited for any current tax receivable and deferred tax assets relating to the unused tax losses or unused tax credits that are transferred to FlexiGroup Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity which is issued as soon as practicable after the end of the financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current inter-company receivables. 63 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 7. Cash and cash equivalents cash at bank and on hand Reconciliation to cash at the end of the year The above figures reconcile to cash at the end of the financial year, as shown in the statement of cash flows, as follows: Balances as above Balances per statement of cash flows Consolidated 2011 $’000 2010 $’000 55,994 74,844 55,994 55,994 74,844 74,844 The weighted average interest rate on this balance is 4.14% (2010: 4.11%). Included in cash at bank are amounts of $29.9 million (2010: $25.2 million) which are held as part of the Group’s funding arrangements and are not available to the Group. Risk exposure The Group’s exposure to interest rate risk is discussed in note 38. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above. 8. Current assets – Receivables Lease receivables Gross rental receivables* Guaranteed residuals Unguaranteed residuals Unearned income Unamortised initial direct transaction costs net lease receivables allowance for losses Other debtors 9. Current assets – Customer loans Loan receivables* allowance for losses Consolidated 2011 $’000 2010 $’000 292,256 273,195 435 2,089 570 2,962 (89,836) (82,886) 24,493 229,437 23,858 217,699 (5,304) (4,994) 224,133 212,705 5,441 229,574 2,411 215,116 Consolidated 2011 $’000 2010 $’000 178,005 147,376 (2,402) (2,770) 175,603 144,606 * Refer to note 38 for disclosure of impaired lease and loan receivables, past due but not impaired receivables and the fair value of receivables. Risk exposure Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 38. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivable mentioned in note 38. 64 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Consolidated 2011 $’000 26 202 30 258 2010 $’000 46 374 557 977 Consolidated 2011 $’000 – 2010 $’000 19,179 Consolidated 2011 $’000 2010 $’000 251,367 217,225 3,149 9,529 1,710 2,597 (51,289) (41,376) 13,651 15,253 226,407 195,409 (4,703) (3,924) 221,704 191,485 Consolidated 2011 $’000 111,688 (1,536) 2010 $’000 71,401 (1,364) 110,152 70,037 10. Current assets – Inventories Returned rental equipment Extended rental assets Mobile broadband stock 11. Current assets – Current tax receivable Income tax receivable 12. Non-current assets – Receivables Lease receivables Gross rental receivables* Guaranteed residuals Unguaranteed residuals Unearned income Unamortised initial direct transaction costs net lease receivables allowance for losses 13. Non-current assets – Customer loans Loan receivables* allowance for losses * Refer to note 38 for disclosure of impaired lease and loan receivables, past due but not impaired receivables and the fair value of receivables. Risk exposure Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 38. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivable mentioned in note 38. 65 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 14. Non-current assets – Plant and equipment Plant and equipment Year ended 30 June 2010 Opening net book amount Exchange differences additions Disposals Depreciation charge closing net book amount At 30 June 2010 cost accumulated depreciation net book amount Year ended 30 June 2011 Opening net book amount Exchange differences additions Disposals Depreciation charge closing net book amount At 30 June 2011 cost accumulated depreciation net book amount 66 Consolidated $’000 4,192 5 1,278 (281) (1,512) 3,682 7,834 (4,152) 3,682 3,682 (3) 1,248 (167) (1,375) 3,385 8,454 (5,069) 3,385 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Consolidated 2011 $’000 2010 $’000 3,789 2,499 1,851 – 280 8,419 8,801 (382) – 8,419 6,159 2,260 8,419 3,530 2,148 2,242 507 374 8,801 7,356 978 467 8,801 6,400 2,401 8,801 Consolidated 2011 $’000 2010 $’000 50,159 29,717 79,876 50,159 29,717 79,876 15. Non-current assets – Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Doubtful debts Employee entitlements Provisions IPO expenses capital raising costs Total deferred tax assets Movements Opening balance at 1 July credited/(charged) to the income statement capital raising costs credited directly to equity closing balance at 30 June Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months 16. Non-current assets – Goodwill Goodwill Goodwill has been allocated to the following cGUs Leases Interest-free loans Total goodwill at 30 June The Group is required to test the balance of goodwill annually for impairment. Impairment would arise if the recoverable amount of the goodwill were lower than its carrying amount. The recoverable amount of the goodwill for this purpose is the higher of its value in use or its fair value. currently the Group performs this assessment based on fair value calculations. The Group refers to the share price of the company as traded on the australian Securities Exchange to assess the fair value calculation. Based on recent trading in the Group’s shares, no impairment arises. The recoverable amount of each cGU is determined based on the future cash flow projection discounted by the Group’s after tax return on equity rate of 15% (2010: 15%) adjusted to a pre-tax rate. all future cash flows are based on approved two (2010: two) year budgets. Whilst the budget assumes certain economic conditions , the forecast is not reliant on one particular assumption. These business forecasts applied by management are considered appropriate as they are based on past experience and are consistent with observable current market information. The growth rates after 2012 are assumed to be zero for all cGUs for the purpose of goodwill impairment testing. 67 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 17. Non-current assets – Intangible assets Software Balance at 1 July additions Exchange differences Disposals amortisation charge Balance at 30 June Access rights Balance at 1 July (note 1(s)(iii)) amortisation charge Balance at 30 June Merchant relationships Balance at 1 July amortisation charge Balance at 30 June Credit software Balance at 1 July amortisation charge Balance at 30 June 18. Current liabilities – Payables Trade payables Other payables Risk exposure Information about the Group’s exposure to foreign exchange risk is provided in note 38. 68 Consolidated 2011 $’000 2010 $’000 10,459 7,546 (15) (82) (3,660) 14,248 8,976 5,139 30 (901) (2,785) 10,459 1,000 1,000 (63) 937 – 1,000 2,867 (860) 2,007 525 (225) 300 3,727 (860) 2,867 750 (225) 525 17,492 14,851 Consolidated 2011 $’000 25,515 4,171 2010 $’000 33,998 6,946 29,686 40,944 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Consolidated 2011 $’000 2010 $’000 333,083 326,455 333,083 326,455 15,000 15,000 – – (23,589) (33,608) 324,494 292,847 19. Current liabilities – Borrowings Secured Loan advances – secured Total secured current borrowings Unsecured Vendor note Total unsecured current borrowings Loss reserve Total current borrowings Assets pledged as security The loans are secured by rentals and payments receivable in respect of the underlying lease and loan receivable contracts. Under the terms of the funding arrangements, some of the funders retain a part of the gross amount funded as security against credit losses on the underlying leases. This amount is referred to as a loss reserve and represents a reduction in the amount borrowed. Risk exposure Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 38. 20. Current liabilities – Current tax liabilities Income tax 21. Current liabilities – Provisions Protect plan provision carrying amount at beginning of the year (Release of provision)/provisions made during the year carrying amount at end of the year Employee benefits annual leave provision Long service leave provision For a description of the nature of the protect plan provision refer to note 1(e)(iii)). Consolidated 2011 $’000 11,357 2010 $’000 – Consolidated 2011 $’000 2010 $’000 801 (15) 786 2,467 529 3,782 700 101 801 2,108 297 3,206 69 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 22. Non-current liabilities – Borrowings Secured Loan advances – secured Total secured non-current borrowings Unsecured Vendor note Total unsecured non-current borrowings Loss reserve Total non-current borrowings Refer to note 19 for detail on assets pledged as security. Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Total loan facilities available Loan facilities used at balance date Loan facilities unused at balance date Consolidated 2011 $’000 2010 $’000 277,299 277,299 251,066 251,066 – – 15,000 15,000 (11,673) (16,079) 265,626 249,987 Consolidated 2011 $’000 2010 $’000 872,600 604,422 (625,382) (592,521) 247,218 11,901 70 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Loan advances $’000 253,741 Loss reserve $’000 Net borrowings $’000 – 253,741 183,511 (23,589) 159,922 156,337 (9,041) 147,296 30,287 (2,294) 27,993 1,279 227 (287) (51) 992 176 625,382 (35,262) 590,120 Loan Advances $’000 122,878 Loss Reserve $’000 Net Borrowings $’000 – 122,878 241,817 (33,608) 208,209 122,185 (13,199) 108,986 104,479 (2,595) 101,884 1,076 86 (263) (22) 813 64 592,521 (49,687) 542,834 Borrowings (current and non-current) maturity analysis: 2011 Floating rate Fixed rate 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Over 4 to 5 years Total 2010 Floating rate Fixed rate 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Over 4 to 5 years Total Risk exposures Information about the Group’s exposure to interest rate and foreign currency changes is provided in note 38. 71 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 23. Non-current liabilities – Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Difference between lease principal to be returned as assessable income and depreciation on leased assets to be claimed as a tax deduction Initial direct transaction costs Movements: Opening balance at 1 July charged/(credited) to the income statement closing balance 30 June Deferred tax liabilities Deferred tax liabilities to be settled within 12 months Deferred tax liabilities to be settled after more than 12 months 24. Non-current liabilities – Provisions Employee benefits – long service leave 25. Non-current liabilities – Derivative financial instruments Interest rate swap contracts – cash flow hedges Consolidated 2011 $’000 2010 $’000 23,011 10,627 33,638 30,233 3,405 33,638 19,288 10,945 30,233 25,470 4,763 30,233 33,638 30,233 19,775 13,863 33,638 17,991 12,242 30,233 Consolidated 2011 $’000 470 2010 $’000 609 Consolidated 2011 $’000 228 2010 $’000 – Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Group’s financial risk management policies (refer to note 38). Interest rate swap contracts – cash flow hedges It is policy to protect part of the loans from exposure to increasing interest rates. accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Swaps currently in place cover approximately 69% (2010 – $nil) of the variable loan principal outstanding and are timed to expire as each loan repayment falls due. The contracts require settlement of net interest receivable or payable monthly. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis. The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income and deferred in equity in the hedging reserve, to the extent that the hedge is effective. It is reclassified into profit or loss when the hedged interest expense is recognised. In the year ended 30 June 2011 no losses were reclassified into profit or loss (2010 – $nil) and included in finance costs. There was no hedge ineffectiveness in the current or prior year. Risk exposures and fair value measurements Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk and about the methods and assumptions used in determining fair values is provided in note 38. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of derivative financial liabilities mentioned above. 72 FLEXIGROUP LIMITED FInancIaL REPORT 2011 26. Contributed equity (a) Share capital Ordinary shares – fully paid (b) Movement in ordinary share capital 1 July 2009 – ordinary shares 15 September 2009 – issue of shares to employees 4 March 2010 – shares issued under Institutional Placement Parent entity 2011 shares 2010 shares 264,380,173 259,870,664 Consolidated entity Number of shares $’000 227,947,728 35,262 273,462 383 (g) 11,718,750 15,000 31 March 2010 – shares issued under Rights Issue (h) 19,930,724 Transaction costs arising on share issues Deferred tax credit recognised directly in equity 30 June 2010 balance 14 September 2010 – Issue of shares to Executives under FlexiGroup Long Term Incentive Plan 14 January 2011 – Issue of shares to Executives under FlexiGroup Long Term Incentive Plan 1 June 2011 – Issue of shares to Executives under FlexiGroup Long Term Incentive Plan 30 June 2011 balance 25,511 (1,639) 467 – – 259,870,664 74,984 4,084,328 1,389 190,000 235,181 192 80 264,380,173 76,645 (c) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in persons or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (d) Options, performance rights and deferred shares Information relating to the FlexiGroup Employee Options, Performance Rights Plan and Deferred Share Plan, including details of options, performance rights and deferred shares issued, exercised and lapsed during the financial year, and options, performance rights and deferred shares outstanding at the end of the financial year, is set out in note 37. 73 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) (e) Treasury shares Treasury shares are shares in FlexiGroup Limited that are held by the FlexiGroup Tax Deferred Employee Share Plan Trust for the purposes of issuing shares under the FlexiGroup Long Term Incentive Plan (see note 37 for further information). Date Details Balance at 30 June 2009 and 30 June 2010 Opening Balance 15 September 2010 8 June 2011 acquisition of shares by the Trust acquisition of shares by the Trust Number of shares 10,947,500 570,000 394,500 $’000 3,564 872 832 Balance at 30 June 2011 Closing Balance 11,912,000 5,268 (f) Capital risk management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. consistent with others in the industry, the Group monitors capital on the basis of its gearing ratio. In order to maintain or adjust its capital structure, the Group considers its issue of new capital, return of capital to shareholders and dividend policy as well as its plans for acquisition or disposal of assets. (g) Institutional Placement On 23 February 2010, the company announced it was to undertake a placement of 11,718,750 ordinary shares to institutional and sophisticated investors at a fixed price of $1.28 per share. The placement was completed on 24 February 2010, with the shares issued on 4 March 2010. (h) Rights Issue On 23 February 2010, the company announced a rights issue of 1 fully paid ordinary share for every 12 ordinary shares held, at an issue price of $1.28. The rights issue was successfully closed on 26 March 2010, with a total of 19,930,724 shares issued on 31 March 2010. 74 FLEXIGROUP LIMITED FInancIaL REPORT 2011 27. Reserves and retained profits (a) Reserves Share-based payment reserve (note 1 y(iv)) Foreign currency translation reserve (note 1 d(ii)) cash flow hedges (note 25) Movements: Share-based payments reserve Balance at 1 July Transfer from share-based payments on issue of shares under Long Term Incentive Plan Share-based payments expense for the year Balance at 30 June Movements: Foreign currency translation reserve Balance at 1 July currency translation differences arising during the year Balance at 30 June Movements: Cash flow hedges Balance at 1 July Revaluation – gross Balance at 30 June (b) Retained profits Movements in retained profits were as follows: Balance at 1 July net profit for the year Dividends Balance at 30 June Consolidated 2011 $’000 2010 $’000 1,189 (1,363) (228) (402) (450) (1,661) 3,300 1,189 (258) (1,105) (1,363) – (228) (228) (450) (258) – (708) (2,850) – 2,400 (450) (113) (145) (258) – – – 131,352 51,760 86,780 58,922 (26,179) (14,350) 156,933 131,352 (c) Nature and purpose of reserves i. Foreign currency translation reserve Foreign currency translation of the foreign controlled entities is taken to the foreign currency translation reserve as described in note 1(d). The reserve is recognised in profit and loss when the net investment is disposed of. ii. Share-based payment reserve The Share-based payment reserve is used to recognise: • • • other share-based payment transactions 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 iii. 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 as described in note 1(p). amounts are reclassified to profit or loss when the associated hedge transaction affects profit or loss. 75 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 28. Dividends (a) Ordinary shares Final dividend for the year ended 30 June 2010 of 4.5 cents (2010: 3 cents) per fully paid share paid on 15 October 2010 (2010: 15 October 2009) Fully franked based on tax paid @ 30% – 4.5 cents (2010: 3 cents) per share 12,396 7,175 Parent entity 2011 $’000 2010 $’000 Interim dividend for the year ended 30 June 2011 of 5 cents (2010: 3 cents) per fully paid share paid 15 april 2011 (2010: 15 april 2010) Fully franked based on tax paid @ 30% – 5 cents (2010: 3 cents) per share (b) Dividends not recognised at year end In addition to the above dividends, since the year end the Directors have recommended the payment of a final dividend of 5.5 cents per fully paid ordinary share (2010: 4.5 cents), fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 13 October 2011 out of retained profits as at 30 June 2011 but not recognised as a liability at year end is 13,783 26,179 7,175 14,350 15,196 15,196 12,187 12,187 (c) Franked dividends Franking credits available for subsequent financial years based on a tax rate of 30% (2010: 30%) Consolidated Parent entity 2011 $’000 2010 $’000 2011 $’000 2010 $’000 3,736 8,219 3,736 8,219 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of the amount of the provision for income tax (b) franking debits that will arise from the payment of dividends recognised as liability at the reporting date, and (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The impact on the franking account of the dividend recommended by the Directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of 6,512,601 (2010: 5,222,922). 76 FLEXIGROUP LIMITED FInancIaL REPORT 2011 29. Key Management Personnel disclosures a. Directors The following persons were Directors of FlexiGroup Limited during the financial year: M Jackson J DeLano a abercrombie R J Skippen R Dhawan (chairman – non-Executive Director) (Executive Director) (non-Executive Director) (non-Executive Director) (non-Executive Director) b. Other Key Management Personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group during the financial year: J DeLano G McLennan n Roberts D Klotz P Laughton chief Executive Officer Flexirent capital Pty Ltd chief Financial Officer Flexirent capital Pty Ltd Head of national Sales Flexirent capital Pty Ltd Head of Operations Flexirent capital Pty Ltd chief Information Officer Flexirent capital Pty Ltd all of the above persons were also Key Management Persons during the year ended 30 June 2010. c. Key Management Personnel Compensation Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Consolidated 2011 $ 2010 $ 3,663,187 3,543,091 177,810 32,815 181,671 24,112 1,191,153 1,829,121 5,064,965 5,577,995 Detailed remuneration disclosures are provided in sections a–E of the Remuneration Report on pages 19–37. 77 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 29. Key Management Personnel disclosures (continued) d. Equity instrument disclosures relating to Directors and Key Management Personnel i. Options, performance rights and deferred shares holdings 2011 Name J DeLano (chief Executive Officer) Balance at start of year Granted as compensation Exercised Other changes Balance at end of year Vested and exercisable * Unvested 19,902,855 – – (650,393) 19,252,462 11,297,148 7,955,314 Other Key Management Personnel G McLennan n Roberts D Klotz P Laughton 1,363,672 1,100,000 (727,455) – 1,736,217 – 1,736,217 1,883,890 350,000 (702,795) (535,649) 995,446 70,446 925,000 2,194,459 1,000,000 (773,241) – 2,421,218 746,218 1,675,000 1,612,801 550,000 (773,241) (8,561) 1,380,999 255,999 1,125,000 * Options granted over 7,046,753 shares by former shareholders of Flexirent Holdings Pty Limited in favour of John DeLano of the company are not dilutive as the shares have already been issued. 2010 Name Balance at start of year Granted as compensation Exercised Other changes Balance at end of year Vested and exercisable Unvested J DeLano (chief Executive Officer) 21,743,460 Other Key Management Personnel G McLennan n Roberts D Klotz P Laughton 1,400,000 2,677,086 2,729,200 1,772,336 – – – – – – (1,840,605) 19,902,855 – 19,902,855 – – – – (36,328) 1,363,672 (793,196) 1,883,890 (534,741) 2,194,459 (159,535) 1,612,801 – – – – 1,363,672 1,883,890 2,194,459 1,612,801 78 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Received during the year on the exercise of performance rights and start of year retention rights Balance at Other changes during the year Balance at end of year 3,126,012 81,263,302 889,099 410,078 4,028,461 – – – – – – 3,126,012 – 81,263,302 – – 889,099 410,078 – 4,028,461 – 727,455 (727,455) – 586,817 702,795 (249,455) 1,040,157 1,095,811 773,241 (1,443,098) 425,954 298,500 773,241 – 1,071,741 Received during the year on the exercise of options Balance at start of year Other changes during the year Balance at end of year 2,880,549 75,012,278 820,706 378,533 3,141,656 – 969,817 1,095,000 298,500 – – – – – – – – – 245,463 3,126,012 6,251,024 81,263,302 68,393 889,099 31,545 410,078 886,805 4,028,461 – – (383,000) 586,817 811 1,095,811 – 298,500 ii. Share holdings 2011 Name Non-Executive Directors M Jackson (chairman) a abercrombie R Dhawan RJ Skippen Executive Director J DeLano (chief Executive Officer) Other Key Management Personnel G McLennan n Roberts D Klotz P Laughton 2010 Name Non-Executive Directors M Jackson (chairman) a abercrombie R Dhawan RJ Skippen Executive Director J DeLano (chief Executive Officer) Other Key Management Personnel G McLennan n Roberts D Klotz P Laughton e. Other transactions with related parties Flexirent capital Pty Limited has rented premises in Melbourne owned by entities associated with Mr a abercrombie. The rental arrangements for the Melbourne premises are based on market terms. Rental of Sydney and Melbourne premises Consolidated 2011 $ 2010 $ 163,791 163,383 79 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 30. Capital and leasing commitments Operating lease commitments non-cancellable operating leases contracted for but not capitalised in the financial statements due: – within one year – later than one year but not later than five years Sub lease payments Future minimum lease payments expected to be received in relation to non-cancellable sub-leases of operating leases 31. Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year Share-based payments Depreciation and amortisation Self funding of loans, leases and lease periods Movement in impairment provisions Other non-cash movements Consolidated 2011 $’000 2010 $’000 2,628 5,566 8,194 2,464 7,096 9,560 1,469 1,824 Consolidated 2011 $’000 51,760 3,300 6,183 71,030 894 (774) 2010 $’000 58,922 2,783 5,382 49,120 (683) 1,108 net cash inflow from operating activities before change in assets and liabilities 132,393 116,632 Change in operating assets and liabilities: (Increase)/Decrease in other receivables (Increase)/Decrease in net lease and loan receivables (Increase)/Decrease in residuals (Decrease)/Increase in funder loans (Increase)/Decrease in loss reserve (Decrease)/Increase in trade and other creditors (Increase)/Decrease in inventories (Decrease)/Increase in provisions (Increase)/Decrease in capitalised initial direct transaction costs (Decrease)/Increase in current tax payable (Decrease)/Increase in deferred tax liabilities (Increase)/Decrease in deferred tax assets Net cash inflow from operating activities (3,030) 1,389 (107,256) (58,844) (7,363) 6,253 32,861 14,425 (11,258) 719 437 967 767 (416) 11,565 4,042 176 (8,411) 30,536 (23,555) 3,405 382 87,218 4,763 (978) 53,383 80 FLEXIGROUP LIMITED FInancIaL REPORT 2011 32. Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Country of incorporation Percentage of shares held FlexiGroup Subco Pty Limited Flexirent Holdings Pty Limited Flexirent capital Pty Limited Flexirent SPV no 1 Pty Limited Flexirent SPV no 2 Pty Limited Flexirent SPV no 3 Pty Limited Flexirent SPV no 4 Pty Limited Flexicare claims Management Pty Limited Flexirent SPV no 6 Pty Limited Subfinco Pty Limited certegy Ezi-Pay Pty Ltd (formerly Subopco Pty Limited) FlexiGroup Tax Deferred Employee Share Plan Trust FlexiGroup Management Pty Limited (formerly FlexiGroup assets Holding Pty Limited) FlexiGroup new Zealand Limited (formerly Flexirent capital (new Zealand) Limited) Flexirent Ireland Group Holdings Limited Flexirent Ireland Limited Flexirent SPV no 7 Pty Limited Flexi aBS Trust 2010–1 Flexi aBS Trust 2010–2 Flexi aBS Trust 2011–1 FlexiGroup nZ SPV1 Limited 33. Related party transactions a. Parent entity The parent entity of the Group is FlexiGroup Limited. b. Subsidiaries Interests in subsidiaries are set out in note 32. australia australia australia australia australia australia australia australia australia australia australia australia 2011 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2010 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% australia 100% 100% new Zealand Ireland Ireland australia australia australia australia new Zealand 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – – – Key Management Personnel compensation Disclosures relating to Key Management Personnel are set out in note 29. Transactions with related parties There were no transactions between the Group and related parties other than those disclosed in note 29(e). 81 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 34. Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity and its related parties: a. Audit and audit-related services Audit Services Pwc australian firm: audit and review of financial statements Related practices of Pwc australian firm Audit-related services Pwc australian firm: Other assurance services and due diligence Total remuneration for audit and audit-related services b. Non-audit services Other services Pwc australian firm: advisory services Taxation services Pwc australian firm: Tax compliance services Consolidated 2011 $ 2010 $ 420,000 360,000 19,000 19,000 294,622 425,243 733,622 804,243 119,191 145,843 48,580 39,800 Tax advice on transactions, new operations and finalisation of tax cost base re-setting 266,299 466,086 Related practices of Pwc australian firm Total remuneration for taxation services Total remuneration for non-audit services Total remuneration of PwC 14,558 329,437 25,274 531,160 448,628 677,003 1,182,250 1,481,246 It is the Group’s policy to employ Pwc on assignments additional to its statutory audit duties where Pwc’s expertise and experience with the Group are important. These assignments are principally tax advice and due diligence reporting on acquisitions, or where Pwc is awarded assignments on a competitive basis. 35. Contingencies Contingent liabilities There are no material contingent liabilities at the date of this report. 82 FLEXIGROUP LIMITED FInancIaL REPORT 2011 36. Earnings per share a. Basic earnings per share From continuing operations attributable to the ordinary equity holders of the company Total basic earnings per share attributable to the ordinary equity holders of the company b. Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the company Total diluted earnings per share attributable to the ordinary equity holders of the company c. Reconciliations of earnings used in calculating earnings per share Basic earnings per share Profit from continuing operations Profit from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share Profit attributable to the ordinary equity shareholders of the company used in calculating basic earnings per share Diluted earnings per share Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share Profit attributable to the ordinary equity holders of the company used in calculating diluted earnings per share Consolidated 2011 Cents 2010 Cents 19.6 19.6 18.8 18.8 24.8 24.8 23.8 23.8 Consolidated 2011 $ 2010 $ 51,760 58,922 51,760 58,922 51,760 58,922 51,760 58,922 51,760 58,922 Consolidated 2011 Number 2010 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share adjustments for calculation of diluted earnings per share: Options and performance rights and deferred shares Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 264,620,320 237,812,669 10,920,991 9,402,537 275,541,311 247,215,206 83 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 36. Earnings per share (continued) Information concerning the classification of securities Options Options, performance rights and deferred (treasury) shares granted to employees under the FlexiGroup Tax Deferred Employee Share Plan Trust are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options, performance rights and deferred (treasury) shares have not been included in the determination of basic earnings per share. Details relating to the options, performance rights and deferred (treasury) shares, are set out in note 37. 37. Share-based payments a. Long Term Incentive Plan The establishment of the FlexiGroup Long Term Incentive Plan (“LTIP”) was approved by the founding shareholders on 20 november 2006. The LTIP is designed to provide relevant employees with an incentive for future performance, with conditions for the vesting and exercise of options, performance rights and deferred shares under the LTIP, encouraging those executives to remain with FlexiGroup and contribute to the future performance of the company. Under the plan, participants are granted either an option, right or deferred shares which only vests if certain performance standards are met. The Board may determine which persons will be eligible to participate in the LTIP from time to time. Eligible persons may be invited to apply to participate in the LTIP. The Board may in its discretion accept such applications. 84 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Summaries of options, performance rights and deferred shares granted under the plan: 2011 Grant date Expiry date Exercise price Consolidated and parent entity – 2011 Balance at start of the period Number Granted during the period Number Exercised during the period Number Forfeited during the period Number Balance at end of the period Number Vested and exercisable at the end of the period Number 27/11/08 2/12/18 $0.00 1,960,000 23/12/08 23/12/18 $0.00 7,500,000 $0.00 1,613,672 8/12/06 19/4/07 31/8/07 2/10/07 29/11/07 28/12/07 16/1/08 3/4/08 1/10/08 31/12/11 31/12/12 31/12/11 31/12/12 31/12/12 31/12/13 31/12/11 31/12/12 31/12/12 31/12/12 31/12/13 31/12/11 31/12/12 31/12/12 31/12/13 31/12/12 31/12/13 17/2/09 31/3/09 29/4/09 29/6/09 1/11/09 1/1/10 30/6/10 15/9/10 15/9/10 8/6/11 14/6/11 14/6/11 Total 31/12/12 29/6/19 31/12/13 31/12/14 29/6/19 31/12/14 31/12/12 31/12/13 31/12/14 31/12/14 15/9/17 8/6/18 31/12/14 31/12/15 31/12/16 31/12/16 $1.98** 11,861,518 $2.91** 746,218 $2.51** 283,346 $2.47** 137,058 $0.00 2,174,820 $1.93** 11,518 $1.57** 31,942 – – – – – – – – – – – – – – 471,746* 12,333,264 12,333,264 – 746,218 746,218 (32,251) 251,095 – – 137,058 137,058 (1,719,506)* 455,314 – – 11,518 – – 31,942 31,942 $0.00 3,724,014 – (2,887,059) (7,259) 829,696 70,446 $0.00 780,819 $0.00 450,000 $0.00 200,000 $0.00 1,037,500 $0.00 655,000 $0.00 407,500 65,000 $0.00 $0.00 $0.00 $0.00 $0.00 $2.11 – 3,320,000 – – 570,000 394,500 – 1,271,500 – 3,220,500 – – – – – – – – – – (1,132,455) (145,000) 336,217 – – (75,000) 1,885,000 – 7,500,000 (300,000) – – – – – – – – 480,819 450,000 200,000 1,037,500 (50,000) 605,000 (190,000) (10,000) 207,500 – – – – – – – 65,000 – 3,320,000 (40,000) 530,000 – 394,500 – 1,271,500 – 3,220,500 – – – – – – – – – – – – – – – 33,639,925 8,776,500 (4,509,514) (1,607,270) 36,299,641 13,318,928 Weighted average exercise price $0.80 $0.77 $0.95 * ** There was a net adjustment of 471,746 options/rights between plans during the 2011 year. This has been adjusted in the forfeited column above. Options issued prior to February 2010, exercise prices have been adjusted to reflect the impact of the 2010 capital raising in accordance with section 9 of the FlexiGroup Long Term Incentive Plan. 85 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 37. Share-based payments (continued) 2010 Grant date Expiry date Exercise price Consolidated and parent entity – 2010 Balance at start of the period Number Granted during the period Number Exercised during the period Number Forfeited during the period Number Balance at end of the period Number Vested and exercisable at the end of the period Number 8/12/06 19/4/07 31/8/07 2/10/07 29/11/07 28/12/07 16/1/08 3/4/08 1/10/08 31/12/11 31/12/12 31/12/11 31/12/12 31/12/12 31/12/13 31/12/11 31/12/12 31/12/12 31/12/12 31/12/13 31/12/11 31/12/12 31/12/12 31/12/13 31/12/12 31/12/13 $2.00 14,841,567 $2.93 1,307,600 $2.53 379,278 $2.49 163,450 $0.00 2,174,820 $1.95 14,400 $1.59 46,700 $0.00 3,724,014 $0.00 1,700,000 27/11/08 2/12/18 $0.00 1,960,000 23/12/08 23/12/18 $0.00 7,500,000 17/2/09 31/3/09 29/4/09 29/6/09 1/11/09 1/1/10 30/6/10 Total 31/12/12 29/6/19 31/12/13 31/12/14 29/6/19 31/12/14 31/12/12 31/12/13 31/12/14 $0.00 782,500 $0.00 450,000 $0.00 200,000 $0.00 1,037,500 $0.00 $0.00 $0.00 – – – 655,000 407,500 65,000 – – – – – – – – – – – – – – – – (2,980,049) 11,861,518 – – – – – – – – – – – – – – – – – (561,382) 746,218 (95,932) 283,346 (26,392) 137,058 – 2,174,820 (2,882) 11,518 (14,758) 31,942 – 3,724,014 (86,328) 1,613,672 – 1,960,000 – 7,500,000 (1,681) 780,819 – – – – – – 450,000 200,000 1,037,500 655,000 407,500 65,000 – – – – – – – – – – – – – – – – – – – 36,281,829 1,127,500 – (3,769,404) 33,639,925 Weighted average exercise price $0.97 $nil $0.80 no options have expired. The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2011 was nil as no options were exercised during the year (2010: nil). The weighted average remaining contractual life of share options, performance rights and deferred shares outstanding at the end of the year was 5.8 years (2010: 4.7 years). 86 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Fair value of options, performance rights and deferred shares granted Fair values at grant date are independently determined using a binomial tree option pricing methodology that takes into account the exercise price, the term of the options, performance rights and deferred shares, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the options. The model inputs for performance rights and deferred shares granted during the year ended 30 June 2011 included: a) Exercise price: various per performance rights and deferred shares granted b) Grant date: various per performance rights and deferred shares granted c) Expiry date: various per performance rights and deferred shares granted d) Share price at grant date: various per performance rights and deferred shares granted e) Expected price volatility of the company’s shares: 40% (2010: 60%) f) Expected dividend yield: 5.0% – 5.5% (2010: 5.0%) g) Risk-free interest rate: 4.38% – 4.97% (2010: 5.03%) Shares provided on exercise of remuneration options no ordinary shares in the company were issued as a result of the exercise of any remuneration options. b. Employee share plan The Employee Share acquisition (Tax Exempt) Plan (“ESaP”) is a general employee share plan pursuant to which grants of shares may be offered to employees of FlexiGroup on terms and conditions as determined by the Board from time to time. The Board is responsible for administering the ESaP in accordance with the ESaP Rules and the terms and conditions of specific grants of shares to participants in the ESaP. The ESaP Rules include the following provisions: Eligibility The Board may determine which persons will be eligible to be offered the opportunity to participate in the ESaP from time to time. The Board may make offers to eligible persons for participation in the ESaP. Terms of offer The Board has the discretion to determine the specific terms and conditions applying to each offer, provided that: The terms of the offer do not vary the disposal restrictions imposed on shares under the ESaP Rules under which shares acquired under the ESaP cannot be transferred, sold or otherwise disposed of until the earlier of: • The time when the participant is no longer employed by FlexiGroup or by the company that was the employer of the participant as at the time the shares were acquired, or • The third anniversary of the date on which the shares were acquired, and • The offer does not include any provisions for forfeiture of shares acquired under the ESaP in any circumstances It is intended that the ESaP will satisfy the requirements of Division 13a of the relevant australian Tax Legislation. Consideration for grant The Board may determine the price at which the shares will be offered to an employee. Shares may be granted at no cost to the employee or the Board may determine that market value or some other price is appropriate. Allocation of shares Shares allocated under the ESaP may be existing shares or newly issued shares. allocated shares must be held in the name of the employee. any shares that are issued under the ESaP will rank equally with those traded on the aSX at the time of issue. a participant under the ESaP is entitled to receive distributions/dividends made in respect of, and exercise voting rights attaching to, shares held under the ESaP (whether or not the shares are subject to disposal restrictions). Restrictions on shares Shares acquired under the ESaP will be subject to the disposal restrictions described above. FlexiGroup will implement such arrangements (including a holding lock) as it determines are necessary to enforce this restriction. Once the restriction is removed, and subject to FlexiGroup’s Share Trading Policy, shares acquired under the ESaP may be dealt with freely. Details of FlexiGroup’s Share Trading Policy are in the corporate Governance Statement. 87 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 37. Share-based payments (continued) Employee gift offer In September 2009, all eligible employees of FlexiGroup were offered 714 shares totalling $1,000 based on the share price of $1.40. In total, 383 eligible employees took up this offer resulting in an allocation of 273,462 shares. There were no employee gift offers in the year ended 30 June 2011. c. Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options, performance rights and deferred shares issued under LTIP excluding options granted in favour of certain executives over shares owned by the former shareholders of Flexirent Holdings Pty Limited Options over shares owned by the former shareholders of Flexirent Holdings Pty Limited Issue of shares to employees 38. Financial risk management Overview Consolidated 2011 $ 2010 $ 3,029,640 1,852,543 270,360 547,457 3,300,000 2,400,000 – 382,846 3,300,000 2,782,846 The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments – interest rate swaps – to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes i.e. not as trading or other speculative instruments. 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/credit scorecard analysis for credit risk. Risk management is primarily carried out by the financial analysis, treasury and credit and risk departments. Interest rate risk Interest rate risk results principally from the repricing risk or differences in the repricing characteristics of the Group’s receivable portfolio and borrowings. The majority of the Group’s receivables consist of fixed rate consumer and commercial instalment lease contracts. The interest rate is fixed for the life of the contract. Lease contracts are originated with maturities ranging between one and five years and generally require the customer to make equal monthly payments over the life of the contract. Borrowings used to fund the lease asset receivables are also fixed for the term of the lease. The vast majority of leases are funded within two weeks of being settled, with the rental stream discounted at a fixed rate of interest to determine the borrowing amount. Interest relating to the loan note issued to fund the certegy acquisition is also fixed over the life of the loan, there being no interest rate risk relating to this loan. The remainder of the Group’s receivables relate to the consumer loan portfolio where the interest rates are fixed for the term of the loan. Borrowings to fund the consumer loan portfolio are at a mix of fixed and variable rates and are reset on a monthly basis to market rates, the profile of the debt being significantly shorter than has historically been the case for the loan portfolio. The Group is subject to some interest rate risk on this portfolio which is described below. For sensitivity measurement purposes, a +/–1% pa sensitivity in interest rates has been selected as this is considered realistic given the current level of both short-term and long-term australian dollar interest rates. During the year the Group has also entered into new borrowing arrangements requiring a variable base rate. Interest rate risk has been managed on these borrowings by entering into interest rate swaps, whereby the Group pays fixed rate and receives floating rate. 88 FLEXIGROUP LIMITED FInancIaL REPORT 2011 at the end of the reporting period, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: Borrowings 30 June 2011 30 June 2010 Weighted average interest rate % Balance $’000 Weighted average interest rate % Balance $’000 7.14% 253,741 8.69% 122,878 Interest rate swaps (notional principle amount) 5.07% (174,954) – 78,787 – 122,878 Based on the financial instruments held at 30 June 2011, if interest rates had changed by, –/+ 1% from the year-end rates with all other variables held constant, the annualised impact on the consolidated entity’s after-tax profits and equity would have been $64,000 lower/$48,000 higher (2010: $12,000 lower/higher). Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the new Zealand dollar. The Group also has an operation in Ireland, on which the foreign exchange impact is immaterial. 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% 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 June 2011, had the australian dollar weakened/strengthened by 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 $3,091,000 higher/$2,790,000 lower (2010: $1,592,000 higher/$1,302,000 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 and Ireland operations on consolidation. Consolidated entity at 30 June 2011 Financial assets cash and cash equivalents Loans and receivables – Fixed interest rate Loss reserve Financial liabilities Payables Borrowings – Fixed interest rate – Floating interest rate Derivatives used for hedging Total increase/(decrease) Interest rate risk Foreign exchange risk Carrying amount $’000 –1% Profit/Equity $’000 1% Profit/Equity $’000 –10% Profit/Equity $’000 +10% Profit/Equity $’000 55,994 (392) 392 373 (305) 712,834 35,262 – (247) – 247 3,921 (3,208) 118 (96) 29,686 371,641 253,741 228 – – – – 1,776 (1,201) (64) (1,776) 1,185 48 (59) 48 (723) (539) – 592 179 – 3,091 (2,790) 89 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 38. Financial risk management (continued) Consolidated entity at 30 June 2010 Financial assets cash and cash equivalents Loans and receivables – Fixed interest rate Loss reserve Financial liabilities Payables Borrowings – Fixed interest rate – Floating interest rate Total increase/(decrease) Interest rate risk Foreign exchange risk Carrying amount $’000 –1% Profit/Equity $’000 +1% Profit/Equity $’000 –10% Profit/Equity $’000 +10% Profit/Equity $’000 74,844 (524) 524 45 (36) 595,185 49,687 40,944 469,643 122,878 – (348) – – 860 (12) – 348 3,917 229 (3,205) (188) – – (106) 87 (2,493) 2,040 (860) – – 12 1,592 (1,302) The Parent entity for 2011 and 2010 had no exposures to interest rate risk and foreign exchange risk. Credit risk credit risk is the risk that a contracting party will not complete its obligations under a financial instrument and, as a result, cause the Group to incur a financial loss. The Group has exposure to credit risk on all financial assets included in its balance sheet. The Group’s maximum exposure to credit risk on its financial assets is its carrying amount. To manage retail credit risk, the Group has developed a comprehensive credit assessment process. Loans and receivables consist mainly of lease and loan contracts provided to consumer and commercial customers. credit underwriting typically includes the use of either an application score-card and credit bureau report or a detailed internal risk profile review for each application, including a review of the customer against a comprehensive credit database. Internal credit review and verification processes are also used depending on the applicant. at origination, a credit assessment system along with information from two national credit bureaux determines the creditworthiness of applications based on the statistical interpretation of a range of application information (this is replaced by the detailed risk profile review for certegy). These credit risk assessments are supported by reviews of certain applications by dedicated credit staff who apply the Group’s credit and underwriting policy within specific approval authorities. Portfolio performance and credit risk of new applications is monitored monthly by the Pricing, Risk and credit committee. The Group has a specialist collection function which manages all delinquent accounts. a primary measure of delinquency used by the company is the proportion of contracts with an outstanding payment that is 30, 60 or 90+ days past due. For the purposes of measurement of past due amounts, an account is considered delinquent if it is overdue on a contractual payment by one day. The total principal owing on the contract is defined as the past due amount. 90 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Loans and receivables The Group’s lease and loan receivable balances are high volume low value lease and loan receivables advanced to individual customers and small businesses. In the vast majority of cases no externally assessed credit rating is available for these counterparties. The table below provides information about customer loans and receivables from customers by payment due status. As at 30 June 2011 Unimpaired past due loans and receivables Past due under 30 days Past due 30 days to under 60 days Past due 60 days to under 90 days Past due 90 days and over Total unimpaired past due loans and receivables Total unimpaired loans and receivables Consolidated Contracts $’000 21,522 7,343 4,201 14,777 32,190 10,682 6,414 5,912 47,843 55,198 520,573 712,834 Unimpaired past due as a percentage of total unimpaired loans and receivables Unimpaired past due 30 days and over as a percentage of total unimpaired loans and receivables 7.7% 3.2% Consolidated Contracts $’000 As at 30 June 2010 Unimpaired past due loans and receivables Past due under 30 days Past due 30 days to under 60 days Past due 60 days to under 90 days Past due 90 days and over Total unimpaired past due loans and receivables Total unimpaired loans and receivables 19,791 6,254 3,749 10,455 26,382 8,435 5,951 4,843 40,249 45,611 480,890 595,185 Unimpaired past due as a percentage of total unimpaired loans and receivables Unimpaired past due 30 days and over as a percentage of total unimpaired loans and receivables 7.6% 3.2% For impaired lease receivables, the Group has a right to recover the leased asset and for impaired loan receivables the Group, in certain instances, has access to collateral. Given the large number of small dollar accounts comprising the portfolio it is not practical to assess the value of the collateral. The Group does not identify any individual loan and lease receivables as significant and individually impaired. It assesses impairment on a collective basis. The Group either writes off or recognises a 100% allowance for losses for all leases and loans more than 90 days past due. 91 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 38. Financial risk management (continued) 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. Surplus funds are only invested with licensed banks in the countries in which the Group operates. 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 contractual amortisation payments. Details of unused available loan facilities are set out in note 22. amounts due to funders are repaid directly by rentals and repayments received from the Group’s customers. The table below analyses the Group’s financial liabilities into relevant maturity groupings. The amounts disclosed below are the contractual undiscounted cash flows. Less than 1 year $’000 1 to 2 years $’000 2 to 5 years $’000 5 years plus $’000 Total $’000 At 30 June 2011 – Consolidated Payables Loans from financial institutions net settled (interest rate swaps) At 30 June 2010– Consolidated Payables 29,686 – – 385,745 243,184 49,960 234 40,944 15 – 7 – Loans from financial institutions 364,655 165,115 123,697 – 2 – – – 29,686 678,891 256 40,944 653,467 Fair value of financial assets and financial liabilities The categories, carrying amount and fair value of financial assets and financial liabilities at the balance date are: 2011 Financial Assets cash and cash equivalents Loans and receivables Loss reserve Financial liabilities Payables Borrowings (gross) – Fixed interest rate – Floating interest rate Derivatives used for hedging 92 Consolidated Carrying amount $’000 Fair Value $’000 55,994 55,994 712,834 712,834 35,262 35,262 29,686 29,686 371,641 373,275 253,743 253,743 228 228 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Consolidated Carrying amount $’000 Fair Value $’000 74,844 74,844 595,185 595,185 49,687 49,687 40,944 40,944 469,643 476,054 122,878 122,878 2010 Financial assets cash and cash equivalents Loans and receivables Loss reserve Financial liabilities Payables Borrowings (gross) – Fixed interest rate – Floating interest rate Fair value estimation The fair value of financial assets and financial liabilities must be estimated for disclosure purposes. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Techniques, such as estimated discounted cash flows, are used to determine fair value for the financial instruments. The fair value of loan and lease receivables is estimated by discounting the future contractual cash flows at the current market interest rate that the Group charges for similar financial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 93 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 39. Deed of Cross Guarantee FlexiGroup Limited, FlexiGroup Subco Pty Limited, Flexirent Holdings Pty Limited, Flexirent capital Pty Limited, Flexicare claims Management Pty Limited, FlexiGroup Management Pty Limited (formerly FlexiGroup assets Holding Pty Ltd), Flexirent SPV number 1 Pty Limited, Flexirent SPV number 3 Pty Limited and certegy Ezi-Pay 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, the wholly-owned entities have been relieved from the requirement to prepare financial statements and Directors’ Report under class Order 98/1418 (as amended) issued by the australian Securities and Investments commission. (a) Consolidated income statement, statement of comprehensive income and summary of movements in consolidated retained earnings 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 FlexiGroup Limited, they also represent the “Extended closed Group”. Set out below is a consolidated income statement and a summary of movements in consolidated retained profits for the year ended 30 June 2011 of the closed Group consisting of FlexiGroup Limited, FlexiGroup Subco Pty Limited, Flexirent Holdings Pty Limited, Flexirent capital Pty Limited, Flexicare claims Management Pty Limited, FlexiGroup Management Pty Limited (formerly FlexiGroup assets Holding Pty Ltd), Flexirent SPV number 1 Pty Limited, Flexirent SPV number 3 Pty Limited and certegy Ezi-pay Pty Ltd. Income statement Revenue from continuing operations Borrowing costs Employee benefits expense Impairment losses on loans and receivables/(recoveries) administration expenses Depreciation and amortisation expenses communications and MIS expenses Marketing and travel expenses Profit before income tax Income tax expense Profit for the year Statement of comprehensive income Profit for the year Other comprehensive income Total comprehensive income for the year Summary of movements in consolidated retained earnings Retained profits at the beginning of the financial year Profit for the year Dividends provided for or paid Retained profits at the end of the financial year 94 2011 $’000 2010 $’000 98,074 82,472 (1,694) (2,555) (47,928) (42,562) 2,670 2,545 (12,368) (12,658) (6,026) (4,045) (3,622) 25,061 (5,586) 19,475 (5,230) (3,872) (3,760) 14,380 30,470 44,850 19,475 44,850 – – 19,475 44,850 58,898 19,475 28,398 44,850 (26,179) (14,350) 52,194 58,898 FLEXIGROUP LIMITED FInancIaL REPORT 2011 (b) Consolidated balance sheet Set out below is a consolidated balance sheet as at 30 June 2011 of the closed Group consisting of FlexiGroup Limited, FlexiGroup Subco Pty Limited, Flexirent Holdings Pty Limited, Flexirent capital Pty Limited, Flexicare claims Management Pty Limited, FlexiGroup Management Pty Limited (formerly FlexiGroup assets Holding Pty Ltd), Flexirent SPV number 1 Pty Limited, Flexirent SPV number 3 Pty Limited and certegy Ezi-pay Pty Ltd. Assets Current assets cash and cash equivalents current tax receivable Receivables and customer loans Total current assets Non-current assets Receivables and customer loans Plant and equipment Deferred tax assets Goodwill Other intangible assets Other financial assets Total non-current assets Total assets Liabilities Current liabilities Payables Borrowings current tax liability Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity contributed equity Reserves Retained profits Total equity 2011 $’000 2010 $’000 18,204 – 40,735 58,939 34,576 21,114 34,732 90,422 33,364 23,929 3,198 5,232 79,876 17,292 41,906 180,868 3,633 5,299 79,876 14,568 3,968 131,273 239,807 221,695 26,902 29,242 17,620 3,567 77,331 6,358 22,605 441 29,404 106,735 133,072 79,689 1,189 52,194 133,072 44,475 4,814 – 1,017 50,306 15,000 19,304 609 34,913 85,219 136,476 78,029 (451) 58,898 136,476 95 aS aT 30 JUnE 2011 notes to the Financial Statements (continued) 40. Events occurring after the reporting period There have been no significant events occurring after the end of the reporting period. 41. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet current assets Total assets current liabilities Total liabilities Shareholders Equity Issued share capital Share-based payment reserve Retained earnings Profit for the year Total comprehensive income 2011 $’000 2010 $’000 65,977 50,860 256,083 239,786 7,084 7,084 – – 487,294 483,929 (358) 1,303 (237,937) (245,446) 248,999 239,786 33,688 33,688 18,000 18,000 (b) Guarantees entered into by the parent entity There are cross guarantees given by FlexiGroup Limited, FlexiGroup Subco Pty Limited, Flexirent Holdings Pty Limited, Flexirent capital Pty Limited, Flexicare claims Management Pty Limited, FlexiGroup Management Pty Limited (formerly FlexiGroup assets Holding Pty Ltd), Flexirent SPV number 1 Pty Limited, Flexirent SPV number 3 Pty Limited and certegy Ezi-Pay Pty Ltd as described in note 39. no deficiencies of assets exist in any of these entities. 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. (c) Contingent liabilities and contractual commitments of the parent entity The parent entity has no contingent liabilities or contractual commitments as at 30 June 2011. 96 30 JUnE 2011 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Directors’ Declaration Directors’ Declaration 30 June 2011 In the Directors’ opinion: (a) the financial statements and notes set out on pages 44 to 96 are in accordance with the Corporations Act 2001, including: (i) complying with accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the financial year ended on that date, and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable, and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended closed Group identified in note 39 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue to the Deed of cross Guarantee in note 39. note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International accounting Standards Board. The Directors have been given the declarations by the chief Executive Officer and chief Financial Officer required by section 295a of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Margaret Jackson chairman Sydney 5 august 2011 97 aS aT 30 JUnE 2011 Independent auditor’s Report FlexiGroup Limited and its controlled entities Independent Auditor’s report 30 June 2011 PricewaterhouseCoopers ABN 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 www.pwc.com/au Independent auditor’s report to the members of FlexiGroup Limited Report on the financial statements We have audited the accompanying financial statements of FlexiGroup Limited (the company), which comprises the balance sheet as at 30 June 2011, and the income statement, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for FlexiGroup Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial statements The directors of the company are responsible for the preparation of the financial statements that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial statements that are free from material misstatement whether due to fraud or error. In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial statements. Liability limited by a scheme approved under Professional Standards Legislation 97 98 FLEXIGROUP LIMITED FInancIaL REPORT 2011 FlexiGroup Limited and its controlled entities Independent Auditor’s report 30 June 2011 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial statements of FlexiGroup Limited are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1(a). Report on the Remuneration Report We have audited the remuneration report included in the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of FlexiGroup Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Rob Spring Partner Sydney 5 August 2011 Liability limited by a scheme approved under Professional Standards Legislation 98 99 aS aT 30 JUnE 2011 Shareholder Information The shareholder information set out below was applicable as at 31 July 2011. A. Distribution of equity securities 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total Class of equity security Ordinary shares Options No of holders No of shares No of holders No of options 683 408,014 905 2,525,074 556 4,269,760 985 27,682,271 133 241,407,054 3,262 276,292,173 – – – – – – – – – – – – There were 82 holders of less than a marketable parcel of ordinary shares. B. Equity security holders Twenty largest quoted equity security holders. The names of the 20 largest holders of quoted equity securities are listed below: Name The abercrombie Group Pty Ltd JP Morgan nominees australia Limited MF custodians Ltd national nominees Limited citicorp nominees Pty Limited Yoogalu Pty Ltd cogent nominees Pty Limited Lakeview 1 Pty Ltd HSBc custody nominees Limited UBS Wealth Management australia nominees Pty Ltd Behan Superannuation Pty Ltd Pacific custodians Pty Limited Mr Brendan Behan & Mrs Dawn Behan Suncorp custodian Services Pty Limited afianzar Pty Ltd Marich nominees Pty Ltd Margaret Jackson Gordon Merchant no.2 Pty Ltd Sandhurst Trustees Ltd neil Roberts Total 100 Ordinary shares Number held Percentage of issued shares % 61,757,028 22.35 24,894,380 19,506,274 18,150,155 15,911,215 11,440,204 9,137,570 8,125,000 8,114,926 7,615,052 4,875,000 4,412,000 3,895,000 3,534,498 3,001,776 2,716,989 2,322,643 1,346,272 1,069,427 1,040,157 9.01 7.06 6.57 5.76 4.14 3.31 2.94 2.94 2.76 1.76 1.60 1.41 1.28 1.09 0.98 0.84 0.49 0.39 0.38 212,865,566 77.06 FLEXIGROUP LIMITED FInancIaL REPORT 2011 Unquoted equity securities Options and performance rights issued under the FlexiGroup Limited Long Term Incentive Plan to take up ordinary shares The company has no other unquoted equity securities. C. Substantial holders Substantial holders in the company are set out below: The abercrombie Group Pty Ltd commonwealth Bank of australia Total D. Voting rights Number on issue Number of holders 17,965,790 77 Number held 81,263,302 13,798,481 95,061,783 Percentage % 29.41 5.00 34.41 The voting rights attaching to equity securities are set out below: a) 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 share shall have one vote. b) Options and performance rights no voting rights. 101 This page has been intentionally left blank. 102 This page has been intentionally left blank. FLEXIGROUP LIMITED FInancIaL REPORT 2011 103 aS aT 30 JUnE 2011 104 This page has been intentionally left blank. Corporate directory CoRpoRAte diReCtoRy Directors margaret Jackson (Chairman) John delano (Chief executive officer) Andrew Abercrombie Rajeev dhawan R John Skippen Secretary david Stevens Notice of Annual General Meeting the Annual General meeting of flexiGroup limited will be held at Sofitel Wentworth Sydney, 61 phillip Street, Sydney at 4pm on 30 november 2011 Principal registered office in Australia level 8, the forum 201 pacific Highway St leonards nSW 2065 Australia Website www.flexigroup.com.au Share Register Link Market Services Limited level 12 680 George Street Sydney nSW 2000 Australia Auditor PricewaterhouseCoopers darling park tower 2 201 Sussex Street Sydney nSW 2000 Australia Solicitors Mallesons Stephen Jaques level 60, Governor phillip tower 1 farrer place Sydney nSW 2000 Australia Bankers Commonwealth Banking Corporation Stock Exchange listing flexiGroup limited (fxl) shares are listed on the Australian Securities exchange . u a m o c . t c n c e r p i