Annual Report
2018
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FlexiGroup Annual Report 2018
3
CONTENTS
About this report
The 2018 Annual Report is a full report on
FlexiGroup’s operational and financial performance
for the financial year ended 30 June 2018.
In this report unless otherwise stated references
to ‘FlexiGroup’ the ‘Group’, ‘we’, ‘us’ and ‘our’ refer
to FlexiGroup Limited, listed on the ASX as FXL.
PERFORMANCE HIGHLIGHTS 004
CHAIRMAN’S & CEO’S REPORT 009
EXECUTIVE TEAM 014
DIRECTORS’ REPORT 018
CORPORATE GOVERNANCE STATEMENT 069
SUSTAINABILITY REPORT 071
AUDITOR’S INDEPENDENCE DECLARATION 078
ANNUAL FINANCIAL STATEMENTS 079
DIRECTORS’ DECLARATION 128
INDEPENDENT AUDITOR’S REPORT 129
SHAREHOLDER INFORMATION 138
CORPORATE DIRECTORY 140
44
FlexiGroup Annual Report 2018
Performance Highlights
5
PERFORMANCE HIGHLIGHTS
Results at upper end of guidance
while investing for growth.
$
$88.2M
Cash NPAT - A solid result at
upper end of guidance
$2,383M
Closing Receivables, growth of 10%
1M+
Customers, growth of 5%
17%
Volume growth of $2,284m
substantially driven by the
Cards businesses
Cash NPAT1 $88.2m, down 5%
$85.0m
FY14
$90.1m
FY15
$94.1m
FY16
$93.0m
FY17
$88.2m
FY18
Statutory net (loss)/profit after tax ($10.3m), down 112%
$57.6m
FY14
$82.7m
FY15
$50.2m
FY16
$87.4m
FY17
($10.3m)
FY18
Volume $2,284m, up 17%
34%
Growth in AU Cards
receivables to $644m
7.7¢
Annual dividend payout of 7.7 cents
per share (fully franked)
$1,083m
FY14
$1,136m
FY15
$1,268m
FY16
$1,952m
FY17
$2,284m
FY18
Receivables and loans2 $2,383m, up 10%
FY14 - 28.00 cents
FY15 - 28.70 cents
FY16 - 27.20 cents
FY17 - 25.00 cents
FY18 - 23.60 cents
Cash NPAT1 per share
23.6 cents, down 6%
FY14 - 16.50 cents
FY15 - 17.75 cents
FY16 - 14.50 cents
FY17 - 7.70 cents
FY18 - 7.70 cents
Dividends per share
7.70 cents, flat
FY14 - 22.70%
FY15 - 22.70%
FY16 - 18.40%
FY17 - 14.50%
FY18 - 13.60%
Cash ROE3 13.6%,
down 0.9%
1 Cash NPAT is defined as statutory profit after tax, adjusted for the
after tax effect of material infrequent items that the CEO and Board
believe do not reflect ongoing operations of the Group and
amortisation of acquired intangible assets
2 Receivables and loans excludes provision for doubtful debts,
unamortised transaction costs and other debtors
$1,318m
FY14
$1,428m
FY15
$1,874m
FY16
$2,168m
FY17
$2,383m
FY18
3 RoE - Return on Equity is Cash NPAT as a percentage of
average Equity
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FlexiGroup Annual Report 2018
7
FLEXIGROUP’S YEAR HAS
BEEN CHARACTERISED
BY STRONG INVESTMENT
WITHIN THE FRAMEWORK
OF OUR THREE STRATEGIC
PILLARS OF GROW,
DIGITISE AND OPTIMISE.
— ANDREW ABERCROMBIE
8
FlexiGroup Annual Report 2018
Chairman’s & CEO’s Report
9
CHAIRMAN’S & CEO’S REPORT
Strong performance for FY18
FlexiGroup’s year has been characterised by strong investment
within the framework of our three strategic pillars; Grow, Digitise
and Optimise. We have built digital solutions that simplify and
improve interactions with our buyers and sellers and we have
delivered organic customer and retailer growth which is the
fundamental driver of our shareholder value.
This year the Group has seen active customers grow 5% to
exceed 1 million and an 8% growth in retailers to over 46,000
across a diverse range of industries. Offering multiple products,
we have a broad reach across a complex regulatory landscape
and must ensure that our systems deliver responsible lending
practices that meet a heightening regulatory environment.
Never has it been more important to consolidate and simplify to
ensure we are transparent, compliant, responsive and adaptable
to change.
Group performance
•
Against a backdrop of significant internal activity, the Board is
After Tax of $10.3 million.
17% to $2.284 billion. A solid result driven by:
excluding restructuring costs of $2.5 million.
impairment, intangible asset write-off and provision for
(volume growth of 39% in AU Cards and 12% in NZ Cards)
announced in February) and after accounting for goodwill
continued strong performance from the Cards businesses
reported FY18 Cash NPAT of $88.2 million or $90.7 million
Following the retirement of the consumer lease product (as
pleased to achieve a result at the upper end of guidance with
customer remediation, FlexiGroup reported a Statutory Loss
Receivables grew by 10% to $2.383 billion and volume grew by
8
1
0
organisation well prepared to meet regulatory requirements. 2
focus, while meeting challenging timelines across a number of
initiatives. Simplifying and improving the way we interact with
The Board would like to thank our staff for their results driven
our buyers and sellers has been at the forefront of our growth
volume growth in AU Commercial of 57% as the investment
The Group initiatives ensure we are a leaner, more efficient
to develop and digitise managed services delivers results
strategy as is apparent in the segment initiatives below.
volume growth of 3% which accelerated in the second
Early stage digital enhancements in Certegy delivered
and provides growth momentum
half to 10%
•
•
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FlexiGroup Annual Report 2018
Chairman’s & CEO’s Report
11
Segment initiatives
the renegotiation of key supplier contracts
•
Significant progress was made on the digitisation of the
• Maximised the efficiency of funding structures, delivering
Certegy front-end platform with 60% of contracts now settling
improvement in all funding facilities with increased size and
using the paperless, digital process
•
Retirement of the original FlexiRent product, resulting in the
lower margins. $500 million of term securitisation facilities
were issued providing strong diversity at improved margins
impairment of goodwill and other intangible assets
•
Readied the business for the introduction of AASB9 accounting
•
Introduced Lisa, the first consumer lease in market to meet a
number of government panel recommendations. Delivered
treatment with a significant body of work with Ernst & Young (EY)
in the design and build of AASB9 compliant models
digitally with a much improved customer value proposition
• Development of a Group shared services model with integrated
across price, features and end of term
functions implemented across Legal, Finance and HR with
•
The AU Commercial, Managed Services digital platform went
further integrations in FY19
live, facilitating the signing of three key programme partners
• Developed group wide CRM and centralised data analytics
driving significant volume growth during the second half of the
capability to be fully realised in FY19
year. The platform was also launched in NZ
•
The SKYE Mastercard (with Motion Code™) was developed,
Strong credit decisioning, impairment costs stable
integrating 3,500 sellers and replacing the Australian Once and
Lombard cards. The Cards platform is providing economies of
scale in both AU and NZ with an improved application process
and a plan to retire legacy systems in the future
•
An enhanced online application process launched for NZ Cards
While impairments remained stable at 3% of average net
receivables, impairment losses increased by 6%. On a segment
basis impairment losses have generally reduced through improved
recoveries, strong credit decisioning and as new products (Lisa and
Managed Services) appeal to a lower risk customer profile. These
in Q4 is showing early indicative growth of 25% in cards issued
gains have been offset as volume growth pressures in AU Cards
with activation rates showing a strong uplift, which is driving
impacted and led to underinvestment in collection resources.
increased card spend
Management have taken action and early cycle delinquencies are
•
Rolled out Flexi-Fi in Ireland, a digital offering that replaces the
showing improvement with further gains expected from a rebuild of
original FlexiRent product, broadening our seller reach and
later stage debt management and recoveries processes.
delivering greater customer value. Following significant
investment, we have seen high growth and the business is on
Capital management
track to be profitable in FY19
Group initiatives
FlexiGroup declared a fully franked final dividend of 3.85c per share
bringing the year’s total dividend to 7.70c per share which is
equivalent to last year. This dividend is in-line with the first half
• Heightened our regulatory, risk and compliance focus,
payout and remains within the Group’s stated payout ratio of
identifying past issues for remediation while proactively
30-40% of Cash NPAT.
engaging with our regulators to future proof our responsible
lending practices
The Board remained focused on reducing corporate debt which this
year decreased $22 million and gearing reduced from 53% to 36%.
•
Introduced a cost management programme of works which has
We are building a sustainable capital model and reducing leverage
generated $8 million in annual run rate savings from initiatives
despite strong balance sheet growth. Additionally, we are well
such as the implementation of a new cost management
funded for growth with significant funding facility headroom.
platform, tightened policies on discretionary expenditure and
WE HAVE BUILT DIGITAL
SOLUTIONS THAT
SIMPLIFY AND IMPROVE
INTERACTIONS WITH OUR
BUYERS AND SELLERS
AND WE HAVE DELIVERED
ORGANIC CUSTOMER AND
RETAILER GROWTH WHICH
IS THE FUNDAMENTAL
DRIVER OF OUR
SHAREHOLDER VALUE.
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FlexiGroup Annual Report 2018
Chairman’s & CEO’s Report
13
Impact of AASB9
Outlook
Accounting standard AASB9 Financial Instruments will be adopted
The Board believes FlexiGroup is well positioned for growth as
on 1 July 2018 and will increase our provision for doubtful debts by
Certegy, Cards, our Irish business and AU Commercial provide
$82 million as the credit provision policy moves from one based on
volume growth momentum for FY19. AU Consumer Lease volume
incurred loss to one based on expected loss. A transition
growth is expected to be flat as channel disruption in the first half is
adjustment will be recorded against FY19 opening balance sheet
likely following the removal of the FlexiRent product, the
retained earnings.
introduction of Lisa and as the remaining brands continue to
The AASB9 accounting treatment has the effect of front-loading the
rationalise into Smartway.
provisioning by providing for full lifetime expected loss at customer
While Australia and New Zealand are the major focus we will
origination and the impact is most significant on rapidly growing
continue to build our Ireland business as we leverage the Flexi-Fi
portfolios such as AU Cards and AU Commercial and as a result loss
product to grow the existing merchant and customer base to deliver
provision coverage rates will increase.
FY19 profit.
Management and Board changes
As we capitalise on our technology, funding and distribution
strengths, we will continue to consolidate platforms, refine funding
Towards the end of the financial year the Group’s Chief Executive
structures and integrate group functions, to deliver a material
Officer, Symon Brewis-Weston resigned after almost three years
earnings upside. We will also be focussing on making our customer
with the Group. Symon made significant progress in refocusing the
business and creating a robust platform for the future, along with
building a strong and dedicated management team. The Board
interface and offerings best in market in response to monoline
fintechs that have evolved over the last few years. For the Group
we expect to see profit growth supported by:
would like to thank him for his significant contribution to
FlexiGroup’s results and wish him well in his future endeavours.
Our new Chief Executive, Rebecca James commences on 2 October
and brings significant experience in the financial services sector and
in building consumer brands gained from her time as the Chief
Marketing and Enterprise Officer at Prospa and as Chief Marketing
Officer at ME Bank. The Board was particularly impressed by her
ability to create and commercialise innovative digital solutions in
financial services together with a track record of driving strong
customer growth and managing strategic partnerships.
For the intervening period, between Symon’s departure and
Rebecca’s commencement, the Board has appointed Ross Aucutt
(the Group’s Chief Financial Officer) as acting Chief Executive
Officer and thanks him for his leadership during this period.
Christine Christian was recently appointed to the role of Deputy
Chair of the Board. Christine has been a Director since 2016 and has
made an outstanding contribution to all matters before the Board,
but particularly FlexiGroup’s strategic direction. We have
benefitted from her extensive domestic and international financial
services experience both as a former executive and as a
Non-Executive Director.
During the year the Board was strengthened by the appointment in
May of Carole Campbell as an Independent Non-Executive Director.
We are fortunate to attract someone of Carole’s calibre as she brings
over 30 years’ experience in senior finance and treasury roles
across multiple industries, and her skills will be invaluable in her role
as Chair of the Audit Committee.
Following the appointment of Rebecca and Carole, FlexiGroup is
particularly proud of the Board’s diversity and excellent mix of
skills as we focus on the next stage of FlexiGroup’s growth in the
financial services market.
•
•
•
•
•
Certegy growth
Increasing mix of interest bearing receivables in AU Cards
Continued leverage of product and digital initiatives delivered
in 2H FY18
Centralised marketing to leverage investment & capability
Enhanced AU Cards collections capability and the development
of strategic options for AU collections
•
Integration of shared service functions across locations, cost
control and funding efficiencies
The imminent arrival of our new Chief Executive Officer, Rebecca
James, will deliver a new momentum to the Company as we
continue to execute our strategy of investing for growth.
On behalf of the Board, we would like to thank shareholders for their
continued support, sellers for their support of new products and
processes and our staff for their commitment and ongoing efforts.
Andrew Abercrombie
Chairman
Ross Acutt
Acting Chief Executive Officer
Sydney
26 September 2018
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FlexiGroup Annual Report 2018
Executive Team
15
EXECUTIVE TEAM
FlexiGroup’s strong and effective executive leadership team
underpins our success. With a focus on supporting our people to build
a stronger business, these individuals are industry professionals with
deep experience in finance, technology, product, and risk.
M
A
E
T
E
H
T
RO SS AUCU TT
Acting Chief Executive Officer
(until 2 October 2018) and
Chief Financial Officer
Ross has over 20 years of international
financial services experience. He has
held senior finance management roles
in large and complex global financial
institutions covering finance, treasury,
M&A and capital markets with Royal
Bank of Scotland Group plc, Westpac
Banking Corporation and Barclays
PLC in both London and Sydney.
Prior to joining FlexiGroup in January
2017, Ross was Group Treasurer at
Latitude Financial Services where he
was responsible for creating a treasury
function, including ground breaking
funding programmes, interest rate
and FX risk management and
governance forums reporting to the
Board of Directors.
VERITY GILPIN
General Manager Consumer
CHRIS LAMERS
Chief Executive Officer, NZ
KEN R ICH AR D S
General Manager - Commercial
Verity joined Flexigroup in 2016 and
is responsible for leading the sales
teams across all products for the
Consumer business in Australia.
Prior to joining FlexiGroup, Verity was
General Manager at Commonwealth
Bank leading a large sales team of
specialists across Asset Finance,
Trade Finance, Receivables Finance
and Transaction Banking nationally.
She is a Chartered Accountant and
has over 18 years of senior
management experience in sales,
business development, corporate
restructured and finance with GE
Commercial Finance, Ernst & Young
and Deutsche Bank in Australia
and the UK.
Chris joined the FlexiGroup team in
April 2017 as CEO of FlexiGroup NZ.
He brings a strong marketing, sales
and innovation background to
FlexiGroup. Previous roles include
more than three years as Sovereign’s
chief marketing officer, where Chris
undertook a number of significant
developments, including establishing
an online sales channel, customer
engagement programmes and data
analytics functions.
He was previously with Loyalty New
Zealand (Fly Buys), first as head of
marketing, then as head of customer
engagement (incorporating marketing
and sales) and lastly as Interim CEO.
In that time, he re-launched the Fly
Buys brand, developed and launched
a partnership with Air NZ Airpoints,
and led the implementation of
marketing strategies that grew both
membership numbers and revenue
while reducing marketing costs.
Ken has over 20 years’ experience in
financial services. Prior to joining
FlexiGroup, Ken was a Director and
Shareholder of Interlease, one of
Australia’s largest and oldest
independent financer brokers,
specialising in originating and
arranging structured plant and
equipment finance for private and
public companies. Ken has arranged
and structured finance for a range of
small to large companies for a wide
range of manufacturing equipment.
Ken was a Director of Standard
Finance Limited, a boutique finance
company and has served on the
board of Metro Quarry Group. Ken
also held positions with Foster’s
Group over 10 years, with roles in
Treasury, M&A and Logistics.
Ross Aucutt
Verity Gilpin
Chris Lamers
Ken Richards
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FlexiGroup Annual Report 2018
Executive Team
Section Title
17
EXECUTIVE TEAM
JAN E MISKELL
G ro u p H e a d o f Pe o p l e
a n d C u l t u re
Jane has 15 years’ experience in
Human Resources. Prior to moving to
FlexiGroup in early 2013, Jane worked
in Telstra where she partnered with
Senior Leaders across a broad range
of functions including Customer
Service, Professional and Managed
Services, Sales and HR Operations.
Jane has extensive experience in
change management and
organisational design, business
integrations, talent management and
employee engagement strategies.
MATT BEA MAN
Group General Counsel
NAGI B KAS SI S
Chief Information Officer
Matt joined FlexiGroup in September
Nagib has over 20 years of technology
2013 and has more than 20 years’
experience, most recently as the
private practice and in-house legal
GM of Data, Digital & Innovation with
experience in banking and finance
Allianz Australia where he was
with a focus on small - and large-ticket
responsible for driving the strategic
asset finance transactions. Prior to
direction of digital and data
joining FlexiGroup, Matt held roles in
initiatives. He is also active in the
private-practice environments with
Australian fintech start-up community
leading domestic and international
as a mentor to emerging fintechs and
law firms.
is an advisor to a venture capital
company.
Matt was the Chief Legal Counsel
for CIT Group Asia-Pacific from
Prior to his role as GM of Data, Digital
2005–2009. From October 2009,
and Innovation, he held a number of
Matt was Deputy General Counsel of
senior positions in Allianz in Australia
Lloyds Banking Group Australia
and overseas:
(Lloyds International) and was
elevated to the position of General
Counsel in March 2012.
- GM, IT Strategy and Transformation
- Head of IT and Business Alignment
- Global Head of Sourcing and
Procurement
- Deputy Head of Infrastructure &
Operations team
LI Z M CCARTHY
Group Chief Customer Officer
Liz joined FlexiGroup in 2018 to lead
the customer focus across the
business driving customer programs
to maximise customer satisfaction,
acquisition and retention. With over
20 years senior management
experience in both Financial Services
and Aviation industries, Liz has
responsibility for product, operations,
marketing, customer insight and user
experience across all the FlexiGroup
businesses.
Liz has lived and worked extensively in
Asia and has lead large scale digital
transformation and brand building
programs with Macquarie Bank and
Jetstar Airways.
Jane Miskell
Jane Miskell
Matt Beaman
Nagib Kassis
Liz McCarthy
18
FlexiGroup Annual Report 2018
Directors’ Report
19
A HIGHLIGHT HAS BEEN ACHIEVING
THE HIGHER END OF MARKET
GUIDANCE AS THE COMPANY HAS
EXPANDED AND DIVERSIFIED ITS
BUSINESS THROUGH ORGANIC
GROWTH AND PRODUCT INNOVATION.
DIRECTORS’ REPORT
Your Directors present their report on the consolidated entity (referred
to hereafter as the “Group” or “FlexiGroup”) consisting of FlexiGroup
Limited (“the Company”) and the entities it controlled at the end of, or
during, the year ended 30 June 2018.
Directors
The following persons were directors of FlexiGroup Limited during the
year and up to the date of this report, except as otherwise stated:
Andrew Abercrombie (Chairman)
Christine Christian (Deputy Chairman)
Rajeev Dhawan
Jodie Leonard
Carole Campbell (appointed 17 May 2018)
Symon Brewis-Weston (resigned 3 September 2018)
R John Skippen (resigned on 27 November 2017)
Company secretaries
Elizabeth Wray (appointed on 22 March 2018)
Melissa Robinson (resigned on 21 March 2018)
Elizabeth (Libby) Wray was appointed Acting Company Secretary on
22 March 2018 with Company Matters Pty Limited providing Company
Secretarial and Governance advisory services.
Principal activities
The principal activities are the provision of:
•
•
•
Consumer revolving finance and cards
Lease and rental financing services
No interest ever loans
There were no significant changes in the nature of activities that
occurred during the year.
Key developments
(incorporating significant changes in the state of affairs)
In August 2018, FlexiGroup announced the resignation of Symon
Brewis-Weston, CEO and Director, effective 3 September 2018.
Rebecca James was appointed CEO, effective 2 October 2018.
In July 2018, the Group launched Skye Mastercard providing customers
with three months interest free on all purchases and the flexibility of
fixed instalment plans for larger purchases. This is expected generate
significant new business volumes for the Group.
In February 2018, the Group launched Lisa, a new consumer lease
product that is competitive and flexible with more favourable end of
terms options for our customers to enjoy the latest goods without the
upfront outlays that buying requires.
About us
FlexiGroup is a diversified financial services group providing
“no interest ever” loans, leasing, vendor finance programs, interest free
finance, credit cards, lay-by and other finance solutions to consumers
and businesses.
Through its network of over 46,000 merchant, vendor and retail
partners the Group has extensive access to key markets: Business to
Consumer, Business to Business and Retail to Consumers (and small
business customers).
Performance has been characterised by achieving the higher end of
market guidance of Cash NPAT as the company has expanded and
diversified its business through organic growth, acquisition and
product innovation.
FlexiGroup operates in Australia, New Zealand and Ireland within a
diverse range of industries including home improvement, solar energy,
fitness, IT, electrical appliances, travel, education and trade equipment.
20
FlexiGroup Annual Report 2018
Directors’ Report
21
BUILDING SUSTAINABLE GROWTH
Our strategy is focussed on three pillars to drive sustainable growth.
fundamental driver of our shareholder value
Organic customer and retailer growth is the
G ROW
DIG ITISE
will deliver material earnings upside O PTIMISE
structures and integrating group functions, we
By consolidating platforms, refining funding
customers and retailers
We are building digital solutions that simplify
and improve the way we interact with our
22
FlexiGroup Annual Report 2018
Directors’ Report
23
PROGRESS TO DATE
OUR AU CARDS BUSINESS HAS
PERFORMED STRONGLY ACROSS ALL
KEY METRICS INCLUDING 34%
GROWTH IN RECEIVABLES TO $644M
G
R
O W
STRATEGIC AMBITION
FlexiGroup will build strong organic growth, diversified
across multiple markets. Growth will be driven through leveraging
existing sellers (such as with Ezi-Pay), delivering new market
propositions (including SKYE, OxiPay, Lisa and Managed Services
products), while building an aligned and focused sales capability.
PROGRESS TO DATE
• Certegy growth driven organically through a focus on the
solar and jewellery markets, which helped propel sales
in the second half by 10%.
• New product development has been a real focus with
the launch of innovative and unique products such as
SKYE and Lisa.
• We are focused on developing new market opportunities
to drive growth, as highlighted by our growth in Managed
Services with three new partners.
• Continue to focus on investment to drive the capability for
future growth, including specialist sales staff, new sales team
structure and ongoing digitisation of the sales process.
NEXT STEPS
Certegy: Continue to focus on building the solar and jewellery
segments, while developing new segments through improved
digital capability and product development.
AU Cards: Focus on promoting SKYE Card growth with key
partners and driving transaction volume
Leasing: Continue the roll out of our new Leasing product to
retail partners, while developing a new proposition for small
businesses
Commercial: Focus and extend the Managed Services opportunity
NZ Cards: Continue to drive growth and transaction volume
by developing key partnerships and a strong focus on
transaction volume
24
FlexiGroup Annual Report 2018
Directors’ Report
25
PROGRESS TO DATE
THE NEW LISA PRODUCT
LAUNCHED THIS YEAR IS
100% DIGITAL AND
CERTEGY HAS 60% OF ALL
TRANSACTIONS DIGITISED
D I G I T I S E
STRATEGIC AMBITION
We are focused on driving our customer value propositions
through improved use of technology to deliver great user
experiences, cost efficiencies and simplification. Digitisation is
focused on the improved transactions for both buyers (such as
with our new SKYE and Q Mastercard portals) and sellers (for
example our Certegy and Commercial portals).
PROGRESS TO DATE
• Ongoing digitisation of the buyer and seller core processes is a
key priority. In particular we focused on Certegy, which now
has 60% of all transactions digitised; the card application
process in New Zealand and Australia; and the new Lisa
product launched this year is 100% digital.
• New credit decisioning platform launched, which is being used
for Consumer and Commercial Leasing and will be extended to
other products.
• Ongoing enhancements to Oxipay including digitising the
on-boarding process to improve customer experience and
minimise fraud.
NEXT STEPS
• Continuing to drive the digitisation of the consumer
business targeting 100% digital
• Focus on continual enhancement to improve the user
experience and sales process
• Ongoing digitisation of the Commercial Business for
SME customers
26
FlexiGroup Annual Report 2018
Directors’ Report
27
PROGRESS TO DATE
WE HAVE CONSOLIDATED
PLATFORMS, INTEGRATED
FUNCTIONS AND IMPROVED
FUNDING FACILITIES
• O P T I M I S E
STRATEGIC AMBITION
FlexiGroup will continue to optimise our business through
simplification, consolidation of platforms, refining funding
structures and the continued integration of group functions.
PROGRESS TO DATE
• New products now being developed on target IT
architecture including the new SKYE Mastercard using the
NZ Cards platform
• Consolidation of Consumer marketing to achieve scale and
performance across our ‘always on’ marketing platform.
• New centralised data analytics across AU Consumer
improves reporting, provides access to rich insights and
highlights key opportunities
• Increased functional alignment with roll out of targeted
shared services
• Improvements in funding facilities with increased size, lower
margins, and further diversification
NEXT STEPS
• Consolidation of legacy credit card products and systems
• Continued roll out of group shared services
• Ongoing focus on improving funding facilities
• Introduction of continuous improvement programme
28
FlexiGroup Annual Report 2018
CEO’s Report
Directors’ Report
29
29
INFORMATION ON DIRECTORS
ANDREW ABERCROMBIE (Age 6 2)
Founding Director, Chairman, Non-Independent, Non-Executive BEc, LLB, MBA
CAROLE CAMPBELL (Age 55)
Independent, Non-Executive , BEc, GAICD, FCA
Andrew became a Director and Chief Executive Officer of the original FlexiRent business in 1991. He was appointed a Director of the
listed Company at the time of the IPO in November 2006. Andrew is an experienced commercial and tax lawyer and was a founding
partner in a legal firm operating in Sydney and Melbourne. Following several years in property investment and tax consulting, he
co-founded the FlexiRent business in 1991 and was CEO until 2003. Andrew remained on the Board as a director and was
subsequently appointed as Chairman on 10 August 2015.
Special responsibilities: Chairman of the Nomination Committee
Interests in shares and options: 90,766,593 ordinary shares in FlexiGroup
CHRISTINE CHRISTIAN (Age 61)
Independent, Non-Executive, BA, GAICD
Christine was appointed as a Director of the Company in December 2016. Christine is a leading Australian business executive with
more than 30 years’ experience in financial services, investment, private equity, credit risk and digital media including executive and
advisory roles in Australia, China, India and the United States. Christine currently is Chair of Kirwood Capital and holds board roles
with Members Equity Bank Limited, Lonsec Group and the Victorian Managed Insurance Authority. Christine is Deputy President of
the State Library of Victoria and a board member of the Cranlana Programme and Council member of La Trobe University. Prior to her
Board career, Christine was CEO of Dun & Bradstreet Australia & New Zealand from 1997 to 2012.
Special responsibilities: Chair of the Risk & Compliance Committee, Interim Chair of the Audit Committee Dec 2017 – May 2018,
Member of the Audit and Nomination Committees
Interests in shares and options: 10,000 ordinary shares in FlexiGroup
RAJEEV DHAWAN (Age 52)
Independent, Non-Executive, BCom, MBA
Rajeev was appointed as a Director in the Company in November 2006. Rajeev is currently a partner of Equity Partners and has
over 20 years’ venture capital and private equity experience and has been a Director of a number of listed and unlisted portfolio
companies. During his career in venture capital and private equity, Rajeev has invested in over 25 companies across a diverse
range of industries including financial services; consumer goods; industrial businesses; manufacturing and technology centric
businesses.
Special responsibilities: Member of the Remuneration Committee (Chair until November 2017), Member of the Risk &
Compliance and Nomination Committees and was Member of the Audit Committee until May 2018.
Interests in shares and options: 275,371 ordinary shares in FlexiGroup
JODIE LEONARD (Age 51)
Independent, Non-Executive , BBus, GAICD, FAMI, CPM
Jodie was appointed as a Director of the Company in December 2016. She is a professional Non-Executive Director and currently sits
on the board of the Royal Automobile Club of Victoria (RACV) Limited and The RACV Community Foundation Limited. Jodie has over
25 years’ experience in strategic marketing and corporate strategy in ASX, NYSE and FTSE listed companies both locally and
internationally. Her experience spans the finance, media, sport/entertainment, travel, telecommunications, consumer goods and
professional services industries. She has worked in blue chip organisations including General Electric, the Nine Network, British
Airways, Telstra, Colgate Palmolive and Unilever.
Special responsibilities: Chair of the Remuneration Committee (since Dec 2017) and member of the Audit Committee
Interests in shares and options: 3,560 ordinary shares in FlexiGroup
Carole was appointed as a Director of the Company in May 2018. She is Deputy Chair of Council of the Australian Film Television and
Radio School where she is Chair of the Finance, Audit and Risk Management Committee. She is also a Non-Executive Director of The
Sydney Film Festival and Chair of its Finance Committee. Carole has over 30 years’ experience in senior finance and treasury roles
across diverse industries including: professional services, financial services, media, mining & industrial services. Carole commenced
her career in the Sydney and London offices of KPMG and has worked for Macquarie Bank, Westpac Institutional Bank, Seven
Network, Bis Industries and Merivale.
Special responsibilities: Chair of the Audit Committee (since May 2018)
Interests in shares and options: None
SYMON BREWIS-WESTON (Age 49)
Non-Independent, Executive, Chief Executive Officer, BEc (Hons), MAp.Fin, GAICD (resignation effective 3 September 2018)
Symon commenced as CEO of FlexiGroup in February 2016. Prior to joining FlexiGroup, Symon worked in banking for 20 years, 15
years of which were in senior leadership positions at the Commonwealth Bank of Australia (CBA). Symon was Chief Executive
Officer of Sovereign, a subsidiary of CBA for 3 years. Prior to that, he was Executive General Manager of Corporate Financial
Services at CBA. Symon is a member of the board of The Hunger Project and was awarded the United Nations Women’s
Empowerment Principles CEO Leadership Award in 2015 for his commitment to workplace diversity and community engagement.
Special responsibilities: Chief Executive Officer and Member of the Risk & Compliance Committee
Interests in shares and options: 96,852 ordinary shares in FlexiGroup
Meetings of Directors
Andrew Abercrombie
Christine Christian
Rajeev Dhawan
Jodie Leonard
Carole Campbell
Symon Brewis-Weston
R John Skippen
Board meetings
Audit Committee1
Risk & Compliance
Committee
Nomination
Committee2
Remuneration
Committee3
A
12
12
12
12
2
12
6
B
12
12
12
12
2
12
6
A
+
2
4
4
1
+
2
B
+
2
4
4
1
+
2
A
+
7
7
+
+
7
+
B
+
7
7
+
+
5
+
A
4
4
4
+
+
+
B
4
4
4
+
+
+
n/a
n/a
A
+
+
6
6
+
+
1
B
+
+
6
6
+
+
1
A Number of meetings held during the time the Director held office or was a member of the committee during the year
B Number of meetings attended
+ Not a member of the relevant committee
1.
During the Reporting Period the Audit Committee Chair was as follows: John Skippen to 27 November 2017; Christine Christian, from
December 2017 to 17 May 2018 and Carole Campbell since 18 May 2018
2. A number of additional informal meetings have been held with external recruitment firms and prospective candidates for Director during the year
3. A number of additional informal meetings have been held with external remuneration advisory firms, management and human resources during the year
30
FlexiGroup Annual Report 2018
Directors’ Report
31
FLEXIGROUP BRINGS YOU
LISA, A NEW ERA IN
LEASING. LISA ALLOWS
OUR CUSTOMERS TO ENJOY
THE THINGS THEY WANT
WITHOUT THE HASSLE OF
OWNING THEM. OUR
CUSTOMERS CAN PAY BY
THE MONTH WITH
PROTECTION FOR THEIR
GOODS INCLUDED, PLUS
THE FREEDOM TO UPGRADE.
REVIEW OF OPERATIONS – GROUP PERFORMANCE
Results and key performance indicators for the current and prior year are set out below on a Cash NPAT basis, adjusting for amortisation of
acquired intangibles, impairment of assets and customer remediation costs.
Group Profit and Loss
A$m
Total portfolio income
Interest expense
Net portfolio income
Receivables and customer loan impairment expenses
Impairment of goodwill and intangible assets
Depreciation and amortisation expenses
Operating and other expenses
Profit before income tax
Income tax expense
Statutory (loss)/profit after income tax
Non-cash items
Amortisation of acquired intangible assets
Impairment of goodwill and other intangibles
Customer remediation provision
Other 1
Total non-cash items
Group Cash NPAT 2
Basic earnings per share (cents)
Cash earnings per share (cents)
Volume
Closing receivables and customer loans 3
June 2018
June 2017
Change
460.4
(98.0)
362.4
(66.5)
(94.7)
(17.5)
(168.5)
15.2
(25.5)
(10.3)
4.5
89.1
4.9
-
98.5
88.2
(2.8)
23.6
2,284
2,383
462.8
(102.0)
360.8
(62.8)
-
(16.2)
(159.6)
122.2
(34.8)
87.4
4.2
-
-
1.4
5.6
93.0
23.4
25.0
1,952
2,168
(1%)
(4%)
0%
6%
n/a
8%
6%
(88%)
(27%)
(112%)
7%
n/a
n/a
(100%)
1,659%
(5%)
(112%)
(6%)
17%
10%
1.
Other includes the write down of equity accounted investments, which do not reflect ongoing operations. The investment in associate was fully
impaired at 30 June 2017
2. Cash NPAT reflects the reported net profit after tax adjusted for material infrequent items and the amortisation of acquired intangibles. The analysis
of results above is primarily based on Cash NPAT to align the information that is given to users of financial reports to the way the Directors view the
business and to assist better understanding of the Group’s performance. The Directors believe that Cash NPAT is the most appropriate measure of
maintainable earnings of the Group and therefore best reflects the core drivers and ongoing influences upon those earnings. Cash NPAT is used by
the Directors for purposes of providing guidance to shareholders and the market, and is calculated on a consistent basis each year
3. Receivables and loans excludes provision for doubtful debts, unamortised transaction costs and other debtors
32
FlexiGroup Annual Report 2018
Directors’ Report
33
Total portfolio income
Depreciation and amortisation
Total portfolio income decreased 1% to $460.4m, primarily driven by 7%
Depreciation and amortisation increased due to the finalisation of the
lower volume and 4% lower receivables in Consumer Leasing. This was
purchase price adjustments from the NZ Cards acquisition that occurred
partially offset by AU Cards revenue which increased by 38%, driven by
in the prior comparative period.
increased card spend and growth in long-term finance.
Interest expense
Operating expenses
Operating expenses increased by 6% or $8.9m driven by customer
Interest expense decreased 4% to $98.0m, driven by:
remediation provision of $7m, one-off cost of restructuring $3.6m of
•
•
lower cost of funds through improved funding terms in AU Cards,
NZ and Certegy; and
decrease in net corporate debt interest expense by $2.5m due to a
reduction in average corporate debt which also contributed to a
decline in gearing4 ratio from 53% to 36%.
4 Gearing is recourse (corporate) borrowings as a percentage of equity
excluding intangible assets.
Impairment losses on loans and receivables
The increase in impairment losses is due to under investment in our
cards collection capability as a result of the strong volume growth in the
portfolio. Management has responded to this, with early cycle
delinquencies showing improvement. Overall impairment as a
which approximately $1m relates to redundancies and CPI increases on
employment costs of $2m. The increase was partially offset by $4.6m in
one-off costs in the prior year.
Non-cash items
Amortisation of acquired intangibles
The acquisition of companies over the years has resulted in the
recognition of intangible assets that are amortised over their useful life
ranging from 3 to 27 years. The amortisation of these intangible assets
is treated as a cash NPAT adjustment because it does not affect cash
distributions available to shareholders. During the year, $4.5m post tax
has been amortised to the income statement (2017: $4.2m).
Impairment of goodwill and intangible assets
percentage of average net receivables remained stable at 3.0%,
The impairment of goodwill and intangible assets is a cash NPAT
with increases in costs offset by improvement in NZ Cards and
adjustment as it is a material infrequent item which does not impact
AU Commercial.
on-going operations.
Customer remediation
Group Balance Sheet
A$m
Cash and cash equivalents
Receivables and customer loans1
Other assets
Current tax receivable
Goodwill
Other intangible assets
Disposal Group Assets
Total assets
Payables
Borrowings
Other liabilities
Current and deferred tax liabilities
Disposal Group Liabilities
Total liabilities
Equity
Gearing2
ROE3
Impairment of goodwill and intangible assets
The customer remediation provision is a Cash NPAT adjustment as it is a
1.
Includes other debtors as disclosed in the statutory accounts
Impairment of goodwill and intangible assets resulted from the decline in
forecast cash flows relating to the FlexiRent Consumer Leasing business.
The product was replaced by a more customer centric product in February
2018. For more details, refer to note 6 of the 31 December 2017 Half Year
Financial Statements and note 13 of the Annual Financial Statements.
material infrequent item and the Board believes it does no reflect the
ongoing operations of the Group. The provision relates to ongoing
discussions being held with the Credit and Investments Ombudsman
(CIO) regarding the Group’s responsible lending practices in its Australia
Consumer Leasing business.
2. Gearing is recourse (Corporate) borrowings as a percentage of equity excluding intangible assets
3. Calculated based on Cash NPAT as a percentage of average equity
June 2018
June 2017
Change
125.3
167.3
2,368.1
2,165.9
10.9
0.5
236.5
100.4
12.5
13.1
3.8
321.4
114.4
-
2,854.2
2,785.9
51.7
50.3
2,124.7
2,007.7
22.0
25.8
2.4
2,226.6
627.6
36%
13.6%
30.9
25.2
-
2,114.1
671.8
53%
14.5%
(25%)
9%
(17%)
(87%)
(26%)
(12%)
n/a
2%
3%
6%
(29%)
(2%)
n/a
5%
(7%)
(18%)
(1%)
34
FlexiGroup Annual Report 2018
Directors’ Report
35
Receivables and customer loans
Current and deferred tax liabilities
Group Statement of Cash Flows
Receivables and customer loans (including other debtors) increased
Tax balances have remained consistent with the prior year.
by 9% to $2,368.1m (2017: $2,165.9) driven by AU cards customer loans
growth of $166.0m (34%) and NZ Cards customer loans growth
of $32.8m (5%).
Goodwill
Funding
FlexiGroup maintains a conservative funding strategy; to retain
committed funding facilities for all scale businesses, combined with an
active debt capital markets presence. The Group currently has revolving
The decrease in goodwill is due to a $75.9m impairment of the
wholesale debt facilities in place with Australian Deposit Taking
Consumer Leases goodwill, and the impact of exchange rates on
Institutions, large international banks, plus numerous institutional
NZ$ denominated goodwill balances.
investors through Asset-Backed Securitisation (ABS) programs in both
Other intangible assets
Other intangible assets include merchant and customer relationships,
brand names and capitalised software. These are amortised over the
useful life ranging from 3 to 27 years. The balance has decreased due to
a one-off impairment of capitalised development software of $18.4m and
acquired merchant relationships of $0.4m. Excluding the one-off
impairment, the balance has remained relatively stable with the
amortisation and foreign exchange impacts being offset by the
additional capitalised software.
Payables
Payables include trade creditors, interest accruals, GST payable and sales
incentive accruals. Balances have remained consistent with the prior year,
reflecting the similar nature and timing of payments within the business.
Australia and New Zealand.
At balance sheet date, the Group had $2,586.3m (2017: $2,607.0m) of
wholesale debt facilities, with $527.6m (2017: $703.2m) undrawn and no
indications that facilities will not be extended. The majority of the
wholesale debt facilities, $2,091.1m (2017: $2,217.3m) have no bullet
repayment on maturity, with outstanding balances repaying in line with
receivables and customer loans if availability periods were not to be
extended. These facilities are secured against underlying pools of
receivables and customer loans. The remaining wholesale debt facilities
either have a soft bullet or have sufficient lead-time for extension when
approaching maturity.
The Group’s $196.1m (June 2017: $177.5m) of corporate debt facilities
were drawn to $104.3m (June 2017: $126.2m) at balance sheet date.
These facilities are secured by the assets of the Group and with maturity
dates ranging between March 2020 and March 2021.
Gearing
Borrowings
Borrowings have increased by 6% to $2,124.7m, driven by the growth
in receivables and customer loans, partially offset by a $19.5m net
The reduction in recourse corporate debt gearing to 36% (June 2017:
53%) is driven by repayment of corporate borrowings during the year
through excess funds generated from operating activities.
A$m
NPAT
Impairment loss on receivables and customer loans
Depreciation and amortisation expenses
Impairment of goodwill and other intangible assets
Changes in operating assets and liabilities
Other non-cash movements
Operating cash flow
Capex
Acquisitions and divestments
Changes in customer loans and receivables
Investing cash flow
Proceeds from corporate borrowings
Repayment of corporate borrowings
Net movement in non-recourse borrowings
Dividends and share based payments
Financing cash flow
Net decrease in cash
June 2018
June 2017
Change
(10.3)
66.5
17.5
94.7
14.1
6.2
188.7
(29.0)
(9.2)
(304.1)
(342.3)
149.3
87.4
62.8
16.2
-
(6.8)
1.4
161.0
(24.6)
(7.6)
(159.0)
(191.2)
135.0
(168.8)
(150.8)
165.5
(29.0)
117.0
(36.6)
75.9
(36.9)
23.2
(7.0)
(112%)
6%
8%
n/a
(307%)
342%
17%
18%
21%
91%
79%
11%
12%
118%
(21%)
404%
423%
Cash inflows from operating activities are up on prior year, with an
businesses. Capital expenditure increased by $4.4m compared with
increase of 17% to $188.7m (2017: $161.0m). This increase is due to
prior year due to the ongoing digitisation of customer systems
$11.7m tax refunds from prior year returns and improvement in working
capital management
Cash inflows from financing activities increased 404% to $117.0m (2017:
$23.2m), due to an increase in non-recourse borrowings, offset by
Cash outflows from investing activities increased by 79% to $342.3m
higher corporate debt repayments and the decrease in dividends paid,
repayment of corporate debt and the impact of exchange rates on $NZ
The Group continues to optimise its capital structure to maximise
(2017: $191.2m). This is a result of a significant increase in loans and
driven by a change in dividend policy
denominated balances.
Other liabilities
shareholder value. The Group will continue to pay down recourse
corporate debt with proceeds from operating activities.
receivables, driven by increased volume in both AU and NZ Cards
Other liabilities include provisions, derivative financial instruments and
Return on equity (‘RoE’)
deferred and contingent consideration payable. The decrease in other
ROE of 13.6% (June 2017: 14.5%) has remained stable.
liabilities is attributable to a $9.2m payment of the deferred
consideration relating to the acquisition of the NZ Cards business and a
$6.5m decrease in fair value of derivative financial instruments as a
result of usage and changes in the forward rates compared to the prior
year. This was partially offset by a $7m customer remediation provision.
36
FlexiGroup Annual Report 2018
Directors’ Report
37
Shareholder returns
TSR
Dividends per share (cents)
Cash EPS (cents)
Share price (high)
Share price (low)
Share price (close)
Earnings per share
Basic earnings per share
Diluted earnings per share
Cash earnings per share
Dividends on ordinary shares
Final dividend for the year - payable October
Dividends paid during the year
Interim dividend for the year - paid in April
Final dividend for 2018 (PY: 2017) - paid in October
Total dividends paid during the year
Total dividends declared for the financial year
YEAR ENDED 30 JUNE
2018
26%
7.70
2017
(3%)
7.70
23.60
25.00
$2.33
$1.44
$2.22
$2.58
$1.55
$1.83
2016
(16%)
14.50
28.00
$3.12
$1.71
$1.74
2015
(14%)
17.75
28.70
$4.00
$2.70
$2.91
2018
cents
(2.8)
(2.8)
23.6
2018
2017
cents
3.85
3.85
3.85
7.70
7.70
$m
14.4
14.4
14.4
28.8
28.8
cents
3.85
3.85
7.25
11.10
7.70
2014
(26%)
17.80
27.10
$4.99
$2.98
$3.17
2017
cents
23.4
23.4
25.0
$m
14.4
14.3
27.0
41.3
28.7
The final dividend for 2018 has a record date of 7 September 2018 and will be paid on 12 October 2018
REVIEW OF OPERATIONS - SEGMENT PERFORMANCE
FlexiGroup’s business consists of six core operating segments. Interest on acquisition debt obtained to fund the acquisition of the NZ Cards
business is unallocated but forms part of maintainable cash earnings.
Segment summary
A$m
Certegy
AU Cards
Consumer Leasing
Commercial Leasing
NZ Leasing
NZ Cards
Unallocated 1
Total Cash NPAT from continuing operations
1.
Unallocated relates to net corporate debt interest
June 2018
June 2017
Change
32.0
7.2
0.4
13.0
10.9
29.5
(4.8)
88.2
33.6
9.7
5.6
11.3
11.5
27.8
(6.5)
93.0
(5%)
(26%)
(93%)
15%
(5%)
6%
26%
(5%)
1.6
2.5
5.2
1.7
0.6
1.7
1.7
FY17
$93.0m
11.5
27.8
9.5
11.3
5.6
33.6
(6.5)
m
$
FY17
Certegy
AU Cards
Comsumer
Leasing
Commercial
Leasing
NZ Leasing
NZ Cards
Corporate
Debt Costs
FY18
$88.2m
10.9
29.5
7.2
13.0
0.4
32.0
(4.8)
FY18
38
FlexiGroup Annual Report 2018
Directors’ Report
SEGMENT ANALYSIS
Certegy
A$m
Net portfolio income
Operating expenses
Impairment losses on customer loans
Volume
Closing customer loans
Cash NPAT
June 2018
June 2017
Change
92.9
(29.3)
(18.0)
541.0
493.0
32.0
94.2
(26.2)
(19.6)
524.0
466.0
33.6
(1%)
12%
(8%)
3%
6%
(5%)
Cash NPAT of $32.0m represents a 5% decrease compared to the prior year and is driven by:
•
•
•
Volume increased by 3% to $541m and receivables increased by 5% to $492m, demonstrating the initial success of product digitisation and
associated improvements in the buyer and seller experience
Impairment losses decreased by 8% to $18.0m, reflecting strong discipline in seller accreditation and credit decisioning processes
Operating expenses increased by 12% to $29.3m, primarily driven by investment in front-end digitisation of the product and a non-recurring
restructuring expense of $0.6m
AU Cards
A$m
Net portfolio income
Operating expenses
Impairment losses on customer loans
Volume
Closing customer loans
Cash NPAT
June 2018
June 2017
Change
61.3
(25.1)
(25.8)
740.1
643.6
44.5
(17.9)
(12.7)
534.0
483.0
38%
40%
103%
39%
34%
39
Change
(18%)
0%
28%
(7%)
(4%)
(93%)
June 2018
June 2017
51.8
(45.0)
(7.6)
104.0
152.0
0.4
62.8
(44.9)
(10.5)
112.0
158.0
5.6
Consumer leasing
A$m
Net portfolio income
Operating expenses
Impairment losses on receivables
Volume
Closing receivables
Cash NPAT
Cash NPAT is $0.4m, a decrease of 93% on the prior year. The decline in profits resulted from the following factors:
•
•
•
•
Net portfolio income decreased by 18% to $51.8m, primarily driven by the run off in FlexiRent, not fully offset by volumes growth in Lisa
Lisa was launched in February 2018 and provides a more customer centric product, which also addresses heightened regulatory expectations
Operating expenses were in-line with FY17 at $45.0m with operational efficiencies offset by investment in the refreshed Lisa product, the Ireland
Flexi-Fi business and restructuring costs of $2.2m
Impairment losses decreased by 28% to $7.6m, driven by improved recoveries from active management of arrears and improved credit quality of
Lisa and SmartWay
Commercial leasing
A$m
Net portfolio income
Operating expenses
Impairment losses on receivables
Volume
Closing receivables
Cash NPAT
June 2018
June 2017
Change
41.6
(23.6)
0.5
147.8
284.9
13.0
41.4
(21.7)
(6.6)
94.0
260.0
11.3
0%
9%
(108%)
57%
11%
15%
7.2
9.7
(26%)
Cash NPAT is $13.0m, an increase of 15% on the prior corresponding year. This resulted from the following factors:
AU Cards’ Cash NPAT of $7.2m represents a decrease of 26% compared to the prior year.
•
•
•
•
Net portfolio income increased 38%, in-line with the growth in receivables of 34% and volume of 39%
The number of customer accounts have increased 22% to over 180,000, with 61% growth in card spend year on year
Impairment losses have increased by $13.1m reflecting the growth in the loans portfolio. The growth is proportionally higher than receivables growth
as volumes placed pressures on collections processes. Management have put additional measures in place to mitigate this, with early
cycle delinquencies showing improvement
Operating expenses increased by 40% to $25.1m driven by investment to support volume growth, together with Skye card development and
launch costs
•
•
•
•
Net portfolio income flat year on year, which was driven by higher fee and other income, partially offset by lower net interest income from lower
average receivables and changing business mix
Operating expenses increased 9% to $23.6m, reflecting costs incurred to support sales initiatives
Impairment losses decreased by 108%, driven by lower losses and improved recoveries from continuous management of arrears as well as a provision
release of $4.2m as a result of improved credit quality and collections capability from prior years
The increase in sales volume of 57% to $147.8m was underpinned by the growth of the Managed Services channel and improved digital processing in
the core commercial business. This translated to closing receivables increasing by 10% to $284.9m
40
FlexiGroup Annual Report 2018
Directors’ Report
41
NZ leasing
A$m
Net portfolio income
Operating expenses
Impairment losses on customer loans
Volume
Closing customer loans
Cash NPAT
June 2018
June 2017
Change
30.9
(14.6)
(1.3)
84.5
155.7
10.9
33.1
(16.9)
(0.7)
92.0
182.0
11.5
(7%)
(14%)
86%
(8%)
(14%)
(5%)
NZ Leasing’s Cash NPAT is $10.9m, a decrease of 5% on the prior year, driven by:
•
•
•
•
Net portfolio income decreased primarily due to appreciation of the Australian dollar, and the reduction in volume and average net receivables
Fee and other income benefited from continued strong end of term performance
Operating expenses decreased due to disciplined cost management and efficiencies from the integration of the NZ Leasing and Cards businesses
Net receivables decreased, however sales volume increased year on year in the second half of 2018 reflecting positive momentum driven by new
management structure
Overall portfolio performance is stable compared to prior years
NZ cards
A$m
Net portfolio income
Operating expenses
Impairment losses on customer loans
Volume
Closing customer loans
Cash NPAT
June 2018
June 2017
Change
90.7
(35.3)
(14.3)
666.2
649.8
29.5
93.9
(42.6)
(12.6)
594.0
617.0
27.8
(3%)
(17%)
13%
12%
5%
6%
Cash NPAT of $29.5m represents an increase of 6% compared to the prior year (in NZ$ terms 9%), offset by weakening NZD:
•
•
•
In underlying New Zealand dollars, net portfolio income has increased by 4% reflecting strong growth in the Mastercard receivables, after excluding
acquisition related adjustments recorded in 2017
Operating expenses decreased to $35.3m due to a focus on cost management
The 13% increase in impairment corresponds to the higher growth in receivables with continued strong portfolio performance
PERFORMANCE HAS
BEEN CHARACTERISED
BY SOLID GROWTH IN
THE CARDS BUSINESSES
AND WITH MORE THAN
$2.3 BILLION IN
RECEIVABLES, WE ARE
WELL POSITIONED FOR
FUTURE PROFITABILITY
42
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THE ROLE OF OUR REMUNERATION COMMITTEE
FlexiGroup’s Remuneration Committee advises the
Board on remuneration matters, assisting the Board
in its responsibilities by reviewing and advising on
Board and Senior Executive remuneration. The
Remuneration Committee also reviews and makes
recommendations to the Board on FlexiGroup’s
overall remuneration strategies, policies and
practices, and monitors the effectiveness of the
overall remuneration framework. The governance of
Executives’ remuneration outcomes remains a key
focus of the Remuneration Committee and the
Board. We regularly review our policies to ensure
that remuneration outcomes align to market
expectations and the interests of shareholders.
SHORT TERM INCENTIVE PLAN RESULTS
KMP received an average of 55% of the maximum
opportunity available based on the assessment of
corporate, customer and individual performance.
Introduction from the Chairman of the Board
Remuneration Committee
Dear Shareholder,
On behalf of the FlexiGroup Board, I am pleased to share our Financial
Year 2018 remuneration outcomes with you. I am confident that these
results are reflective of management’s performance for the year whilst
also being aligned to shareholder returns.
2018 REMUNERATION OUTCOMES
The overall structure and philosophy of FlexiGroup’s approach to
remuneration remained consistent with last financial year. Our
remuneration approach is based on directly linking financial rewards
with the company performance and a clear evaluation of how each
employee directly contributed to the results.
Given where we are in our transformation, FlexiGroup delivered solid
KEY MANAGEMENT PERSONNEL
CHANGES IN FY18
There have been some changes to KMPs in the last twelve months with
Peter Lirantzis, our Chief Operations Officer leaving the business in
January 2018 and the resignation of Symon Brewis-Weston effective
from 3 September 2018.
A review of KMP remuneration in FY18 indicated that the majority of
KMPs are remunerated appropriately in-line with their accountabilities
and the size and complexity of their roles. As a result, only two KMPs
received a pay increase for FY18.
The Board is committed to ensuring the Remuneration Report presents
an accurate and concise view of Executive remuneration, complying with
requirements under the Corporations Act 2001. We are confident that
the Company’s remuneration policies support the Group’s strategic and
financial goals and we will continue to monitor this alignment in the
results for shareholders this financial year and we have made progress
coming year.
on our aim to provide customers and retailers with seamless payment
solutions. Overall, performance across our business has improved
across the majority of our product range. Our cards portfolio in Australia
and New Zealand has continued to see year-on-year growth and our
Commercial results have seen a significant improvement in performance
on past years. Both will contribute to a very positive outlook for the
future. We have also made good progress transforming our Certegy
business. In addition to this, we have launched two new products into
market with the introduction of Lisa, our new Consumer Leasing product
in February 2018 and our new Skye Credit Card offering in July 2018.
These results contributed to our consideration of remuneration for 2018,
specifically the awarding of STI plan payments. As part of the
consideration process, the Board assessed a number of factors to
determine STI outcomes. In order to be eligible for payment, employees
had to meet the gateway requirements which included meeting the
NPAT target, effective leadership and delivery of the results in a
sustainable and ethical way. This involved a formal review being
undertaken by FlexiGroup’s Risk Committee of any compliance or risk
related issues that were reported during the year. Given the provision
taken for remediation, the CEO’s STI payment was impacted.
Short-term incentive outcomes during the FY18 financial year for the
CEO and the KMPs averaged 55% of target. There was some variation in
payment between divisional KMPs based on performance. As with last
year, 25% of KMP STI payments were allocated to deferred shares,
further aligning performance with shareholder interests while also
encouraging retention of the KMP.
In FY18, Tranche 3 of the FY14 LTI reached the test date based on the
FY16 and FY17 performance periods. As the minimum vesting thresholds
were not met, 891,876 performance rights were forfeited during the
period.
VOTING AND COMMENTS
MADE AT THE COMPANY’S
2017 ANNUAL GENERAL MEETING
FlexiGroup received 98.12% of “yes” votes on its remuneration report for
the 2017 financial year.
We are confident that our remuneration framework will drive positive
outcomes for the Group in the 2019 financial year.
Jodie Leonard
Independent Non-Executive Director
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PRINCIPLES AND GOVERNANCE OF
REMUNERATION AT FLEXIGROUP
This part of our report details the Group’s principles and governance
The Remuneration Committee reviews the Remuneration Framework on
regarding remuneration.
Governance
an annual basis to ensure that it adheres to the Group’s overall risk
management framework and that any risks identified are addressed in a
timely manner.
We place a strong focus on ensuring that the Group’s remuneration
The Remuneration Committee consists of the following independent
policies and practices are fair and meet our obligations:
Non-Executive Directors:
to reward employees for achieving high performance that is aligned
to shareholder value and long term benefit for the Group; and
•
•
Jodie Leonard (Chairman); and
Rajeev Dhawan.
•
•
to ensure that we meet the Group’s risk management framework
and governance standards.
The Remuneration Committee is responsible for enforcing the required
standards in regards to governance of FlexiGroup remuneration
practices. The Committee’s responsibilities include reviewing and
making recommendations to the FlexiGroup Board on the remuneration
philosophy, framework and policies for the Group. The Committee is
responsible for making recommendations to the Board on remuneration
policies and Directors as well as Executives remuneration.
The Remuneration Committee undertakes the following
activities for the Group:
Independent remuneration consultant
In consultation with external remuneration consultants, the Group aims
to provide an Executive remuneration framework that is market
competitive and complementary to the reward strategy of the
organisation. During the year, FlexiGroup’s Remuneration Committee
engaged the services of EY to work with us on providing advice
regarding our Remuneration Framework.
EY was paid $25,000 to provide advice and the recommendations were
made free from undue influence by members of the Group’s KMP, with
EY being engaged by, and reporting directly to, the Chair of the
Remuneration Committee. The agreement for the provision of
•
Reviews and provides recommendations to the Board on
remuneration consulting services was executed by the Chair of the
remuneration, recruitment and retention policies for Executives
Remuneration Committee to ensure compliance with the Corporations
and Non-Executives
Act 2001.
•
Reviews and provides advice regarding the Key Performance
Consequently, the Board is satisfied that the recommendations were
Indicators (KPIs) for the Group and for individual Executives that
made with the required level of independence from KMP.
•
•
underpin the STI program
Reviews and provides recommendations to the Board
on remuneration policies for the broader organisation
Reviews Remuneration Policies annually to ensure that the
policies comply with the Group’s objectives and risk management
framework
•
Provides annual recommendations to the Board on the individual
remuneration arrangements for the CEO, Executive team and
any other KMP
•
•
Approves overall Group remuneration budgets and STI Scheme
payments for Non-Executive Group employees and
Reviews and provides recommendations to the Board regarding
remuneration for Non-Executive Directors.
Remuneration objectives and guiding principles
The objective of our Remuneration policies is to focus our employees on achieving the Group’s key strategic and business objectives, while also
enabling the Group to attract, motivate and retain the most talented employees. Ultimately, we want FlexiGroup to become an employer of choice
in all of our geographies.
We recognise that having the right people in place within the organisation is a key competitive advantage and contributor to the Group’s success.
That means that it is important to us that our market rates and benefits are competitive with organisations of a similar size and complexity. We
also appreciate that we need to balance this with our focus on managing our operational expenditures to drive the best possible outcome for our
customers and shareholders.
We have a number of key principles that underpin our Remuneration Policy.
Clear
alignment of
renumeration
with strategic
objectives
Provide
market
Competitive
renumeration
to attract the
right talent
Implement
renumeration
structures
that are clear
and well
understood
Support
merit-based
renumeration
achievement
across a
diverse
workforce
Ensure that
renumeration
outcomes
reflect
sustainable,
ethical
performance
practices
Clear alignment of remuneration with strategic objectives – ensures
that our people are focusing on driving the short and long term goals of
Provide market competitive remuneration to attract the right talent
– while balancing commercial considerations, the company also ensures
the Group and are aligned with shareholder interests. It means that
that we implement competitive remuneration packages that enable the
our framework enables the payment of incentives only when they are
Group to attract high calibre candidates who will make a positive impact
directly linked to the achievement of specific, measurable strategic
on the performance of the Group.
business objectives and those objectives have been achieved.
Alignment to shareholders’ interests is a key principle for the Group
when considering Executive remuneration. When considering the
design of the Executive Remuneration Framework and in particular,
any incentive arrangements, the Board aims to ensure that all
arrangements have profitability as a core component of plan design
and focus on sustained growth in shareholder wealth as measured by
growth in earnings per share and other financial and non-financial
performance indicators.
This is balanced with a focus on ensuring that participants’ interests are
also represented in considering incentive design, by focusing on
rewarding capability and experience while also providing recognition for
participant contribution and effort.
Implement remuneration structures that are well understood –
the implementation of frameworks and policies that are clear, well
communicated and readily accessible to employees.
Support merit based remuneration achievement across a diverse
workforce – Checks and balances in place to ensure that employees are
rewarded consistently for like work against market relativities,
irrespective of gender, age or other irrelevant demographic factors –
the key differentiator in pay for individuals should be performance.
Ensure that remuneration outcomes reflect sustainable, ethical
performance practices – there are sufficient risk structures in place to
ensure that results are sustainable and adhere to ethical business
practices. This also requires performance to be assessed in conjunction
with the assessment of demonstration of organisational values.
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How is remuneration structured?
Remuneration timing
The diagram below provides an overview of the different remuneration components within the framework for KMPs.
The remuneration components are structured to reward Executives progressively across different timeframes. The diagram below shows the period
FlexiGroup’s FY18 remuneration strategy is a mix of fixed and variable pay in the form of cash, and deferred shares and performance rights.
The framework aligns Executive rewards with achievement of strategic objectives and the creation of value for shareholders. The diagram below
provides an overview of the different remuneration components within the framework.
over which FY18 remuneration was delivered and when the awards vest.
Objective
Attract and retain the best talent
“At Risk” Remuneration linked to short and long term company
Reward current year performance
Reward long term performance
Remuneration Component
Total Fixed Remuneration (TFR)
Short Term incentive (STI)
Long Term Incentive (LTI)
Purpose
TFR is set in relation to the external
market and takes into account
size, critically and complexity of
the role, individual responsibilities,
experience and skills
A % of fixed remuneration which is
set against individual and Group
risk adjusted financial targets and
non-financial targets that support
the Group’s strategy
LTI ensures alignment to long-
term Group performance and is
consistent with strategic business
drivers and long-term shareholder
returns
Delivery
Base salary, superannuation and
allowances (where possible)
Annual Cash
Payment 75%
Deferred into
share rights
25%
Performance share rights,
which vest over a fixed period if
performance hurdles (earnings
per share and total shareholder)
are achieved
FY18 Approach
Target TFR positioning is
benchmarked every two years
against a comparator group,
chosen based on a combination
of annual revenue, market
capitalisation, total assets and
operating profit
TFR
STI
LTI
Cash STI
Deferred STI
Cash EPS Target (50%)
Relative TSR Target (50%)
KEY
Date Paid
Date Earned
Date Granted
Vesting Date
FY18
FY19
FY20
FY21
FlexiGroup has defined approval processes in place for all remuneration decisions. For our KMPs, any amendments to remuneration must be
approved by the Remuneration Committee (this is also the case for non KMP direct reports to the CEO).
Remuneration for KMPs is reviewed annually in-line with the financial year. In setting an individual’s remuneration, the Board considers:
•
•
•
External and internal relativities
Individual and Group performance over the last year
Recommendations from the Group CEO on the remuneration arrangements for the Executive team and
STI Performance Measure
LTI Performance Measure
• Market data from comparable roles listed on the Australian Securities Exchange (ASX) against a peer group that is relevant and large enough
to provide meaningful data which is conducted every two years
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Remuneration mix
The remuneration mix for Executive KMP’s is weighted towards variable remuneration to ensure a significant focus on achieving transformation
objectives.
CEO: 63.6% of the CEO’s remuneration is performance based pay and 43.2% of his remuneration is delivered as performance rights.
Other Executive KMP: 50% of their remuneration is performance based pay and 31.25% of their remuneration is delivered as performance rights.
CEO
Fixed Remuneration (36.4%)
Target STI (27.2%)
Maximum LTI (36.4%)
Cash (20.4%)
Deferred
(6.8%)
Cash NPS (18.2%)
Relative TSR
(18.2%)
Other Executive KMP
Fixed Remuneration (50%)
Target STI (25%)
Maximum LTI (25%)1
Cash (18.75%)
Deferred
(6.25%)
Cash NPS (12.5%)
Relative TSR
(12.5%)
1. Note: CFO and CEO of NZ have a slightly higher percentage of LTI in line with market norm
Key Management Personnel remuneration disclosed in this report
The remuneration of KMPs for the Group is disclosed in this Report. In 2018 financial year KMP’s comprised
Non-Executive Directors, the CEO and some Group Executives who reported to the CEO and/or led significant parts of the business.
Non-Executive and Executive Directors
Name
Andrew Abercrombie
Christine Christian
Rajeev Dhawan
Jodie Leonard
Carole Campbell
Symon Brewis-Weston1
R John Skippen
Other KMPs
Name
Ross Aucutt
Verity Gilpin
Ken Richards
Chris Lamers
Peter Lirantzis
1 Resigned effective 3 September 2018
Position
Chairman
Deputy Chairman and
Independent, Non-Executive
Independent, Non-Executive
Independent, Non-Executive
Term as KMP
Full Year
Full Year
Full Year
Full Year
Independent, Non-Executive
Appointed on 17 May 2018
Chief Executive Officer
Full Year
Independent, Non-Executive
Resigned on 27 November 2017
Position
Term as KMP
Chief Financial Officer
General Manager – Sales
General Manager - Commercial
Chief Executive Officer - New Zealand
Full Year
Full Year
Full Year
Full Year
Chief Operating Officer
Resigned on 16 January 2018
REMUNERATION SNAPSHOT 2018
This section provides an overview of the Group’s remuneration
arrangements during the 2018 financial year.
FlexiGroup’s total reward framework
The remuneration framework in place for the Executive team (including
the CEO) is consistent with the Group’s Remuneration Policy, which is
based on a Total Remuneration approach.
This comprises of a mix of fixed and variable pay in the form of cash and
deferred shares and performance rights.
The framework aligns Executive rewards with achievement of strategic
objectives and the creation of value for shareholders.
Total Remuneration for our Executive team is comprised of three
elements:
Fixed remuneration – which includes cash salary and employer
superannuation components. This amount takes into consideration a
number of factors including the size and complexity of the role; the
requirements of the role; the skills and experience the individual brings
to the role; as well as the market relativity for like roles in the financial
services industry.
STI – this payment is a percentage of the fixed remuneration amount
and is set against risk-adjusted financial targets and non-financial
targets that support the Group’s strategy. These targets are usually a
mix of group and individual performance objectives for the year.
LTI – this is comprised of performance share rights, which vest over a
fixed period if performance hurdles are achieved.
The performance hurdles are a combination of earnings per share and
total shareholder return targets set by the Board at inception of the
incentive plans.
Fixed remuneration
The Executive team are offered competitive fixed remuneration
amounts that reflect the key performance requirements of their roles.
Fixed Remuneration is reviewed annually in line with the financial year (1
July to 30 June), although a review may not necessarily result in any
increases to remuneration. Any increases to Executive Remuneration
need to be approved by the Board Remuneration Committee and come
into effect from 1 July, following an annual performance review, which is
conducted at the end of the financial year.
Remuneration is benchmarked against market data provided by
remuneration consultants for companies that are similar to the Group in
terms of industry, size and complexity. In line with our focus on driving a
pay for performance culture, a key determinant of whether any increases
to Fixed Remuneration will apply year to year is performance against
specific financial and non-financial metrics that are set for each
individual at the beginning of the financial year.
The fixed remuneration for KMPs is set out on page 63 of this report.
FIXED REMUNERATION
Salary
(Cash)
Employer
Superannuation
Contributions
AT RISK REMUNERATION -
SHORT TERM INCENTIVES
Cash STI
(75% of total STI)
Deferred STI
(25% of total STI)
AT RISK REMUNERATION -
LONG TERM INCENTIVE
EPS Target
TSR Target
Total remuneration framework underpinned by
remuneration principles
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Short term incentive (STI)
The Executive team participate in a STI scheme that is based on
performance against key financial and non-financial measures.
The STI opportunity for the CEO is fixed at 75% of fixed remuneration
and for other Executive KMPs, it is fixed at 50% of fixed remuneration
(‘target’). The Board has set the maximum opportunity available to the
CEO and Senior Executives to 150% of target.
In 2018, the maximum STI achieved against their target by any of the
KMP’s was 86%.
The structure of the STI is designed to achieve alignment of
organisational performance to our strategic goals. The STI contains
both Group Goals (based on the Group’s strategic objectives) as well as
Area Specific goals that are aligned to the Group’s strategic objectives
but unique to each department. The goals are consistent across the
Group and were introduced to drive a collaborative approach within the
organisation to achieve business success and shareholder value within
the financial year.
During 2018, a target was set for performance against four Group Goals.
The policy allows for either partial payment (for performance under
target) or a stretch payment (for performance over target) to be paid,
subject to the below principles:
•
Any partial payments made will consider the performance of the
business overall and the closeness of the performance in the
specific metric to the identified target
•
Any stretch payments made will consider the performance of the
business overall. For a stretch payment to be made, all metrics will
need to have achieved target or above
Discretion regarding any payments under the STI rests with the Board.
The Board has the capacity to adjust STI outcomes (and reduce STI
outcomes to zero if appropriate) as part of the assessment process.
Payment of the Group Goals was determined based on the Group’s
results at 30 June 2018.
STI outcomes are subject to both a quantitative and qualitative
assessment, including a risk management overlay, which is embedded
in the scoreboard measurement process.
STI key objectives for FY18
The structure of the STI is designed to achieve alignment of
organisational performance to our strategic goals as well as driving
performance in key business segments. The Board identified these
measures, as they are a critical link between achieving the Group’s
strategic objectives and increasing shareholder value. An overview of
the FY18 STI Scheme is outlined in the table on the next page, including
a summary of performance.
The Group corporate goals are shared by all KMPs
STI Goals
% of STI
Hurdles to Pay
Group Corporate Goals:
Group Cash NPAT ($m)
Group Receivables ($m)
Group Cash Flow ($m)
NPS
Personal/Segment Goals:
Segment/Functional Specific
Goals and Growth Goals
20
5
5
5
65
The STI results for FY18 are outlined on the following page
Satisfactory performance for the year
To pay any of the Corporate Goals, three hurdles needed to be achieved:
•
• Meeting the conduct gateway (this focuses on Risk and Compliance requirements)
•
Provided each of these three hurdles are met, the Corporate Goals will then be paid if they
achieve target.
The Company achieving a Cash NPAT of $87.1m.
In addition to the performance and conduct hurdles, $86m Cash NPAT must be achieved
as a ‘Gateway’ to release payment for individual KPIs.
THE GROUP CORPORATE GOALS ARE SHARED BY ALL KMPS.
THE RESULTS BY GOAL ARE LISTED BELOW, CONSTITUTING
35% OF THEIR STI. EACH KMP WILL ALSO HAVE
ADDITIONAL GOALS RELATING TO THEIR BUSINESS AREA.
The results by Goal are listed below, constituting 35% of their STI
C A S H N P A T
R E C E I V A B L E S
C A S H F L O W
N P S
T
E
G
R
A
T
Cash NPAT results were at the higher end of market guidance and met
the performance hurdles in place to activate Group Corporate Goals
payment across the Group
Closing receivables grew from FY17 driven by strong growth in AU
Cards and AU Commercial Leasing segments, however this growth was
lower than target and this hurdle was not met
Cash Flow generated was ahead of target. This was achieved through
disciplined capital management particularly focused on the improved
efficiency of our funding structures
Group NPS results have shown a marked increase in prior years driven
by the focus on digitising and simplifying our customer onboarding
process and the repositioning of our customer lease product. This
target was met
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Payment of the STI
Long term incentive (LTI)
Disposal restriction for sign on incentive rights
KMPs will have a portion of their STI paid as deferred (restricted) shares. By deferring a portion of the STI, incentive payments are better aligned with
LTI to the CEO and Senior Employees are provided via the FlexiGroup
the interests of shareholders as the ultimate value of the deferred portion is tied to the share price at the end of the restriction period. The deferred
Long Term Incentive Plan (‘LTIP’). The FlexiGroup LTIP is part of
STI awards recognise past performance and are not subject to further performance conditions, but are subject to a tenure condition. The KMPs
FlexiGroup’s remuneration strategy and is designed to align the
The CEO may not dispose of, deal in, or grant a security interest over any
interest in Sign-On Incentive Rights without the prior written consent of
the Board, which may be given subject to such conditions as the Board
receive dividends over the vesting period. Detail on how the STI payment will work is contained in the following table by plan component:
interests of FlexiGroup management and shareholders and assist
sees fit in relation to the proposed dealing.
P E R F O R M A N C E
1 July 2017 to 30 June 2018
S T I
75% paid in cash in September 2018
25% provided as restricted shares
R E S T R I C T I O N
12 months for the deferred portion from grant date
D I V I D E N D S
F O R F E I T U R E
C L A W B A C K
KMPs are entitled to dividends and voting rights during the
restriction period
The deferred shares are subject to continued service (Restriction Period)
which means that the shares are forfeited if the employee resigns or
breaches company policies or terms of his or her employment
agreement during the relevant restriction period
Restricted shares may also be forfeited if a clawback event occurs during
the Restriction Period. A clawback event is a circumstance where an
employee has engaged in fraud, dishonesty or gross misconduct, or where
the financial results that led to the restricted shares being granted are
subsequently shown to be materially misstated
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 performance rights under the LTIP encouraging those
Executives to remain with FlexiGroup and contribute to the future
The CEO may not dispose of, deal in, or grant a security interest over any
interest in, a Share allocated to the CEO on exercise of a vested Sign-On
Incentive Right for any relevant period determined by the Board.
Current LTI plan - performance rights
performance of the Group. The Company’s founding shareholders
The Performance Rights were originally allocated in four equal tranches.
approved the terms, the implementation and the operation of the LTIP
On 27 November 2017, Tranche 5 was approved and issued to the CEO
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
and Senior Executives. The Performance Rights allocated in each
tranche will vest on, and become exercisable on or after, the applicable
Vesting Date to the extent that certain performance-based conditions
are achieved in the relevant Performance Period and a tenure condition
is satisfied. The Performance Rights issued in Tranche 1, 2 and Tranche
3 have lapsed, whilst the Performance Rights in Tranches 4 and 5 remain
on issue, and will be tested based on FY19 and FY21 results respectively.
by the Board is required to be paid to exercise a vested option, whereas
Tranche 3 performance rights had a minimum CAGR Cash EPS growth
a performance right has a nil exercise price unless otherwise determined
target of 4.5% and relative TSR conditions similar to those disclosed on
by the Board. Options and performance rights granted under the plan
page 54. These conditions were measured based on a performance
carry no dividend or voting rights.
period for financial year 1 July 2015 to 30 June 2017.
The Board is responsible for administering the LTIP in accordance with
The Performance Periods applicable to each of the outstanding
the LTIP Rules and the terms and conditions of specific grants of options
performance-based Vesting Conditions are as follows:
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.
LTI arrangements for 2018
The following sets out the key features of the awards to the CEO and
Senior Executives.
Sign on incentive rights
Tranche
Performance Period
Testing Date
4
5
2019 (1 July 2016 to 30 June 2019)
2021 (1 July 2017 to 30 June 2021)
Results announcement
date in 2019
Results announcement
date in 2021
Tranche 4 Performance Rights will be performance tested against the
following performance-based Vesting Conditions:
On 22 November 2016, the shareholders approved an issue of sign on
Percentage of rights
Performance Condition
incentive rights to the former CEO, Symon Brewis-Weston.
The Incentive rights were issued in two equal tranches and have the
40% of each Tranche of
Performance Rights
Cash EPS growth targets for the
relevant Performance Period are met
following terms:
Tranche
Vesting Date
Expiry Date
Disposal
Restriction Date
40% of each Tranche of
Performance Rights
Relative TSR for the relevant Performance
Period compared to the S&P/ASX 200 Index
(excluding resources companies)
1
2
1 September 2017
15 October 2018 30 September 2017
1 September 2018
15 October 2019 30 September 2018
20% of each Tranche of
Performance Rights
Volume growth targets for the relevant
Performance Period are met
Vesting conditions for sign on incentive rights
The Sign-On Incentive Rights are only subject to a tenure condition –
they are not subject to any performance based or other Vesting
Conditions. For any Sign-On Incentive Rights to vest and become
exercisable, the CEO must remain employed by FlexiGroup at the
applicable Sign-On Incentive Rights Vesting Date.
Should the CEO cease to be employed by the Company on or prior to a
tranche of Sign-On Incentive Rights vesting, all of the unvested Sign-On
Incentive Rights will lapse immediately in accordance with the LTIP
Rules unless the Board makes a determination that those Sign-On
Incentive Rights have vested.
Tranche 5 Performance Rights will be performance tested against the
following performance-based Vesting Conditions:
Percentage of rights
Performance Condition
50% of each Tranche of
Performance Rights
Cash EPS growth targets for the
relevant Performance Period are met
50% of each Tranche of
Performance Rights
Relative TSR for the relevant Performance
Period compared to the S&P/ASX 200
Index (excluding resources companies)
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Cash EPS growth performance condition
The first performance-based Vesting Condition is based on growth on
adjusted “Cash NPAT” earnings per share measure used by the
Company to track earnings per share on an underlying performance
Cash EPS growth target
basis. The Company calculates this adjusted “Cash NPAT” earnings per
share measure (“Cash EPS”) for a financial year as:
•
the reported statutory net profit after tax, adjusted for the after tax
Compound annual growth rate
in cash EPS less than 4.0%
effect of material infrequent items that the Board believe do not
reflect on ongoing operations of the Group and the amortisation of
Compound annual growth rate
in cash EPS of 4.0%
acquired intangible assets;
•
divided by the weighted average number of ordinary shares on
issue during the year.
This is consistent with how the Company reports its “Cash NPAT” in its
investor presentations.
The performance condition tests the growth in Cash EPS for the relevant
Performance Period financial year above the Cash EPS for the
immediately preceding financial year, measured as a percentage, (“Cash
EPS Growth”).
The Cash EPS Growth condition for Tranche 4 will be satisfied for a
Performance Period in accordance with the following table:
Compound annual growth rate
in cash EPS greater than 4.0%
But less than 10.0%
Compound annual growth rate
in cash EPS equal to or greater
than 10.0%
Relative TSR performance condition
The Cash EPS Growth condition for Tranche 5 will be satisfied for a
Tranche 5 performance targets are as per the table below:
Disposal restriction
Performance Period in accordance with the following table:
Percentage of performance
rights available in given year
satisfying condition
Nil
30%
Pro-rata between 30% And 100%
100%
Relative TSR target
Less than 51st percentile of companies
in S&P/ASX 200 index (excluding
materials and energy companies)
51st percentile of companies in S&P/
ASX 200 index (excluding materials
and energy companies)
Greater than 51st percentile but less
than the 75th percentile of companies
in S&P/ASX 200 index
Greater than or equal to 75th percentile
of companies in S&P/ASX 200 index
(excluding materials and energy companies)
Percentage of performance
rights available in given year
satisfying condition
The CEO and Senior Executives may not dispose of, deal in, or grant a
security interest over any interest in, a Performance Right without the
prior written consent of the Board, which may be given subject to such
conditions as the Board sees fit in relation to the proposed dealing.
Nil
50%
Pro rata between
51% And 100%
The CEO and Senior Executives may not dispose of, deal in, or grant a
security interest over any interest in, a Share allocated on exercise of a
Vested Performance Right for any relevant period determined by the
Board.
The Board has imposed a disposal restriction on the Shares that are the
subject of this approval, which will be granted on the exercise of any
Vested Performance Rights. The disposal restriction will be enforced by
placing a sale restriction over the Shares that are allocated on the
exercise of the Vested Performance Rights.
The disposal restrictions on those Shares will be lifted at the relevant
100%
Restriction Period End Date as set out below:
The second performance-based Vesting Condition for each tranche of
The Board has the discretion to amend either the Cash EPS growth
Performance Rights relates to the Company’s Total Shareholder Return
performance condition or the relative TSR performance condition at any
(“TSR”) for the relevant Performance Period when compared to the peer
time during the relevant Performance Period applicable to those
group of companies in the S&P/ASX 200 Index (excluding materials and
Performance Rights if the Board believes it is appropriate to do so to
energy companies).
reflect the Company’s circumstances.
Tranches of shares
allocated on exercise
of vested Performance
Rights tranches
% of shares allocated on
vesting and exercise of
Performance Rights
Restriction period
end date
Tranche 4
Tranche 5
60
40
100
15 October 2019
15 October 2020
15 October 2022
The Board may also implement any such other arrangements (including
a holding lock) as it determines are necessary to enforce this restriction.
The Board has the discretion to amend or waive any disposal restrictions
on the Shares the subject of this approval which will be granted on the
exercise of any Vested Performance Rights at any time until the disposal
restriction ends, if the Board believes it is appropriate to do so to reflect
the Company’s or the employee’s circumstances.
Once any Board imposed restriction is removed, and subject to the
Company’s Trading Policy, Shares acquired on exercise of Vested
Performance Rights may be dealt with freely.
Volume condition
The third performance-based Vesting Condition, that is applicable to
Tranche 4 only, is based on Volume. The Volume Growth vesting condition
will assess volume growth for the Company with respect to the Performance
Period applicable to the relevant tranche of Performance Rights, based on
performance indicators set by the Board from time to time.
Vesting date and expiry date
Tranche
Performance period
Testing date
4
5
1 Sept 2019
15 Oct 2021
1 Sept 2021
15 Mar 2022
Vested Performance Rights that are not exercised before the relevant
expiry date will lapse in accordance with the LTIP Rules.
Cash EPS growth target
Compound annual growth rate
in cash EPS less than 4.5%
Compound annual growth rate
in cash EPS of 4.5%
Compound annual growth rate
in cash EPS greater than 4.5%
But less than 6.0%
Compound annual growth rate
in cash EPS of 6.0%
Compound annual growth rate
in cash EPS greater than 6.0%
But less than 7.5%
Compound annual growth rate
in cash EPS equal to or greater
than 7.5%
Percentage of performance
rights available in given year
satisfying condition
For each Performance Period, the TSR for the Company will be
determined by calculating the amount by which the sum of:
Nil
•
the 90-day volume weighted average price (“VWAP”) for
FlexiGroup shares in the period up to and including
30%
30 June at the end of the relevant Performance Period and
•
the dividends paid on a share during the relevant
Performance Period
Pro-rata between 30% And 60%
exceeds the 90 day VWAP for the Company’s shares in the period up to
and including 1 July at the beginning of the relevant Performance Period,
60%
expressed as a percentage.
Below are targets applicable for Tranche 4:
Pro-rata between 60% And 100%
Relative TSR target
Percentage of performance
rights available in given year
satisfying condition
100%
Less than 50th percentile of companies
in S&P/ASX 200 index (excluding
materials and energy companies)
50th percentile of companies in S&P/
ASX 200 index (excluding materials and
energy companies)
Greater than 50th percentile but less
than the 75th percentile of companies
in S&P/ASX 200 index
Greater than or equal to 75th percentile
of companies in S&P/ASX 200 index
(excluding materials and energy companies)
Nil
50%
Pro rata between
50% and 100%
100%
56
FlexiGroup Annual Report 2018
Remuneration Report
57
REMUNERATION OUTCOMES FOR 2018
Incentives paid to the CEO and Group Executives are directly linked to the Group’s financial performance. Outlined below are details for the CEO and
KMP payments relating to incentives.
STI performance outcomes
2017 Deferred STI
The below STIs are gross of the 25% deferred shares component.
The table below presents the equity that was granted under the FY17
The vesting outcomes for awards made to Senior Executives under FlexiGroup LTI Plan that reached vesting date during the reporting period are set
out below.
Type of instrument
Commencement
date
Test date
TSR Quartile in
Ranking Group
TSR Vested %
EPS Volume
Vested %
Lapsed % Remain in plan
Performance rights
1 Dec 2014
15 Sept 2017
4th Quartile
-
-
100
-
deferred STI scheme. The deferred shares vest and are exercisable on 15
Options issued to top five remunerated Non-KMP officers
Symon Brewis-Weston1
84,375
48,981
15 Sep 2018
reporting periods are as follows:
Name
Position
STI target $ STI outome $
September 2018.
Symon Brewis-Weston
Ross Aucutt
Verity Gilpin
Ken Richards
Chief Executive
Officer
Chief Financial
Officer
General Manager –
Sales
General Manager –
Commercial
590,625
132,891
Name
Deferred STI
value ($)
# of shares
issued
Vesting date
225,000
180,000
217,875
176,479
207,500
134,875
Ross Aucutt
Verity Gilpin
Ken Richards
Chris Lamers
Peter Lirantzis
16,875
33,070
9,796
15 Sep 2018
19,198
15 Sep 2018
21,094
12,245
15 Sep 2018
9,229
5,357
15 Sep 2018
-
-
-
Chris Lamers
CEO New Zealand
195,8531
168,4331
Peter Lirantzis
Chief Operating
Officer
-
-
1. With the resignation of Simon Brewis-Weston effective from
3 September 2018 tenure based conditions have not been satisfied
and deferred shares will be forfeited
1. NZD translated at the average exchange rate of 1.085
LTI performance outcomes
The Vesting conditions attached to LTI awards at grant date are chosen to align rewards to the CEO and Senior Executives with the generation of
shareholder value. The following table provides the Group’s TSR, dividend, share price and Cash earnings per share over the last 5 years.
TSR
Dividends per share (cents)
Cash EPS (cents)
Share price – high
Share price – low
Share price – close
2018
26%
7.70
23.60
$2.33
$1.44
$2.22
2017
(3%)
7.70
25.00
$2.58
$1.55
$1.83
2016
(16%)
14.50
28.00
$3.12
$1.71
$1.74
2015
(14%)
17.75
28.70
$4.00
$2.70
$2.91
2014
(26%)
16.5
27.10
$4.99
$2.98
$3.17
Details of performance rights granted to KMPs are disclosed in the table on page 58 below. In financial year 2018, no instruments were issued to an
officer who is among the five highest remunerated officers of the Company and the Group, and who is not a key management person.
The terms and conditions of each grant of options, performance and sign on incentive rights affecting remuneration in the previous, this or future
Grant date
1 December 2014
26 November 2015
22 November 2016
3 July 2017
6 September 2017
27 November 2017
Tranche
number
Date vested
and exercisable
Expiry date
Exercise price1
Value per option,
performance right
at grant date ($)
2
2
3
3
4
4
2
2
2
3
3
3
4
4
4
1
2
1
2
1
5
5
1 Sep 2016
1 Sep 2016
1 Sep 2017
1 Sep 2017
1 Sep 2019
1 Sep 2019
1 Sep 2016
1 Sep 2016
1 Sep 2016
1 Sep 2017
1 Sep 2017
1 Sep 2017
1 Sep 2019
1 Sep 2019
1 Sep 2019
1 Sep 2017
1 Sep 2018
1 Sep 2017
1 Sep 2018
15 Sep 2018
1 Sep 2021
1 Sep 2021
15 Oct 2018
15 Oct 2018
15 Oct 2019
15 Oct 2020
15 Oct 2021
15 Oct 2021
15 Oct 2018
15 Oct 2018
15 Oct 2018
15 Oct 2019
15 Oct 2019
15 Oct 2019
15 Oct 2021
15 Oct 2021
15 Oct 2021
15 Oct 2018
15 Oct 2019
15 Oct 2018
15 Oct 2019
15 Oct 2018
15 Mar 2022
15 Mar 2022
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
2.65
1.40
2.49
1.31
2.35
1.23
2.61
0.27
2.61
2.46
1.04
2.46
2.17
1.34
2.17
2.11
1.98
1.73
1.65
1.53
1.36
0.71
1.
The exercise price must be paid by the option holder to exercise the option when it vests
58
FlexiGroup Annual Report 2018
Remuneration Report
59
Details of performance, deferred STI shares and sign on incentive rights (referred to as “Incentive rights”) over ordinary shares in the Company
provided as remuneration to each Director of FlexiGroup Limited and each of the KMP of the parent entity and the Group are set out below. When
exercisable, an incentive right is convertible into one ordinary share of FlexiGroup Limited. Further information on the incentive rights is set out in
ADDITIONAL INFORMATION
note 24 to the financial statements.
Directors of FlexiGroup Limited
Name
A Abercrombie
C Christian
R Dhawan
J Leonard
C Campbell
S Brewis-Weston2
R J Skippen
Number of incentive
rights granted
during the year2
Value of incentive
rights granted
during the year $ 1
Number of incentive
rights vested
during the year
Number of incentive
rights lapsed
during the year
Financial years
of issue of lapsed rights
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
605,843
-
651,526
-
36,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other Key Management Personnel
Name
R Aucutt
V Gilpin
K Richards
C Lamers
P Lirantzis
Number of incentive
rights granted
during the year
Value of incentive
rights granted
during the year $
Number of incentive
rights vested
during the year
Number of incentive
rights lapsed
during the year
Financial years
of issue of lapsed rights
219,813
173,263
158,974
243,706
-
232,402
188,921
170,657
280,789
-
-
-
-
15,000
-
-
-
-
-
-
-
-
-
-
-
1.
This is based on the fair value of the shares on the date of issue
2. With the resignation of Symon Brewis-Weston effective from 3 September 2018 tenure based conditions have not been satisfied and deferred
performance rights will be forfeited
The assessed fair value at grant date of incentive rights granted in 2018
(f) Expected dividend yield: 4.8%
(g) Risk-free interest rate: 2%
Shares provided on exercise of remuneration options
and performance rights
In the current year, nil ordinary shares in the Company were issued
because of the exercise of remuneration performance and sign on
incentive rights. The 51,000 vested sign on incentive rights were settled
through on market share purchases.
is allocated equally over the period from grant date to vesting date, and
the amount is included in the remuneration table on page 61. The fair
values at grant date for sign on and deferred share incentives were
internally determined, as the incentives were only subject to a tenure
vesting condition. For performance rights issued on 27 November 2017,
the fair values at grant date were independently determined using a
binomial tree option pricing methodology that takes into account the
exercise price, the term of the 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 performance rights.
The model inputs for performance rights granted during the year ended
30 June 2018 included:
(a) Exercise price: nil
(b) Grant date: 27 November 2017
(c) Expiry date: 15 March 2022
(d) Share price at grant date: $1.63
(e) Expected price volatility of the Company’s shares: 35%
Details of remuneration: STI cash payments, performance and sign on incentive rights
For each STI cash payment and grant of performance and sign on incentive rights, 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 performance and sign on incentive rights vest in accordance with the vesting schedules detailed below. No performance and/
or sign on incentive rights 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.
Executive Director
Name
2018STI
Total
payment1
$
STI Outcome
as % of
target
STI % of
target
forfeited
S Brewis-Weston2
132,891
23
77
Prior year
equity awards
Vested
during 2018
%
Prior year
equity awards
Forfeited
during 2018
%
Financial
years in which
performance
and sign on
incentive rights
may vest
Maximum total
value of grant
yet to vest
$
50
-
-
-
-
-
2019
2019
2022
6,944
15,477
551,998
LTI Year
granted
2017
2018
2019
Other Key Management Personnel
2018STI
Total
payment1
$
STI Outcome
as % of
target
STI % of
target
forfeited
LTI Year
granted
Name
R Aucutt
180,000
80
V Gilpin
176,479
K Richards
134,875
C Lamers
168,4333
P Lirantzis
-
81
65
86
-
20
19
35
14
-
2018
2019
2016
2018
2018
2018
2018
2018
2018
2018
2015
2016
Prior year
equity awards
Vested
during 2018
%
Prior year
equity awards
Forfeited
during 2018
%
Financial
years in which
performance
and sign on
incentive rights
may vest
Maximum total
value of grant
yet to vest
$
-
-
-
-
-
-
-
37.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
2019
2022
3,095
208,182
2020/2021
237,244
2019
2022
2019
2022
2019
2022
2022
-
-
6,066
152,719
3,869
145,447
6,131
1,693
196,616
-
-
1.
includes both the cash and deferred shares components
2. With the resignation of Symon Brewis-Weston effective from 3 September 2018 tenure based conditions have not been satisfied and deferred perfor-
mance rights will be forfeited
3. NZD translated at the average exchange rate of 1.085
60
FlexiGroup Annual Report 2018
Remuneration Report
61
Shares under performance rights
Non-Executive Directors’ fees
Amounts of remuneration
As at the date of this report, there were 2,577,100 unissued ordinary
The current base remuneration was approved on 20 July 2011. Non-
Details of the remuneration of the Directors and the KMP (as defined in Australian Accounting Standards Board (“AASB”) 124 Related Party
shares of FlexiGroup Limited subject to performance, sign on and
Executive Directors’ fees are determined within an aggregate Directors’
Disclosures) of FlexiGroup Limited and its subsidiaries are set out in the following tables. The cash bonuses are dependent on the satisfaction of
deferred STI rights. These unissued ordinary shares are the subject of
fee pool limit of $1.2 million.
performance conditions as set out in the section headed Short-term performance incentives above. The KMP of FlexiGroup Limited is the Directors
The following fee structure was applicable for the 2016 financial year:
and certain Executives that report directly to the CEO.
performance, sign on and deferred STI rights with expiry dates between
1 October 2018 and 15 October 2022.
No performance and sign on incentive shareholder has any right under
the performance share to participate in any other share issues of the
Company or any other entity.
Non-Executive Directors
Base fees (per annum)
Chair $250,000
Other Non-Executive Directors $120,000
Additional fees (per annum)
Audit Committee – Chair $25,000
Fees and payments to Non-Executive Directors reflect the demands that
Remuneration Committee – Chair $25,000
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
Risk and Compliance Committee – Chair $25,000
In addition to the above fees, Directors also receive superannuation
contributions required under government legislation.
A Director is entitled to reimbursement for reasonable travel,
accommodation and other expenses in attending meetings and carrying
arrangement on 20 November 2006 but no Directors have yet elected to
out their duties.
2018
Non-Executive Director
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
A Abercrombie (Chairman)
253,701
C Christian (Deputy Chairman)
157,978
R Dhawan3
J Leonard
C Campbell4
R J Skippen7
Subtotal
Non- Executive Directors
199,100
135,063
18,218
60,417
824,477
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,049
15,008
12,390
12,831
1,731
5,740
67,749
-
-
-
-
-
-
-
-
-
-
-
-
-
-
273,750
172,986
211,490
147,894
19,949
66,157
892,226
participate in the arrangement.
Under clause 10.09 of the Company’s constitution, subject to the Listing
Rules and Corporations Act 2001, a Director at the request of the other
Directors may be remunerated for performing additional or special
duties for the Company.
Executive Director
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
Under clause 10.11 of the Company’s constitution, subject to the Listing
S Brewis-Weston
767,454
132,891
Rules and Corporations Act 2001, 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.
Subtotal
Executive Director
767,454
132,891
-
-
20,049
20,049
-
-
141,224
1,061,618
141,224
1,061,618
Other key management
personnel
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
R Aucutt
V Gilpin
K Richards
C Lamers5
P Lirantzis 6
Subtotal other key
management personnel
Total key management
personnel compensation
(Group)
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
429,951
135,000
415,703
132,360
382,799
101,156
381,731
126,325
-
-
-
-
316,741
-
191,541
20,049
20,049
20,049
12,237
11,695
1,926,925
494,841
191,541
84,079
3,518,857
627,732
191,541
171,877
-
-
-
-
-
-
-
21,125
52,064
21,341
76,349
18,255
606,125
620,176
525,345
596,642
538,232
189,134
2,866,520
330,357
4,840,364
1.
This represents 75% of the 2017 STI payable in September 2018. The remaining 25% is deferred to the financial year commencing 1 July 2018 with a
vesting date of 15 September 2019
2. Remuneration for share-based payments represents amounts expensed during the year for accounting purposes. Negative amounts represent
lapsed instruments due to failure to meet either performance vesting conditions or termination of employment. Included in the share based payment
expense is the FY2017 deferred STI amount that is settled in equity. The shares vest on 15 September 2018
3. R Dhawan received additional fees for serving on the FXL NZ Board
4. C Campbell was appointed a non-executive director on 17 May 2018. Amounts above include payments commencing on appointment date
5. NZD translated at the average exchange rate of 1.085
6. P Lirantzis ceased being a KMP on 16 January 2018
7.
R J Skippen resigned on 27 November 2017
62
2017
FlexiGroup Annual Report 2018
Remuneration Report
63
Non-Executive Director
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
A Abercrombie (Chairman)
250,000
R Dhawan3
C Christian 4
J Leonard4
R J Skippen
Subtotal
Non- Executive Directors
157,644
80,100
70,000
145,000
702,744
-
-
-
-
-
-
-
-
-
-
-
-
23,750
13,775
7,610
6,650
13,775
65,560
-
-
-
-
-
-
-
-
-
-
-
-
273,750
171,419
87,710
76,650
158,775
768,304
Executive Director
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
S Brewis-Weston
702,450
253,125
Subtotal
Executive Director
702,450
253,125
-
-
47,550
47,550
-
-
83,405
1,086,530
83,405
1,086,530
Other key management
personnel
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Name
D Stevens5
R Aucutt5
R May5
V Gilpin
P Lirantzis5
K Richards6
C Lamers7
Subtotal other key
management personnel
Total key management
personnel compensation
(Group)
Cash salary
and fees
STI cash
payment1
Other
benefits Superannuation
Long
service leave
Share-based
payments expense2
Total earnings
365,984
-
469,813
198,103
50,625
-
205,679
-
188,323
383,431
99,211
580,385
33,750
270,885
62,532
-
-
-
127,917
27,686
47,414
13,078
18,820
19,540
26,570
19,616
25,734
5,103
-
-
-
-
21,528
-
-
(130,713)
-
(101,480)
21,132
2,808
-
-
718,162
267,548
312,062
530,344
658,087
359,151
208,120
2,132,384
273,804
705,550
128,461
21,528
(208,253)
3,053,474
3,537,578
526,929
705,550
241,571
21,528
(124,848)
4,908,308
This represents 75% of the 2017 STI payable September 2017. The remaining 25% is deferred until the financial year commencing 1 July 2017 and vesting on
15 September 2018
Remuneration for share-based payments represents amounts expensed during the year for accounting purposes. Negative amounts represent lapsed
instruments due to failure to meet either performance vesting conditions or termination of employment
R Dhawan received additional fees for serving on the FXL NZ Board
1.
2.
3.
4.
5. D Stevens, R May and P Lirantzis ceased being KMPs on 9 January 2017, 31 January 2017 and 16 January 2018 respectively. Amounts shown in their
remuneration include amounts earned up to that date and termination benefits, which are included as other benefits above. R Aucutt replaced D Stevens
and R May was not replaced
6.
7.
K Richards was appointed as General Manager Commercial on 10 October 2016. Amounts above include payments commencing on appointment date
C Lamers was appointed as CEO of New Zealand commencing 6 March 2017. Amounts above include payments commencing on appointment date.
C Lamers was paid a NZ$47,414 sign on bonus to compensate him for lost benefits from his previous employment. This amount has been disclosed as other
benefits above. Lamers was also offered sign on incentive rights as part of his lost earnings compensation, with a grant date of 1 July 2017. These incentives
will be reflected in his FY18 earnings. NZD translated at the average exchange rate of 1.085
The relative proportions of ongoing remuneration that are linked to performance and those that are fixed are as follows:
Name
S Brewis-Weston
R Aucutt
V Gilpin
K Richards
C Lamers
D Stevens1
R May1
P Lirantzis1
Fixed remuneration
At risk STI
2018 %
2017 %
2018 %
2017 %
2018 Rights %
2017 Rights %
74
74
70
77
66
n/a
n/a
100
69
81
77
83
87
100
100
94
13
22
21
19
21
n/a
n/a
-
23
19
19
17
13
n/a
n/a
5
13
4
9
4
13
n/a
n/a
-
8
-
4
-
-
n/a
n/a
1
1. Mr P Lirantzis, Mr D Stevens and Mr R May’s total remuneration is disclosed as 100% fixed remuneration in the year of their departure. They did not
qualify for STI due to resignation and their LTIs lapsed on departure
Service agreements
Remuneration and other terms of employment for the Chief Executive
In the event of retrenchment, the Executives listed in the table on page
Officer and the other KMPs are formalised in service agreements. Each
48 are entitled to the payment provided for in the service agreement.
of these agreements can provide for the provision of short term
performance incentives, eligibility for the FlexiGroup Long Term
The employment of the Executives may be terminated by the Company
without notice by payment in lieu of notice. Upon termination of
Incentive Plan (‘LTIP’), other benefits including the use of a company
employment, the Board exercises its discretion on payment of a pro-rata
motor vehicle, tax advisory fees, payment of benefits forgone at a
STI entitlement and early vesting of any unvested LTI’s held by the
previous employer, relocation, living, tax equalisation, travel and
above KMP.
accommodation expenses while an Executive is required to live away
The service agreements also contain confidentiality and restraint of
from their normal place of residence.
trade clauses.
All employment agreements are unlimited in term but capable of
termination at agreed notice by either the Company or the Executive.
The Company can make a payment in lieu of notice. The notice period
for each Executive are listed in the table below.
The provisions of the agreements relating to notice period and
remuneration are listed in the table below.
Name
S Brewis-Weston
R Aucutt
V Gilpin
K Richards
C Lamers4
1. Notice applies to either party
Term of agreement
and notice period1
Total Fixed
Remuneration $2
Termination payments3
6 months
3 months
3 months
3 months
3 months
787,500
450,000
435,750
415,000
425,000
6 months
3 months
3 months
3 months
3 months
2. Base salaries and superannuation are for financial year ended 30 June 2018. Annual reviews are performed by the remuneration committee.
3. Base salary payable if the Company terminates employee with notice, and without cause, (e.g. for reasons other than unsatisfactory performance)
C Christian and J Leonard were appointed as non-executive directors on 1 December 2016. Amounts above include payments commencing on appointment date
4. Remuneration is in NZ$
64
FlexiGroup Annual Report 2018
Remuneration Report
65
Other services obtained from related parties- rental of Melbourne premises
Shareholding disclosures relating to Directors and Key Management Personnel
Flexirent Capital Pty Limited has rented premises in Melbourne owned by entities associated with Mr A Abercrombie. The rental arrangements for
these premises are based on market terms. The rent paid for these premises amounted to $177,353. Refer to note 30 for further details.
Equity instrument disclosures relating to Directors and Key Management Personnel
Performance, deferred STI shares and sign on incentive rights holdings.
2018
Executive Director
Name
Balance at
start of year
Granted at
compensation1
Exercised
Lapsed
Balance at
end of year
Vested and
exercisable
Unvested
S Brewis-Weston
72,000
605,843
(36,000)
-
641,843
-
641,843
1. With the resignation of Symon Brewis-Weston effective from 3 September 2018 tenure based conditions have not been satisfied and deferred perfor-
mance rights will be forfeite
Other Key Management Personnel
Name
R Aucutt
V Gilpin
K Richards
C Lamers
P Lirantzis
2017
Executive Director
Name
Balance at
start of year
Granted at
compensation
Exercised
Lapsed
Balance at
end of year
Vested and
exercisable
-
150,000
-
-
219,813
173,263
158,974
-
-
-
243,706
(15,000)
-
-
-
-
120,000
-
-
(120,000)
219,813
323,263
158,974
228,706
-
-
-
-
-
-
Unvested
219,813
323,263
158,974
228,706
-
Balance at
start of year
Granted at
compensation
Exercised
Lapsed
Balance at
end of year
Vested
and exercisable
Unvested
S Brewis-Weston
-
72,000
-
-
72,000
-
72,000
Other Key Management Personnel
Name
D Stevens
R Aucutt
R May
V Gilpin
P Lirantzis
K Richards
C Lamers
Balance at
start of year
Granted at
compensation
Exercised
Lapsed
Balance at
end of year
Vested
and exercisable
Unvested
360,000
-
255,000
190,000
360,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(360,000)
-
(255,000)
(40,000)
(240,000)
-
-
-
-
-
150,000
120,000
-
-
-
-
-
-
-
-
-
-
-
-
150,000
120,000
-
-
2018
Non-Executive Directors
Name
A Abercrombie (Chairman)
C Christian (Deputy Chairman)
R Dhawan
J Leonard
C Campbell
RJ Skippen
Executive Director
Name
S Brewis-Weston
Other Key Management Personnel
Name
R Aucutt
V Gilpin
K Richards
C Lamers
P Lirantzis
Balance at
start of year
90,766,593
-
275,371
3,560
-
147,470
Received during the year
on the exercise of rights
Other changes
during the year
-
-
-
-
-
-
-
10,000
-
-
-
(147,470)
Balance at
start of year
Received during the year
on the exercise of rights
50,852
36,000
Other changes
during the year
10,000
Balance at
end of year
90,766,593
10,000
275,371
3,560
-
-
Balance at
end of year
96,852
Balance at
start of year
Received during the year
on the exercise of rights
Other changes
during the year
Balance at
end of year
-
-
-
-
103,453
-
-
-
15,000
-
-
-
-
-
(103,453)
-
-
-
15,000
-
66
FlexiGroup Annual Report 2018
Directors’ Report
67
2017
Non-Executive Directors
Name
Balance at
start of year
Received during the year
on the exercise of rights
A Abercrombie (Chairman)
90,000,000
C Christian
R Dhawan
J Leonard
RJ Skippen
Executive Director
Name
S Brewis-Weston
Other Key Management Personnel
Name
D Stevens
R Aucutt
R May
V Gilpin
P Lirantzis
K Richards
C Lamers
-
275,371
-
145,000
Other changes
during the year
766,593
-
-
3,560
2,470
-
-
-
-
-
Balance at
start of year
Received during the year
on the exercise of rights
50,000
-
Other changes
during the year
852
Balance at
end of year
90,766,593
-
275,371
3,560
147,470
Balance at
end of year
50,852
Balance at
start of year
Received during the year
on the exercise of rights
Other changes
during the year
Balance at
end of year
46,510
-
23,375
-
103,453
-
-
-
-
-
-
-
-
-
(46,510)
-
(23,375)
-
-
-
-
-
-
-
-
103,453
-
-
OTHER INFORMATION
Directors’ indemnification
During the year ended 30 June 2018, 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 agreed to indemnify their auditors,
PricewaterhouseCoopers, to the extent permitted by law, against any claim
by a third party arising from the Company’s breach of their agreement. The
indemnity stipulates that the Company will meet the full amount of any such
liabilities including a reasonable amount of legal costs.
Proceedings on behalf of the Company
No person has applied to the court under section 237 of the Corporations
Act 2001 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 32 of the financial statements.
The Board of Directors has considered the position and, in accordance with
advice received from the Audit 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 in note 32 of the consolidated financial statements,
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 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.
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.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191 relating to the
“rounding off” of amounts in the Directors’ Report and the Annual Financial
Statements. Some amounts in the Directors’ Report and the Annual
Financial Statements have been rounded off in accordance with that
Instrument to the nearest hundred thousand dollars.
Matters subsequent to end of the financial year
Other than matters discussed in note 36, there are no other matters or
circumstances that have arisen since 30 June 2018 that has significantly
affected, or may significantly affect:
(a) the Company’s operations in future financial years, or
(b) the results of those operations in future financial years, or
(c) the Company’s state of affairs in future financial years.
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 78.
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.
Andrew Abercrombie
Chairman
Sydney
26 September 2018
68
FlexiGroup Annual Report 2018
Corporate Governance Statement
69
THE COMPANY IS COMMITTED
TO ENSURING THAT ITS POLICIES
AND PRACTICES MEET THE
RECOMMENDATIONS OF CORPORATE
GOVERNANCE AS OUTLINED BY THE
ASX CORPORATE GOVERNANCE COUNCIL
CORPORATE GOVERNANCE
STATEMENT
A framework for effective oversight
This Corporate Governance Statement sets out details of
FlexiGroup Limited’s (Company) corporate governance
practices for the year ended 30 June 2018 (Reporting Period)
including the Company’s position relating to each of the
Australian Securities Exchange (ASX) Corporate Governance
Council’s (ASX CGC) Corporate Governance Principles and
Recommendations 3rd Edition (Recommendations).
For the purpose of preparing this Corporate Governance Statement,
the Company has reviewed its current corporate governance policies
and practices against the Recommendations in respect of the
Reporting Period. As recommended by the ASX CGC, further
information in relation to corporate governance practices is publicly
available on the Company’s website at www.flexigroup.com.au.
The Board has established a framework of processes and guidelines
for the Company that includes corporate policies and monitoring
procedures, financial and operational business risk management and
internal control systems and standards for ensuring lawful and
ethical conduct.
Throughout the year, the Board’s composition has changed. On 27
November 2017, Mr R John Skippen resigned from his position as
Non-Executive Director of the Board and on 17 May 2018, Ms Carole
Campbell was appointed as an Independent Non-Executive Director.
Additionally, due to the substantial holdings of Mr Andrew
Abercrombie, the Board has appointed Ms Christine Christian as
Deputy Chairman from 6 August 2018. The Deputy Chairman will
assume the role of Chair of the Board when Mr Abercrombie has a
potential conflict of interest or lack of independence. This position
also offers an alternative point of contact for shareholders.
Mr Abercrombie indirectly holds approximately 24% of the shares
currently on issue in the Company and as the former CEO, is not
regarded as being an independent Director. The Board believes that
Mr Abercrombie is best placed to act as Chairman of both the Board
and the Nomination Committee given his extensive corporate
knowledge and understanding of the Company and his industry
associations.
With the resignation of Mr Symon Brewis-Weston as Chief Executive
Officer (CEO) and Executive Director on 3 September 2018, the
Company appointed Ms Rebecca James as CEO commencing on
2 October 2018.
As at the date of this Corporate Governance Statement, the Board is
majority independent and consists of Mr Andrew Abercrombie
(Chair), Ms Christine Christian (Deputy Chair), Mr Rajeev Dhawan,
Ms Jodie Leonard and Ms Carole Campbell. All Board Committees
are chaired by Non-Executive Directors. The Company’s Audit
Committee and Remuneration Committee are both entirely
independent in composition.
This Corporate Governance Statement is current as at 26 September
2018, and has been approved by the Board of the Company.
70
FlexiGroup Annual Report 2018
Sustainability Report
71
WE AIM TO OPERATE OUR
BUSINESSES IN ACCORDANCE
WITH OUR SUSTAINABILITY
FRAMEWORK, WHICH IS BUILT
AROUND OUR CORE VALUES, THE
FLEXIDNA, WHICH ARE INTEGRAL
TO THE WAY WE DO BUSINESS.
Y
T
I
L
I
B
A
N
I
A
T
S
U
S
SUSTAINABILITY PERFORMANCE
Corporate responsibility and long term sustainability are key priorities
outlines how the Company expects its representatives to behave and
that are embedded in the way we work. Our approach to sustainability is
conduct business in the workplace on a range of issues. The Board of
designed to anticipate, respond to and shape emerging issues and
Directors, as the Company’s highest governance body, ensures that
opportunities that have the potential to impact both internal and
FlexiGroup’s values and ethical standards are reflected in its day to day
external stakeholders including customers, employees, suppliers,
operations.
shareholders and communities. We aim to operate our businesses in
accordance with our sustainability framework, which is built around our
core values, the FlexiDNA, which are integral to the way we do business.
Values and integrity
In conducting its business activities, the Company is committed to
maintaining the highest ethical standards. FlexiGroup has a Code of
Conduct that applies to all Directors, officers, employees, contractors,
consultants and associates of the Company. The Code of Conduct
FlexiGroup takes its obligations in regards to ethical behaviour very
seriously. In addition to our Code of Conduct, the Company has also
implemented policies regarding the disclosure of personal relationships
where a potential conflict may arise and has improved its processes
regarding pre-employment and background audits, particularly for
senior leaders and those employees accessing credit information and
making financial decisions.
72
FlexiGroup Annual Report 2018
Sustainability Report
73
Our Code of Conduct also references our FlexiDNA. This is how we refer
One of our key strategic goals is to be an employer of choice. This means
recruiting for new roles are aware of our diversity policies and in
Indigenous cultural awareness
to our purpose, vision and values.
Our Purpose: We finance opportunities, connecting buyers and sellers
Our Vision: To create more opportunities where moments are made
possible
Our Values: Integrity, Relationships Matter, Accountability, Flexibility,
Courage with Credibility
that we are committed to the principles of equal employment and the
provision of a work environment that is safe and supportive of all of our
team members. The Company adopts and encourages diversity through
an open and inclusive culture that values and respects all employees,
customers and the communities in which we live and work.
FlexiGroup sees diversity as recognising and valuing the contribution of
people from different backgrounds, with different perspectives and
Our purpose is founded on the principle that every person should have
experiences, which in turn benefits our business as a whole.
the opportunity to buy what they want and need, provided it is within
their means to do so. Our focus is on our strong relationships with our
partners (our ‘sellers’) who provide great products and services for
customers (our ‘buyers’).
While we embrace the principle of meritocracy and seek to recruit,
promote and remunerate based on performance and capabilities, we
also ensure that we have clear, readily available policies that support
diversity underpinning our operating model and business processes,
Our vision is based on our drive to continually build our business – in
and we actively support programs within our business that enhance
new markets, with new sellers and for more buyers, so we can continue
diversity and inclusiveness. We have introduced a number of new
to create more opportunities where moments are made possible. A
policies and undertaken new initiatives during the reporting period to
moment could be starting school with the right technology, starting a
help encourage inclusiveness across the Group.
new business with the right equipment, or being able to book a dream
holiday.
Equal employment opportunity, bullying, harassment,
Our values guide how we operate and behave – whether it’s internally or
discrimination and victimisation policy
externally.
FlexiGroup is committed to maintaining a work environment that is free
Integrity - We believe that integrity is critical for any organisation but
particularly for a Financial Services team. We pride ourselves in doing
from bullying, harassment, discrimination and victimisation – a
workplace where all employees are treated with respect, dignity and
the right thing and being transparent in our dealings with our
fairness, and an environment that promotes honesty and integrity. The
shareholders, customers and employees.
Company does not tolerate any form of discrimination, including on the
Relationships matter - We also put relationships at the heart of the
decisions we make – our buyers and sellers are critical to our success
and customer experience is a key focus for us.
Accountability - We drive accountability across the organisation to
ensure that we deliver for our shareholders, customers and employees.
Flexibility - We have flexibility in our processes to ensure we remain
agile and continually grow and improve the way we operate.
Courage and credibility - We encourage our people to share sound
ideas that help us disrupt our traditional ways of thinking and operating
to ensure we are delivering innovative solutions for all of our
stakeholders.
basis of gender, race, religion, cultural background, colour, marital
status, sexual orientation, gender identity, age, disability, personal
associations, political beliefs, family responsibilities, pregnancy,
membership or non-membership of a trade union.
FlexiGroup is dedicated to ensuring that the Company creates and
maintains a diverse work environment in which everyone is treated in a
fair and respectful manner and where everyone feels responsible for the
reputation and performance of the Company.
The Company has adopted a comprehensive and robust Equal
Employment Opportunity, Bullying, Harassment, Discrimination and
Victimisation Policy in order to ensure that employees and other
stakeholders are treated fairly and equally. This policy sets out the types
The values permeate all of our people, processes and systems, and are
of behaviours and conduct that constitute bullying, harassment,
built into our performance management processes.
People and culture
FlexiGroup recognises the importance of attracting, building and
retaining a highly skilled team. The Company strives to create an equal,
safe and positive workplace for all employees. We also believe that
engaging with our employees is key to maintain a satisfied workforce.
discrimination and victimisation, establishes guidelines for dealing with
a complaint, if one arises, and explains the consequences if a breach in
the policy is committed. FlexiGroup maintains a zero-tolerance stance
regarding bullying, harassment, discrimination and victimisation. The
Equal Employment Opportunity, Bullying, Harassment, Discrimination
and Victimisation Policy, which is also available on the Company
employee portal, is closely aligned with the key principles of the
FlexiGroup Code of Conduct and is handed out to all employees upon
During the reporting period, FlexiGroup undertook an employee Net
commencement of employment.
Promoter Score (eNPS) survey. Responses were collected from
employees and shared with the business and used for planning activities
to build engagement and employee advocacy.
Gender diversity
Diversity and Equal Opportunity
At FlexiGroup, we value diversity and inclusion across our business and
believe that an inclusive workforce enhances our reputation and helps us
to attract, engage and retain talented people.
We are proud to support a diverse range of customers and it is important
to us that our team is reflective of our customer base. We firmly believe
that a strong and diverse workforce is key to providing a great
experience for our customers.
As part of its 2018 remuneration review process, FlexiGroup carried out
a gender equity pay analysis across the organisation. No further action
was required as no imbalances were observed.
FlexiGroup retained its compliance with the Workplace Gender Equality
Act 2012 during the reporting period, which demonstrates the
Company’s focus on ensuring that there is strong and practical support
for gender diversity within the organisation.
While we believe in the principle of meritocracy for all appointments and
promotions, we have also ensured that the agencies we work with when
particular, our focus on gender diversity. Any searches undertaken
specifically look for female candidates who have the right skill set to
perform the duties of the role.
In 2018, a group of FlexiGroup employees initiated a committee whose
purpose is to raise awareness of indigenous cultures across the Group.
The committee was tasked with creating a better understanding and
This year, we have also advertised a number of part time or flexible
appreciation of people from the diverse countries we live and work in. By
positions, utilising non-traditional search platforms that have a greater
raising awareness, we improve how we interact with our customers and
focus on targeting skilled candidates who are seeking more flexible
each other, which will contribute to our business results.
working arrangements.
The committee, which commenced meeting in December 2017, has
FlexiGroup have maintained the number of female employees at 38%
brought members together from various locations across the Group to
across the reporting period. In terms of representation at a Board and
share stories and learnings. These conversations have so far resulted in
executive level, we are very pleased to report our progress against the
the introduction of an Acknowledgement of Country at our quarterly
targets set in July 2017:
Target and outcome
Company employee meetings, the creation of a committee logo, an
inaugural NAIDOC week celebration, and attendance at a number of
indigenous cultural events. The committee will continue to focus on
building engagement with the wider group throughout the year.
Female Board
representation
Female Executive Team
(CEO and direct reports)
Employee training and development
The Company understands that maintaining and improving employee
skills and capabilities is a key element of FlexiGroup’s success and
development. As such, the Company has introduced a variety of training
programs aimed at enhancing the knowledge base and skills of our
employees. Specifically, during 2018, we have undertaken a number of
initiatives focused on building capability within the Group including the
following programs:
40%
Target
60%
Outcome
25%
Target
30%
Outcome
Induction
Domestic violence policy
FlexiGroup is committed to supporting employees who are experiencing
FlexiGroup’s induction modules have been designed to ensure that
employees have access to all important information required during their
first week. This includes information regarding FlexiGroup’s history, our
organisational structure, our FlexiDNA as well as some of our important
policies and processes that help us create a safe work environment.
domestic violence. Our goal is to assist victims and their families by
The FlexiGroup induction module also includes a ‘product overview’
offering a flexible and supportive working environment.
course that provides information on each product offering of FlexiGroup
A Domestic and Family Violence Support Policy was adopted in 2018
and was designed to provide assistance to employees who are victims of
Australia and New Zealand.
domestic violence, as well as the ability for employees to provide
Flexi Agent Learning Pathway
support to family members who are also impacted.
The Flexi Agent Learning Pathway (FALP) is FlexiGroup’s flagship
FlexiGroup supports our employees who are victims of domestic
program for all team members who work in customer service and
violence with leave options such as the provision of five additional paid
contact centre roles. The objective of FALP is to provide team members
leave days per year, access to unpaid leave, and leave to support family
working with customers an organised and logical learning path that
members who are victims of domestic violence.
provides them with the skills and knowledge to provide a great customer
Apart from leave options, we also offer additional support through
flexible working arrangements that provide our employees the option of
changing their working hours, the duties that they perform, or where
possible, the location of their role.
Parental leave policy
experience.
This training program is currently offered over a nine month period and
provides agents with a mix of soft and technical skills using a blended
approach of learning delivery (i.e. eLearn, classroom sessions and on
the job learning). In 2018, FlexiGroup offered eligible employees
approximately 1,630 hours of FALP training.
In addition to the government paid parental leave scheme, FlexiGroup
offers paid parental leave for both primary and secondary carers.
Compliance
Our parental leave policy allows for primary care givers to receive six
weeks of paid leave with the choice of receiving either an additional four
weeks of paid leave, or, have their superannuation paid for any unpaid
leave taken as part of their parental leave, up to a maximum of 12 months.
Compliance courses provide employees with an understanding of the
legal boundaries that the organisation and the financial industry work
within. These training courses enable team members to act within the
stipulated framework and make correct decisions. It also helps
employees avoid costly errors that could result in significant fines or
FlexiGroup is proud of the fact that we continue to maintain our
other legal sanctions for FlexiGroup.
achievement of 100% of women returning from parental leave
during the year.
74
FlexiGroup Annual Report 2018
Sustainability Report
75
AT FLEXIGROUP, WE DON’T JUST
REVIEW WHAT IS ACHIEVED, BUT
HOW IT IS ACHIEVED. THIS
MEANS THAT WE DISCUSS NOT
ONLY ACHIEVEMENT OF
PERFORMANCE OBJECTIVES, BUT
ALSO THE DEMONSTRATION OF
BEHAVIOURS, AS MEASURED BY
THE FLEXIDNA VALUES. THIS
RECOGNISES THE IMPORTANCE OF
OUR FLEXIDNA VALUES WITHIN
OUR ORGANISATION AND
ENSURES THAT THESE VALUES ARE
DISCUSSED ON A REGULAR BASIS.
The courses delivered in 2018 include:
The Company partnered with LIVIN, a non-profit organisation, to
•
•
•
•
Anti-money laundering and counter terrorism
Consumer and competition act
Privacy and spam
facilitate a set of workshops for employees. Two types of workshops
were held, one for people leaders and another for non-people leaders.
The intent of the training for people leaders was to ensure that they have
the skills necessary to be able to successfully recognise and support
Equal opportunity, bullying and discrimination
employees with mental health issues. The workshops provide insights
Code of conduct
Employees are required to complete these modules within the first three
into the challenges that mental health issues create and highlighted
practical strategies that can be used to help address some of these
challenges. This compliments our Employee Assistance Program,
which has been in place for all employees and their family members for a
months of their employment at FlexiGroup and retake them on an annual
number of years now.
basis. On average, employees each received approximately 5 hours of
training on compliance issues in 2018.
Mental health first aid training
By the end of June 2018, 70 of our leaders in our Australian sites had
completed a two-day training course to receive accreditation in
providing Mental Health First Aid and over 200 employees attended
optional mental health education sessions.
In 2018, FlexiGroup launched a program aimed at raising mental health
awareness within our workplace.
We will continue to focus on this area in the coming year as part of our
ongoing commitment to health and wellness in the workplace.
Leadership development
FlexiGroup’s ‘Stepping Into Leadership’ program was part of the
Company’s practical steps to build capability and succession planning
within the organisation. The program was designed to give front line
employees the skills and confidence to step into leadership roles within
the organisation, thus reducing the Company’s need to seek external
recruitment candidates for front line leadership roles. The program was
successful, with 75% of participants moving into leadership roles within
•
Calibration process: Once managers have conducted review
conversations with their team members, the business holds
calibration sessions. The objective of this process is to ensure that
ratings are consistently applied by leaders across the Company. In
addition to this process, all new employees participate in a review
of their performance at 3 months and 6 months from
commencement of employment.
six months of completing the program. On average, each participant
Flexible working arrangements
received 25 hours of training under the ‘Stepping Into Leadership’
program in 2018.
FlexiDNA training
A key focus for FlexiGroup during 2018 was to provide access to flexible
working arrangements for at least 25% of employees.
The Company continues to increase the number and type of
arrangements across the Group that enable employees to access flexible
The Company’s FlexiDNA values have been embedded across the
working options. While there are some arrangements that have limited
organisation in policies and processes as well as in training rolled out to
applicability in some areas of the Group, all employees will have access
leaders and executives. In the last year, 70 of our key people leaders have
to at least one of the arrangements, which include:
attended training sessions to build their capability and enable them to
further embed the FlexiDNA within their teams. The classroom training
was supplemented with peer-to-peer coaching groups, the development
of 90-day action plans focussed on embedding the FlexiDNA values
within their teams, and group workshops designed to follow up on the
implementation of the plans.
Performance assessments of employees
Performance assessments assist with the professional development of
employees and contribute to both skills management and the expansion
of human capital within the Company. At FlexiGroup we undertake a
performance and development planning process at least annually. There
are a number of elements that make up this process including:
•
Structured performance objectives: At the start of each financial
year, managers set performance objectives that are linked to the
business priorities of the department and team. Performance
against these objectives, and the continued relevance of the
•
•
•
•
•
•
Flexible hours of work (including work from home options or
variable hours)
Compressed working weeks
Time-in-lieu arrangements
Part-time work
Purchased leave (the ability to purchase an additional week of leave
to use during the year)
Unpaid leave
Approximately 45% of our employees accessed at least one of these
options during the 2018 reporting period, which exceeded our target.
Health and safety
The Company is committed to ensuring the health, safety and well-
being of its employees, consultants, contractors and any visitors to its
premises. FlexiGroup ensures that all applicable laws and internal
objectives themselves, are reviewed throughout the year and at a
regulations (including occupational health and safety laws) are fully
minimum every six and twelve months.
complied with. It is important that we work together to create a safe and
•
Our FlexiDNA values: At FlexiGroup we don’t just review WHAT is
achieved, but HOW it is achieved. This means that we discuss not
healthy workplace.
Employees are instructed to immediately report any unsafe situations or
only achievement of performance objectives, but also the
conditions that they are aware of to their manager.
•
•
demonstration of behaviours, as measured by the FlexiDNA values.
This recognises the importance of our FlexiDNA values within our
organisation and ensures that these values are discussed on a
regular basis.
A structured development plan: Managers discuss development
needs with their team members in light of the performance and
behaviour objectives for their current role. These conversations can
In addition, all employees have access to and are instructed to read the
Company’s Bullying, Harassment, Discrimination and Victimisation
Policy for further information regarding FlexiGroup’s expectations on
health and safety matters.
Customer protection
also be used to get a broader understanding regarding career
Product safety and customer satisfaction
aspirations.
Assessment of achievement against performance objectives
and values: Identifying and recognising the different contributions
of our people is an important objective of our annual review
process. We do this through the evaluation conversations we have,
and also through applying ratings. Ratings provide the benchmark
Product quality and safety as well as customer satisfaction are key
objectives of the Company. Customers experiencing financial difficulties
are offered variations to their credit contracts. Specifically, a dedicated
‘Financial Hardship’ function exists within the Company, which is
responsible for assessing hardship notices. We also have a Financial
Hardship Policy in place that sets out guidelines on how to appropriately
for performance expectations and development requirements. It is
manage these notices.
great for our employees to have a good understanding of whether
they have achieved the required expectations and to what degree,
or if they have not, why and what is required for improvement. At
the end of the financial year, everyone receives two ratings: a
performance rating and a FlexiDNA values rating. Ratings are
communicated after calibration conversations have occurred.
Ensuring we have the highest customer service standards in place is
key. We strive to respond to all customer complaints in an efficient and
timely manner. Our complaints team is responsible for categorising and
investigating the root cause of all complaints received. Where the root
cause relates to a serious or potential systemic issue, it will be escalated
76
FlexiGroup Annual Report 2018
Sustainability Report
77
to senior management to determine if further remedial action is required.
The Flexi ABS 2016-1 transaction was arranged by National Australia
This process is further outlined in the Company’s Complaint
Bank (NAB) and a cornerstone investor in the green bonds was the
Management Policy and procedures.
Australian Government’s Clean Energy Finance Corporation. Following
To ensure customer satisfaction, FlexiGroup has established a hotline
for complaints. The complaints team can be contacted on 1300 858
this successful issuance, FlexiGroup issued a further securitisation
of similar loans in 2017.
608. Each dispute that is received by the complaints team is
FlexiGroup closed its latest transaction including green bonds, Flexi
investigated and addressed on a case-by-case basis. All complainants
ABS Trust 2018-1, in May 2018. This was FlexiGroup’s largest transaction
are treated equally and fairly in line with the Complaint Management
under its Flexi ABS Trust securitisation programme.
Policy, which outlines the process followed when investigating and
addressing complaints.
The 2018-1 transaction included two green tranches – the senior Class
A2-G notes and subordinated Class B-G notes. According to distribution
data provided by NAB, 56% of the combined Class A2-G and Class B-G
Protecting customer privacy is paramount
notes were allocated to ESG focused investors.
FlexiGroup is dedicated to protecting the personal information of its
The green tranches, backed by solar receivables, were also Climate
customers in line with relevant legislation, including the Privacy Act 1988
Bond Certified by the Climate Bonds Standard Board based in London.
Our relationship with GWS Giants is as one of eight foundation partners
all liquidity and market risk is reported, discussed and approved each
who have made a three-year commitment to Giants Care to help double
month at the Assets and Liabilities Committee meeting.
the club’s community engagement outcomes which will impact
positively on current and future generations.
Governance & risk management
Risk & Compliance Committee
The Board Risk & Compliance Committee meets every second month in
order to review and address risks impacting the business. The Risk &
Compliance Committee makes recommendations and reports directly
to the Board. The Committee has a program of review for key policies
and has set up several management committees reporting on risk
areas for FlexiGroup.
Operational risk & compliance
Operational risk is the risk of loss resulting from FlexiGroup having
inadequate internal processes, people and systems, or from external
events. The manner in which operational risk is managed has the
potential to positively or negatively impact our customers (buyers and
sellers), our employees, our financial performance and our reputation.
Compliance risk is the risk of FlexiGroup receiving legal or regulatory
sanction, or suffering financial or reputational loss arising from our
failure to abide by the compliance obligations required of us. The
Operational and Compliance Risk Framework assists FlexiGroup to
achieve its objectives through the effective identification, assessment,
measurement, management, monitoring, reporting, control and
mitigation of its risks. The Operational Risk Management Framework
(Cth) as well as the Credit Reporting Privacy Code (where applicable).
Updated risk management function
FlexiGroup has published a Privacy and Credit Reporting Privacy Policy
Environmental initiatives
outlining the kinds of personal information (including credit-related
information) we collect, and the purposes for which we do that, how we
manage all personal information collected, how customers can seek
access to and correction of that information and if necessary, how
customers can make a complaint relating to our handling of that
information. A copy of the Privacy and Credit Reporting Privacy Policy is
available on FlexiGroup’s website.
In order to ensure that the privacy and information of our customers is
protected, FlexiGroup has established a Cyber and Information Security
Steering Committee comprised of business and technology
stakeholders that meets monthly and is tasked with enforcing the
Privacy and Credit Reporting Privacy Policy and ensuring that all
necessary steps are taken to protect customer information from
potential cyber security threats.
FlexiGroup is continuously seeking to adopt measures that can assist
the Company to improve its environmental performance.
In FY17, FlexiGroup installed PaperCut, a solution that requires users to
swipe their access card to release a print job. This is a simple way to
reduce FlexiGroup’s impact on the environment. If employees
accidentally print something they don’t have to release the print,
thereby reducing paper wastage and the amount of ink used. PaperCut
was continued in 2018 and was expanded to set printers to automatically
print documents on two sides and in black and white in order to increase
savings efficiencies.
The Company has also adopted recycling initiatives for its head office
whereby designated bins separate paper and bottles from regular waste.
FlexiGroup has a cyber security framework in place that is aligned with
NABERS rating
Effective risk management is one of the keys to achieving our vision as
defines the organisational and governance structures, roles and
it influences the experiences of our customers (buyers and sellers), the
responsibilities, principles, policies, processes and systems that we use
public’s perceptions, our financial performance, our reputation and our
to manage operational risk. The Compliance Management Framework
shareholders’ expectations. It is critical to our future success. We
sets out the approach of FlexiGroup to managing compliance obligations
regard efficient and effective management of risk as a core function
performed at all levels of the Group. Central to FlexiGroup’s
and mitigating compliance risk in order to achieve our compliance
objective. These frameworks are revised and enhanced on a continual
management of risk is the Enterprise Risk Management Framework,
basis following regular feedback from the Board Risk & Compliance
which is approved by the Board of Directors and reviewed by the Board
Committee, which oversees the effectiveness of the Operational Risk
Risk & Compliance Committee on an annual basis, or more frequently
Management and Compliance Management Frameworks.
where required by a material business or strategy change or a material
change to the Group’s risk profile.
FlexiGroup Limited’s Chief Executive Officer (CEO) is responsible for the
Enterprise Risk Management Framework and appoints an Executive
Team of KMPs from across the Group to develop and implement
policies, controls, processes and procedures that identify and manage
risk in all of FlexiGroup’s activities.
the National Institute of Standards and Technology’s Cyber Security
FlexiGroup’s head office is located at 179 Elizabeth Street, Sydney. The
Framework (NIST Framework). The NIST Framework provides voluntary
building has attained a 4 star NABERS Energy rating and a 3 star
Credit risk
guidance, based on existing standards, guidelines, and practices that
NABERS Water rating.
allows companies to better manage and reduce their cyber security risk
exposures. In addition to helping organisations manage and reduce their
risks, the NIST Framework was designed to foster risk and cyber security
management communications amongst both internal and external
stakeholders.
NABERS is a national rating system that measures the environmental
or counterparty fails to meet their financial obligations. We have a
performance of Australian buildings by measuring the energy efficiency,
framework and supporting policies for managing the credit risk
water usage, waste management and indoor environment quality of a
associated with FlexiGroup that covers all stages of the credit cycle –
building or tenancy and its impact on the environment. The rating scale
origination, evaluation, approval, documentation, settlement, ongoing
For FlexiGroup, Credit risk is the risk of financial loss where a customer
ranges from one to six stars with six stars indicating market leading
During the 2018 reporting period, FlexiGroup undertook the following
performance and one star indicating that the building under review has
activities in order to monitor and mitigate risks from new and emerging
considerable scope for improvement.
cyber threats:
•
Upgrade of the e-mail security gateway with enhancements made
Community relations
to include phishing detection and imposter emails (also known as
‘proofpoint’) as well as awareness training to employees
The relationships we have within the community are important to
FlexiGroup. As such, FlexiGroup has created the iCare program. This
administration and problem management. The extension of credit to
consumers is underpinned by our commitment to comply with all local
legislation, codes of practice and relevant guidelines and obligations to
market our products responsibly and ensure they meet the expectations
of our customers and the communities in which we are active.
Liquidity and market risk
Security review for Microsoft Office 365 e-mail and account settings
initiative provides two additional days of paid leave to every FlexiGroup
Liquidity risk is the risk that FlexiGroup will be unable to fund assets and
•
•
•
Deployed Managed Security Services Program for security event
logging, monitoring and alerting
Upgraded the Firewall security controls
During the reporting period, the Company did not receive any
substantiated complaints concerning breaches of customer privacy.
Environmental sustainability and performance
Green bonds
In 2016, FlexiGroup was the first Australian company to issue a green
asset-backed security to fund its solar panel installation financing.
employee in order to contribute time and skills back into the community
meet obligations as they become due. This risk could potentially arise as
via charities and registered not-for-profit originations. During the
reporting period, 534 hours were donated to the community.
In addition to our iCare program, FlexiGroup has also established
relationships with two organisations that do great work in the
community.
FlexiGroup is proud of our ongoing work with LIVIN, whose mission is to
break the stigma associated with talking about mental health, and with
the GWS Giants Care program, which supports communities across
Western Sydney by delivering Health, Harmony, Education and
Employment initiatives.
a result of:
•
an inability to meet both expected and unexpected current and
future cash flows and collateral needs without affecting either daily
operations or the financial condition of FlexiGroup; and/or
•
adverse changes to contractual debt facilities when they mature.
Market risk is the risk of an adverse impact FlexiGroup’s earnings
resulting from changes in market factors, such as foreign exchange
rates and interest rates.
FlexiGroup has a Treasury management framework and policy that
seeks to address key elements of liquidity and market risk. In addition,
78
FlexiGroup Annual Report 2018
Annual Financial Statement
79
FlexiGroup Limited and its controlled entities
ANNUAL FINANCIAL STATEMENTS
30 June 2018
ABN 75 122 574 583
These financial statements are the consolidated financial statements for the
Group consisting of FlexiGroup Limited and its subsidiaries. A list of major
subsidiaries is included in note 29. The financial statements are presented in
the 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 7, 179 Elizabeth Street, Sydney NSW 2000
A description of the nature of the consolidated entity’s operations and its
principal activities is included in the Operating and Financial Review in the
Directors’ Report on page 18, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on
26 September 2018. The directors have the power to amend and reissue
the 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 our Investor Centre on our website: www.flexigroup.com.au
8
1
Y
F
PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Auditor’s Independence Declaration As lead auditor for the audit of FlexiGroup Limited for the year ended 30 June 2018, 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 Sydney Partner PricewaterhouseCoopers 26 September 2018
80
FlexiGroup Annual Report 2018
Annual Financial Statement
81
CONSOLIDATED INCOME STATEMENT
A$m
Total portfolio income
Interest expense
Net portfolio income
Employment expenses
Receivables and customer loan impairment expenses
Impairment of goodwill and other intangible assets
Depreciation and amortisation expenses
Operating and other expenses
Profit before income tax
Income tax expense
(Loss) / Profit for the year attributable to shareholders of
FlexiGroup Limited
Basic earnings per share
Diluted earnings per share
The above consolidated income statement should be read in conjunction with the accompanying notes
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes
2018
2017
A$m
5
460.4
462.8
(Loss) / Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Changes in the fair value of cash flow hedges, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to shareholders of FlexiGroup Limited
(15.7)
96.7
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
2018
(10.3)
2017
87.4
(9.6)
4.2
(5.4)
4.1
5.2
9.3
(98.0)
(102.0)
362.4
360.8
(91.9)
(84.5)
(66.5)
(62.8)
(94.7)
-
(17.5)
(16.2)
(76.6)
(75.1)
15.2
122.2
6a
6b
6c
7a
(25.5)
(34.8)
(10.3)
87.4
Notes
22a
22a
2018
cents
(2.8)
(2.8)
2017
cents
23.4
23.4
82
FlexiGroup Annual Report 2018
Annual Financial Statement
83
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Assets
A$m
Cash and cash equivalents
Inventories
Receivables
Customer loans
Current tax receivable
Plant and equipment
Goodwill
Other intangible assets
Assets of disposal group held for sale
Total assets
Liabilities
A$m
Payables
Borrowings
Current tax liabilities
Provisions
Derivative financial instruments
Deferred and contingent consideration
Deferred tax liabilities
Liabilities of disposal group held for sale
Total liabilities
Net assets
Equity
A$m
Contributed equity
Reserves
Retained earnings
Total equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
Notes
2018
2017
8a
9
10
11
12
13
14
4a
125.3
167.3
2.6
4.7
599.9
628.3
1,768.2
1,537.6
0.5
8.3
3.8
8.4
236.5
321.4
100.4
114.4
12.5
-
2,854.2
2,785.9
2017
A$m
Balance at the beginning of the year
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Issue of shares on reinvestment of dividend
Share based payment income
Dividends provided for or paid (note 21)
Balance at the end of the year
Notes
2018
51.7
2017
50.3
2018
A$m
15
16
17
18
7e
4a
2,124.7
2,007.7
12.7
14.6
6.4
1.0
13.1
2.4
0.5
7.9
12.9
10.1
24.7
-
2,226.6
2,114.1
627.6
671.8
Notes
2018
2017
19a
20a
20b
362.8
361.2
10.3
17.0
254.5
293.6
627.6
671.8
Balance at the beginning of the year
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Treasury shares purchased on market
Transfer from treasury shares on vesting of sign on rights
Transfer from share capital reserve
Expired options and rights transferred from share based payments reserve
Share based payment expense
Other changes
Dividends provided for or paid (note 21)
Balance at the end of the year
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
Contributed
equity
Reserves
356.8
8.1
-
-
-
-
4.4
-
9.3
9.3
-
(0.4)
-
-
361.2
17.0
Retained
earnings
247.5
87.4
-
87.4
-
-
(41.3)
293.6
Contributed
equity
361.2
-
-
-
(0.2)
0.1
0.3
1.4
-
-
-
362.8
Reserves
Retained
earnings
17.0
-
(5.4)
(5.4)
-
-
(0.3)
(1.4)
0.5
(0.1)
-
10.3
293.6
(10.3)
-
(10.3)
-
-
-
-
-
-
(28.8)
254.5
Total
612.4
87.4
9.3
96.7
4.4
(0.4)
(41.3)
671.8
Total
671.8
(10.3)
(5.4)
(15.7)
(0.2)
0.1
-
-
0.5
(0.1)
(28.8)
627.6
84
FlexiGroup Annual Report 2018
Annual Financial Statement
85
85
CONSOLIDATED STATEMENT OF CASH FLOWS
CONTENTS OF THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cash flows from operating activities
Cash flows from financing activities
A$m
Note
2018
2017
A$m
Note
2018
2017
Interest and fee income received
487.3
491.2
Dividends paid
Payment to suppliers and employees
(180.1)
(193.8)
Treasury shares purchased on market
Interest paid
(97.1)
(102.7)
Drawdown of corporate borrowings
(28.8)
(36.9)
(0.2)
-
149.3
135.0
Income taxes paid, net of refunds
(21.4)
(33.7)
Repayment of corporate borrowings
(168.8)
(150.8)
Net cash inflow from
operating activities
23
188.7
161.0
Net movement in:
Non-recourse borrowings
Cash flows from investing activities
A$m
Note
2018
2017
Loss reserve on non-recourse
borrowings
Net cash inflow from
financing activities
181.5
76.3
(16.0)
(0.4)
117.0
23.2
(29.0)
(24.6)
A$m
Note
2018
2017
Payment for equity investment
-
(1.7)
Effects of exchange rate changes
on cash and cash equivalents
-
(2.4)
Net decrease in cash and
cash equivalents
(9.2)
(3.5)
Cash and cash equivalents at
the beginning of the year
(36.6)
(7.0)
167.3
174.4
(2.5)
(0.1)
Payment for purchase of plant and
equipment and software
Payment for business acquisitions,
net of cash acquired
Payment for deferred consideration
relating to business acquisitions
Net movement in:
Customer loans
1.
2.
3.
Summary of significant accounting policies
Critical accounting estimates and judgements
Segment information
4. Disposal group held for sale
5. Total portfolio income
6.
7.
Expenses
Income tax expense
8. Cash and cash equivalents
9.
Inventories
10. Receivables
11. Customer loans
12. Plant and equipment
13. Goodwill
14. Other Intangible assets
15. Payables
16. Borrowings
17. Provisions
18. Derivative financial instruments
(307.1)
(229.2)
Cash and cash equivalents at
the end of the year
8
128.2
167.3
19. Contributed equity
Receivables due from customers
3.0
70.2
Net cash outflow from
investing activities
(342.3)
(191.2)
The above consolidated cash flow statement should be read in conjunction
with the accompanying notes.
20. Reserves and retained earnings
21. Dividends
22. Earnings per share
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:
Statement of Financial Position
125.3
167.3
TOT cash balance disclosed as
disposal group held for sale (note 4)
2.9
-
Statement of cash flows
128.2
167.3
23. Reconciliation of profit after income tax to net cash inflow from operating activities
24. Share-based payments
25. Financial risk management
26. Lease commitments
27. Contingent liabilities
28. Insurance
29.
Investments in subsidiaries
30. Key management personnel disclosures
31. Related party transactions
32. Remuneration of auditors
33. Closed group
34. Parent entity financial information
35. Securitisation and special purpose vehicles
36. Events occurring after the reporting period
Directors’ declaration
Independent Auditor’s Report
86
96
97
100
100
101
101
103
103
103
104
104
105
107
108
108
108
108
109
111
112
112
113
114
117
121
122
122
122
123
124
124
125
126
127
127
128
129
86
FlexiGroup Annual Report 2018
Annual Financial Statement
87
to cash flows that are solely payments of principal and interest on the
Three stage approach
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This note provides a list of all significant accounting policies adopted in the preparation of these consolidated financial statements. These
policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated
entity (the Group) 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 and Interpretations
issued by the Australian Accounting Standards Board and the
Corporations Act 2001. FlexiGroup Limited is a for-profit entity for the
FVTOCI - A financial asset will be measured at FVTOCI if both of the
following conditions are met:
the financial asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial
assets
purpose of preparing the financial statements.
the contractual terms of the financial asset give rise on specified dates
(i)Compliance with IFRS
The consolidated financial statements of FlexiGroup Limited also
principal outstanding.
FVTPL - All financial assets that are not measured at amortised cost
comply with International Financial Reporting Standards (IFRS) as
or FVTOCI will be measured at FVTPL. All financial assets that are
issued by the International Accounting Standards Board (IASB).
equity instruments will be measured at FVTPL unless the Group
(ii)New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for the 30 June 2018 reporting
period and have not been early adopted by the Group.
The following new standards to be applied in future periods are set out
below and the Group is in the process of determining the implications
of these standards:
AASB 9 Financial instruments
AASB 9 results in changes to accounting policies for financial assets
and financial liabilities covering Classification and Measurement,
Impairment and Hedge accounting. The Group will first apply AASB
9 in the financial year beginning 1 July 2018 and it will be applied
retrospectively in respect of Classification and Measurement and
irrevocably elects to present subsequent changes in the fair value in
other comprehensive income. The Group does not expect to make this
election.
Business model assessment
The Group will determine the business model at the level that reflects
how groups of financial assets are managed. In determining the
business model, all relevant evidence that is available at the date of the
assessment is used including;
•
how the performance of financial assets held within that business
model are evaluated and reported to the Group’s KMP;
•
the risks that affect the performance of the business model (and
the financial assets held within that business model) and, in
particular, the way in which those risks are managed; and
Impairment, with no requirement to restate comparatives. The
•
how managers of the business are compensated (for example,
cumulative effect of initially applying the standard is recognised as an
whether the compensation is based on the fair value of the assets
adjustment to the opening balance sheet.
managed or on the contractual cash flows collected).
Classification and Measurement:
Financial assets
•
Based on the assessment performed, no changes in classification
and measurement of financial assets will occur as a result of the
adoption of AASB 9.
AASB 9 has three classification categories for financial assets; amortised
cost, fair value through other comprehensive income (FVTOCI) and fair
value through profit or loss (FVTPL). The classification is based on the
business model under which the financial instrument is managed and its
contractual cash flows. The Group will apply the following policies for the
newly adopted classification categories under AASB 9:
Amortised cost - A financial asset will be measured at amortised cost if
both of the following conditions are met;
Impairment
AASB 9 replaces the incurred loss model of AASB 139 with an expected
loss model, resulting in an acceleration of impairment recognition.
The impairment requirements apply to the Group’s net investment
in finance lease receivables and net loan receivables measured at
amortised cost, as well as lease receivables. The model applies to on-
balance financial assets, as well as off-balance items such as undrawn
loan commitments, certain financial guarantees, and undrawn
the financial asset is held within a business model whose objective is to
committed credit facilities for the Group’s revolving products.
hold financial assets in order to collect contractual cash flows
the contractual terms of the financial asset give rise on specified dates
AASB 9 program governance and status
AASB 9 and the key judgments and decisions being made. In 2018 the
available information relevant to the assessment, including
program’s focus was on:
Building and validation the new expected credit loss models;
Developing and implementing processes for staging and using
forward looking economic guidance in the Expected Credit Losses
models;
Implementing and testing system changes; Updating the policies,
governance and control frameworks that are impacted by AASB 9
and starting to embed these changes into everyday business and
financial reporting cycles; and Performing some ‘parallel runs’ to test
information about past events, current conditions and reasonable
and supportable information about future events and economic
conditions at the report date. The Group has established a process
whereby forward-looking macroeconomic scenarios and probability
weightings are developed for ECL calculation purposes. The final
probability-weighted ECL amount, will be calculated from a baseline,
an up-scenario and a down-scenario.
Measurement
readiness of systems, processes and controls for transitions to AASB
To measure ECL, the Group applies a PD X EAD X LGD approach
9 on 1 July 2018.
incorporating the time value of money. For stage 1 assets a forward-
looking approach on a 12-month horizon will be applied. For stage 2
assets a lifetime view on the credit is applied. The Lifetime Expected
Loss is the discounted sum of the portions of lifetime losses related to
default events within each time window of 12 months till maturity. For
stage 3 assets the PD equals 100% and the LGD and EAD represent
a lifetime view of the losses based on characteristics of defaulted
Under the expected credit loss model, the Group will apply a three-
stage approach to measuring the expected credit loss (ECL) based
on credit migration between the stages. Where ECL is modelled
collectively for portfolios of exposures, it is modelled as the product
of the probability of default (PD), the loss given default (LGD) and the
facilities.
exposure at default (EAD).
Stage 1: 12 month ECL – No significantly increased credit risk.
Financial instruments that have not had a significant increase in credit
risk since initial recognition require, at initial recognition, a provision
for ECL associated with the probability of default events occurring
within the next 12 months (12 month ECL). For those financial assets
with a remaining maturity of less than 12 months, a probability of
Hedge Accounting
The Group decided to continue applying AASB 139 for hedge
accounting. The revised hedge accounting disclosures as required by
AASB 7 Financial Instruments Disclosure will be implemented for the
year ending 30 June 2019.
default is used that corresponds to the remaining maturity.
Transition
Stage 2: Lifetime ECL – Significantly increased credit risk. In the
The Group will record a transition adjustment to the opening balance
event of a significant increase in credit risk since initial recognition, a
sheet, retained earnings and other comprehensive income at 1
provision is required for the lifetime ECL representing losses over the
July 2018 primarily for the impact of adoption of the impairment
life of the financial instrument (lifetime ECL).
requirements of AASB 9.
Stage 3: Lifetime ECL – Defaulted
Financial instruments that move into Stage 3 once credit impaired and
The transition adjustment will reduce opening retained earnings by
$57m million after tax ($82m pre-tax). The outcome is driven by:
purchase of credit impaired assets will require a lifetime provision.
The requirement to capture significant committed but undrawn
amounts in the EAD for all revolving products;
Significant increase in credit risk
The requirement to calculate a lifetime PD for stage 2 assets;
A financial asset moves from stage 1 to stage 2 when there is a
significant increase in credit risk since initial recognition. The Group
The inclusion of forward-looking information and a probability
weighted downturn scenario.
has established a framework which incorporates quantitative and
qualitative information to identify this on an asset level applying a
relative assessment. Each financial asset will be assessed at the
reporting date on the triggers for significant deterioration, including:
•
Forbearance status;
• Watch list status - loans on the watch list are individually
assessed for stage 2 classification;
•
Arrears; and
• More than 30 days past due backstop for stage 1 to stage 2
transfers.
The Group will continue to refine and validate components of the ECL
impairment models and develop related technology solutions and
controls during the financial year ending 30 June 2019.
AASB 15 Revenue from contracts with customers
This standard is mandatory for adoption by the Group for the year
ending 30 June 2019 but is available for early adoption. This new
comprehensive standard for revenue recognition replaces AASB 111
Construction contracts, AASB 118 Revenue, AASB Interpretations 13
Customer Loyalty Programmes and AASB Interpretations 18 Transfers
of Assets from Customers. The standard requires identification
of discrete performance obligations within a transaction and an
associated transaction price allocation to these obligations, which
occurs when control of the goods or services are transferred to the
customer. Revenue received for a contract that includes a variable
to cash flows that are solely payments of principal and interest on the
principal outstanding.
The AASB 9 programme was initiated at the start of the 2018 financial
Macroeconomic Scenarios
year and consisted of experts from Finance, Risk, Operations and
The assessment of credit risk, and the estimation of ECL, will be
the Business. The Audit Committee was periodically updated about
unbiased and probability weighted, and incorporate all relevant
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89
amount is subject to revised conditions for recognition, whereby it
transactions between Group companies are eliminated. Unrealised
or loss. Non-monetary items that are measured based on historical
rental assets are recognised upon disposal of the relevant assets.
must be highly probable that no significant reversal of the variable
losses are also eliminated unless the transaction provides evidence
cost in a foreign currency are translated using the spot exchange rate
Interest income on customer loans
component may occur when uncertainties around its measurement are
of the impairment of the asset transferred. Accounting policies
at the date of the transaction.
removed. The financial impact to the Group of adopting AASB 15 is not
of subsidiaries have been changed where necessary to ensure
expected to be material.
consistency with the policies adopted by the Group.
AASB 16 Leases
(ii) Investment in associates
This standard is mandatory for adoption by the Group for the year
An associate is an entity over which the Group has significant
(iii) Group companies
The results and financial position of all 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
ending 30 June 2020 but is available for early adoption. This new
influence, but not control. In the consolidated financial report, it is
the presentation currency as follows:
standard sets out a comprehensive model for identifying lease
equity accounted. It is initially recorded at cost and adjusted for the
arrangements and the subsequent measurement. A contract contains
Group’s share of the associate’s post acquisition profits or losses and
a lease if it conveys the right to control the use of an identified asset
other comprehensive income, less any dividends received.
for a period of time. The majority of leases from a lessee perspective
are within the scope of the standard and will require the recognition
of a ‘right to use’ asset and a related lease liability, being the present
value of future lease payments. Other than the leases on the Group’s
premises and motor vehicles, there are no other items that are
The carrying amount of equity accounted investments is tested for
impairment in accordance with the policy described in note 1(t).
(iii) Employee Share Trust
significant as the Group mainly operates as a lessor. The financial
impact to the Group of adopting AASB 16 will be quantified by the
The consolidated entity utilises a trust to administer the consolidated
entity’s employee share scheme. The trust is consolidated into the
Group for the year ending 30 June 2019.
consolidated entity.
(iv) Disclosure
c. Segment reporting
Some disclosures in the income statement, statement of financial
Operating segments are reported in a manner consistent with the
position, statement of cash flows and notes to the financial statements
internal reporting provided to the chief operating decision maker.
for comparatives have been reclassified to be consistent with current
The chief operating decision maker, who is responsible for allocating
period disclosures and include notes 3, 11, 25 (parts a, c and d), and
resources and assessing performance of the operating segments, has
32. The statement of financial position has been prepared in order of
been identified as the Chief Executive Officer. Operating segments are
(v)Historical cost convention
d. Foreign currency translation
These financial statements have been prepared under the historical
Functional and presentation currency
cost convention, as modified by the revaluation of financial assets and
liabilities (including derivative instruments) at fair value and disposal
group held for sale is accounted for at fair value.
b. Principles of consolidation
(i) Subsidiaries
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
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of FlexiGroup Limited (“Company”
(ii) Transactions and balances
or “parent entity”) as at 30 June 2018 and the results of all the
Foreign currency transactions are translated into the functional
subsidiaries for the year then ended. FlexiGroup Limited and its
currency using average exchange rates for the respective month.
subsidiaries together are referred to in these financial statements as
Foreign exchange gains and losses resulting from the settlement of
the Group or the consolidated entity.
Subsidiaries are all entities (including special purpose entities) over
which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are
such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates are generally recognised in profit or loss. 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.
fully consolidated from the date on which control is transferred to the
Foreign exchange gains and losses are presented in the income
Group. They are deconsolidated from the date that control ceases.
statement on a net basis within other income or other expenses.
acquisition of subsidiaries by the Group (refer to note 1(h)).
currency are translated using the exchange rates at the date when
Intercompany transactions, balances and unrealised gains on
the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value gain
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
•
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
future credit losses.
of comprehensive income are translated at average exchange
rates for the respective month (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
(ii) Interest income
Interest income on bank and loss reserve balances is recognised using
an effective interest method.
(iii) Other portfolio income
Other portfolio income includes:
Account keeping fees, transaction processing fees, and
inertia rental
is sold or any borrowings forming part of the net investment are repaid,
Revenue is recognised in the period when goods and services
a proportionate share of such exchange difference is recognised in the
are provided.
income statement, as part of the gain or loss on sale.
foreign operation are treated as assets and liabilities of the foreign
entities and as a result are expressed in the functional currency of the
foreign operation 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
The Group operates an equipment protection and debt waiver
plan entitled Protect Plan. Protect Plan revenue is recognised 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.
allowances, rebates and amounts collected on behalf of third parties.
Cheque guarantee revenue
reliably measured, it is probable that future economic benefits will flow
to the entity and specific criteria have been met for each of the Group’s
has been provided on an accruals basis. All monthly fees are
recognised as revenue in the month to which they relate.
activities as described below. The Group bases its estimates on
historical results, taking into consideration the type of customer, the
type of transaction and the specifics of each arrangement.
Revenue is recognised for the major business activities as follows:
Gross interest and finance lease income
Premium revenue
Premium revenue includes amounts charged to the insured party but
excludes GST and other amounts collected on behalf of third parties.
Premium revenue is recognised in the income statement when it has
been earned. The unearned portion of premium revenue is recognised
Finance lease interest income
as an unearned premium liability on the balance sheet.
Finance lease interest income is recognised by applying discount rates
implicit in the leases to lease balances receivable at the beginning of
General insurance acquisition costs
each payment period. Initial direct costs incurred in the origination of
leases are included as part of receivables in the balance sheet and form
Acquisition costs incurred in obtaining general insurance contracts
are deferred and recognised as assets where they can be reliably
measured and where it is probable that they will give rise to premium
Secondary lease income, including rental income on extended rental
revenue that will be recognised in the income statement in subsequent
assets, is recognised on an accruals basis. Proceeds from the sale of
reporting periods.
liquidity, including the comparatives.
described in note 3.
Goodwill and fair value adjustments arising on the acquisition of a
Equipment protection plan revenue
currency.
The Group recognises revenue when the amount of revenue can be
Revenue is recognised when the service associated with the guarantee
The acquisition method of accounting is used to account for the
Non-monetary items that are measured at fair value in a foreign
part of the effective interest rate calculation.
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Deferred acquisition costs are amortised systematically in
taxable income. Management periodically evaluates positions taken in
the tax funding agreement are disclosed in note 7(f). Any difference
determinable payments that are not quoted in an active market and
accordance with the expected pattern of the incidence of risk under
tax returns with respect to situations in which applicable tax regulation
between the amounts assumed and amounts receivable or payable
that the Group did not intend to sell immediately or in the near term.
the general insurance contracts to which they relate. The pattern of
is subject to interpretation. It establishes provisions where appropriate
under the tax funding agreement are recognised as a contribution to
They arise when the Group provides loans to customers via products
amortisation corresponds to the earning pattern of the corresponding
based on amounts expected to be paid to the tax authorities.
(or distribution from) members of the Tax Consolidated Group.
such as credit cards and interest free fixed instalment plans.
premium revenue.
(iv) Sale of goods
Revenue from sale of goods includes revenue from sale of equipment,
parts and accessories. The revenue is recognised on delivery of
goods sold.
f. Insurance
(i) Assets backing general insurance liabilities
As part of its investment strategy the Group actively manages its
money market deposits to ensure that sufficient liquid funds are
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However, deferred tax liabilities are not recognised if they
arise from the initial recognition of goodwill. Deferred income tax is
also not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or
loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the end of the reporting
period and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
available to meet the expected pattern of future cash flows arising from
Deferred tax assets are recognised for deductible temporary
general insurance liabilities. The Group has determined that its money
market deposits are held to back general insurance liabilities. These
differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary differences
liabilities are stated at amortised costs using the effective interest rate
and losses.
method and are accounted for in the receivables financial statement
line item on the balance sheet.
(ii) Outstanding claims liability
The liability for outstanding claims is measured as the central estimate
Deferred tax liabilities and assets are not recognised for temporary
differences between the carrying amount and tax bases of investments
in foreign operations where the 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.
of the present value of expected future payments against claims
Deferred tax assets and liabilities are offset when there is a legally
incurred at the balance date under general insurance contracts issued
enforceable right to offset current tax assets and liabilities and when
by the Group, with an additional risk margin to allow for the inherent
the deferred tax balances relate to the same taxation authority.
uncertainty in the central estimate.
The expected future payments include those in relation to claims
reported but not yet paid; claims incurred but not reported (IBNR);
Current tax assets and liabilities are offset when there is a legally
enforceable right to offset and an intention to either settle the liability
simultaneously.
claims incurred but not enough reported (IBNER) and anticipated
Current and deferred tax is recognised in the income statement except
claims handling costs.
Claims handling costs include costs that can be associated directly
with individual claims, such as legal and other professional fees, and
costs that can be indirectly associated with individual claims, such as
to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in
other comprehensive income or directly in equity respectively.
claims administration costs.
Tax consolidation legislation
The expected future payments are discounted to present value using a
FlexiGroup Limited and its wholly-owned Australian controlled
risk free rate.
The outstanding claims liability has been determined using the
Bornhuetter-Fergusson (incurred claims) methodology (an actuarial
method). It has been assumed that future incurred claims patterns
entities have implemented the tax consolidation legislation. As a
consequence, these entities are taxed as a single entity and the
deferred tax assets and liabilities of these entities are set-off in the
consolidated financial statements.
for each group of business will continue to follow observed historic
The head entity, FlexiGroup Limited, and the controlled entities in the
patterns.
g. Income tax
The income tax expense or revenue for the period is the tax payable
on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred
tax assets and liabilities attributable to temporary differences and to
unused tax losses.
The current income tax charge is calculated based on the tax laws
enacted or substantively enacted at the end of the reporting period in
the countries where the Company’s subsidiaries operate and generate
Tax Consolidated Group account for their own current and deferred
tax accounts. These tax amounts are measured as if each entity 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 Consolidated
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
Loans and advances were initially measured at fair value plus
incremental direct transaction costs, and subsequently measured at
their amortised cost using the effective interest method.
k. Provision for doubtful debts
acquisition of a subsidiary comprises the fair values of the assets
Losses on lease and loan receivables are recognised when they are
transferred, the liabilities incurred and the equity interests issued by
incurred, which requires the Group to identify objective evidence that
the Group. The consideration transferred also includes the fair value
the receivable is impaired, and make a best estimate of incurred losses
of any asset or liability resulting from a contingent consideration
inherent in the portfolio. The method for calculating the best estimate
arrangement and the fair value of any pre-existing equity interest in the
of incurred losses depends on the size, type and risk characteristics
subsidiary. Acquisition-related costs are expensed as incurred.
of the related financing receivable. For the majority of the receivables,
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions,
the assessment is made collectively at a portfolio level, however
individually significant receivables are assessed individually.
measured initially at their fair values at the acquisition date. On
The estimate requires consideration of historical loss experience,
an acquisition-by-acquisition basis, the Group recognises any
adjusted for current conditions, and judgements about the probable
non-controlling interest in the acquiree either at fair value or at the
effects of relevant observable data, including present economic
non-controlling interest’s proportionate share of the acquiree’s net
conditions such as delinquency rates, financial health of specific
identifiable assets.
The excess of the consideration transferred, the amount of any non-
controlling interest in the acquired entity 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 after the
customers and market sectors, and both the current and forecast
employment rate. The underlying assumptions, estimates and
assessments used to provide for losses are updated periodically to
reflect the Group’s view of current conditions, which can result in
changes to assumptions. Changes in such estimates can significantly
affect the provision for doubtful debts.
measurement of all amounts has been reviewed, the difference is
l. Other Debtors
recognised directly in profit or loss as a bargain purchase.
Other debtors are recognised initially at fair value and subsequently
Where settlement of any part of cash consideration is deferred, the
measured at amortised cost, using the effective interest rate method,
amounts payable in the future are discounted to their present value
less any provision for impairment. Other debtors are generally due
as at the date of exchange. The discount rate used is the entity’s
for settlement within 30 days. They are included as receivables in the
incremental borrowing rate, being the rate at which a similar borrowing
statement of financial position.
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)
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 is depreciated over the
shorter of the asset’s useful life and the lease term.
of the minimum lease payments and an estimate of the value of any
Leases in which a significant portion of the risks and rewards of
unguaranteed residual value expected to accrue to the benefit of the
ownership are retained by the lessor are classified as operating leases.
Group.
Group at the end of the lease term.
Assets or liabilities arising under the Tax Funding Agreement with the
members of the Tax Consolidated Group are recognised as amounts
receivable from or payable to other entities in the Group. Details about
j. Loan receivables
Loan receivables are non-derivative financial assets with fixed or
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.
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.
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n. Cash and cash equivalents
p. Derivatives and hedging activities
q. Inventories
For the purpose of presentation in the statement of cash flows, cash
Derivatives are initially recognised at fair value on the date a derivative
and cash equivalents includes cash on hand, deposits held at call with
contract is entered into and are subsequently remeasured to their
financial institutions and other short term, highly liquid investments
fair value at the end of each reporting period. The accounting for
with original maturities of three months or less that are readily
subsequent changes in fair value depends on whether the derivative is
Inventories are measured at lower of cost and net realisable value.
The cost of inventories is based on the first-in, first-out principle.
Inventories comprise of office equipment, parts and toners, returned
rental equipment and extended rental equipment after the end of the
convertible to known amounts of cash.
designated as a hedging instrument, and if so, the nature of the item
contractual rental period.
carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of
impairment testing. The allocation is made to those cash-generating
units or groups of cash-generating units that are expected to benefit
from the business combination in which the goodwill arose, identified
according to operating segments (note 3).
o. Investments
The Group classifies its investments into 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.
being hedged.
The Group designates all derivatives held as at 30 June 2018 and
30 June 2017 as hedges of a particular risk associated with the cash
flows of recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges) or hedges of a net investment in a
foreign operation (net investment hedges).
At the inception of the hedging transaction, the Group documents 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
(i) Financial assets at fair value through profit or loss
hedged items.
Financial assets at fair value through profit or loss are financial assets
The fair values of derivative financial instruments used for hedging
held for trading which are acquired principally for the purpose of selling
purposes are disclosed in note 18. Movements in the hedging reserve
in the short term with the intention of making a profit. Derivatives are
in shareholders’ equity are shown in note 20(a).
also categorised as held for trading unless they are designated as
hedges.
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in
The Group had no assets in this category at 30 June 2018 (2017: $nil).
other comprehensive income and accumulated in reserves in equity.
(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.
The Group’s use of this class of asset is consistent with all other group
of assets.
(iii) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets
quoted in an active market with fixed or determinable payments
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 interest expense.
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
and fixed maturities that the Group’s management has the positive
equity is immediately reclassified to profit or loss.
intention and ability to hold to maturity. If the Group were to sell other
than an insignificant amount of held-to maturity financial assets, the
whole category would be tainted and reclassified as available-for-sale.
Certain derivative instruments do not qualify for hedge accounting.
Changes in the fair value of any derivative instrument that does not
The Group had no assets in this category at 30 June 2018 (2017: $nil).
loss and are included in other income or other expenses.
(iv) Available-for-sale financial assets
Availableforsale financial assets, comprising principally marketable
equity securities, are nonderivatives that are either designated in this
category or not classified in any of the other categories. Investments
are designated as availableforsale if they do not have fixed maturities
and fixed or determinable payments and management intends to hold
them for the medium to longterm.
The Group had no assets in this category at 30 June 2018 (2017: $nil).
Hedges of net investment in foreign operations are accounted
for similarly to cash flow hedges. Any gain or loss on the hedging
instrument related to the effective portion of the hedge 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 expenses.
Gains and losses accumulated in equity are reclassified to the income
statement when the foreign operation is partly disposed or sold.
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.
The carrying amount of any component accounted for as a separate
(ii) IT development and 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 using straight line
method from the point at which the asset is ready for use over its useful
asset is derecognised when replaced. All repairs and maintenance are
charged to the income statement during the reporting period in which
life from 3 to 10 years.
they are incurred.
Depreciation is calculated using the straight line or diminishing value
method to allocate their cost or revalue amounts, net of their residual
values, over their estimated useful lives, as follows:
The assets’ residual values and useful lives are reviewed, and adjusted
if appropriate, at each balance sheet date.
(iii)Merchant and customer relationships
Merchant and customer 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.
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.
• Merchant relationships from 3 to 27 years
•
Customer relationships from 3 to 15 years
Gains and losses on disposals are determined by comparing proceeds
with the carrying amount of the asset disposed. These are included in
t. Impairment of assets
the income statement.
Assets
Computers
Method
Depreciation rate
Diminishing value
Plant and equipment
Diminishing value
Motor vehicles
Diminishing value
Leasehold improvements
Straight line/
Diminishing value
6.7% – 20%
Furniture and fittings
Diminishing value
15%
50%
30%
25%
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 tested 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
Straight line/
Diminishing value
10% – 33%
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
s. Intangibles
(i) Goodwill
each reporting period.
u. Assets held for sale
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 is not
amortised. Instead, goodwill is tested for impairment annually or
Non-financial assets, or disposal groups comprising assets and liabilities,
are classified as held-for-sale if it is highly probable that they will be
recovered primarily through sale rather than through continuing use.
more frequently if events or changes in circumstances indicate that it
Such assets, or disposal groups, are generally, measured at the
might be impaired, and is carried at cost less accumulated impairment
lower of their carrying amount and fair value less costs to sell. Any
losses. Gains and losses on the disposal of an entity include the
impairment loss on a disposal group is allocated first to goodwill,
qualify for hedge accounting are recognised immediately in profit or
Software
94
FlexiGroup Annual Report 2018
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95
and then to the remaining assets and liabilities on a pro-rata basis,
class of obligations as a whole. A provision is recognised even if the
except no loss is allocated to inventories, financial assets, deferred
likelihood of an outflow with respect to any one item included in the
tax assets, employee benefit assets, which continue to be measured
same class of obligations may be small.
in accordance with the Group’s other accounting policies. Impairment
losses on initial classification as held-for-sale and subsequent gains
and losses on remeasurement are recognised in profit or loss.
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
A discontinued operation is a component of the entity that has been
present value reflects current market assessments of the time value
disposed of or is classified as held for sale and that represents a
of money and the risks specific to the liability. The increase in the
separate major line of business or geographical area of operations, is
provision due to the passage of time is recognised as interest expense.
part of a single co-ordinated plan to dispose of such a line of business
or area of operations, or is a subsidiary acquired exclusively with a
view to resale. The results of discontinued operations are presented
separately in the statement of profit or loss.
y. Employee benefits
Short-term obligations
v. Trade and other payables
These amounts represent liabilities for goods and services provided
to the Group prior to the end of the financial year that are unpaid.
The amounts are unsecured and are usually paid within 30 days
of recognition. They are recognised initially at their fair value and
subsequently measured at amortised cost using the effective
interest method.
w. 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 for wages and salaries, including non-monetary benefits and
annual leave expected to be settled within 12 months after the end of the
period in which the employees render the related service are recognised
in respect of employees’ services up to the end of the reporting period
and are measured at the amounts expected to be paid when the
liabilities are settled. The liability for annual leave is recognised as a
provision in the statement of financial position. All other short-term
employee benefit obligations are presented as payables.
(ii) Other long-term employee benefit obligations
The liability for long service leave and annual leave which is not
expected to be settled within 12 months after the end of the period in
which the employees render the related service is recognised in the
provision for employee benefits and measured as the present value of
expected future payments to be made in respect of services provided
by employees up to the end of the reporting period 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 end of the
reporting period on government bonds with terms and currencies that
match, as closely as possible, the estimated future cash outflows.
(iii) Profit-sharing and bonus plans
liabilities assumed, is recognised in other income or other expenses.
The Group recognises a liability and an expense for bonuses and
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.
x. Provisions
Provisions for legal claims, service warranties and make good
obligations are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and the
amount has been reliably estimated. Provisions are not recognised for
future operating losses.
Where there are a number of similar obligations, the likelihood that an
outflow will be required in settlement is determined by considering the
profit-sharing based on a formula that takes into consideration
the profit attributable to the Company’s shareholders after certain
adjustments. The Group recognises a provision where contractually
obliged or where there is a past practice that has created a
constructive obligation.
(iv) Share-based payments
Share-based compensation benefits are provided to certain
employees. Information relating to these schemes is set out in note 24.
The fair value of such instruments is recognised as employment
expenses in the income statement 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
ac. Goods and Services Tax (GST)
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.
Revenues, expenses and assets are recognised net of the amount of
associated GST, unless the GST incurred is not recoverable from the
taxation authority. In this case it is recognised as part of the cost of
The fair value of the instruments granted is adjusted to reflect market
acquisition of the asset or as part of the expense.
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.
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 and subordinated perpetual notes 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
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or
payable to, the taxation authority is included with other receivables or
payables in the 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 ASIC Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191, relating to the
“rounding off” of amounts in the financial statements. Amounts in
the financial statements have been rounded off in accordance with
that Instrument to the nearest hundred thousand dollars, or in certain
cases, to the nearest dollar.
ae. Parent entity financial information
The financial information for the parent entity, FlexiGroup Limited,
disclosed in note 34 has been prepared on the same basis as the
consolidated financial statements, except as set out below.
(i) Investments in subsidiaries
income tax effects, is included in equity attributable to the owners of
Investments in subsidiaries are accounted for at cost less allowance for
FlexiGroup Limited.
aa. Dividends
impairment in the financial statements of FlexiGroup Limited.
(ii) Tax consolidation legislation
Provision is made for the amount of any dividend declared, being
appropriately authorised and no longer at the discretion of the Group, on
FlexiGroup Limited and its whollyowned Australian controlled entities
have implemented the tax consolidation legislation.
or before the end of the financial year but not distributed at balance date.
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 7(f).
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
and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination
of basic earnings per share to take into account: the after income tax
effect of interest and other financing costs associated with dilutive
potential ordinary shares, and the weighted average number of
additional ordinary shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
96
FlexiGroup Annual Report 2018
Annual Financial Statement
97
are valued using valuation techniques that utilise observable market
inputs. The fair value of financial instruments is included within note
25(e).
(vii) Share based payment expense
In determining the share based payments expense for the period, the
Group makes various assumptions in determining the fair value of
the instruments and the probability of non-market vesting conditions
being met as set out in note 1(y)(iv) and note 24.
(viii) Taxation
Judgement is required in determining provisions held in respect of
uncertain tax positions. The Group estimates its tax liabilities based
on its understanding of the relevant tax law in each of the countries in
which it operates and seeks independent advice where appropriate.
3. SEGMENT INFORMATION
(a) Description of segments
Management has determined the operating segments based on the
reports reviewed by the Chief Executive Officer (CEO) that are used to
make strategic decisions. In addition to statutory profit after tax, the
CEO and the Board assess the business on a Cash NPAT basis. Cash
NPAT is defined as statutory profit after tax, adjusted for the after tax
effect of material infrequent items that the CEO and Board believe
do not reflect ongoing operations of the Group and amortisation of
acquired intangible assets.
The CEO considers the business from a product perspective and has
identified six reportable segments; Certegy (including Oxipay),
AU Cards business, Consumer Leasing (consisting of Lisa, FlexiRent,
SmartWay and FlexiWay), Commercial Leasing, NZ Leasing and
NZ Cards.
During the year, a new segment, Commercial Leasing was established.
Management see this segment as providing strong growth and
profitability through a focus on driving new business in operating
and finance leases, chattel mortgages and managed services. The
Commercial Leasing segment resulted from the amalgamation of the
Enterprise (disclosed as “Other” in FY17), Think Office Technology
(TOT) and SME businesses. SME was reported as part of Australia
Leasing in FY17 which also included Consumer Leasing. As a
consequence, the remaining businesses in the previous Australia
Leasing now form the Consumer Leasing segment, which is also
reported separately. Additionally, there is an unallocated segment
which consists of net corporate debt interest. Prior year comparatives
have been restated to reflect the changes to reportable segments.
The Group operates in Australia, New Zealand and Ireland. The
operating segments are identified according to the nature of
the products and services provided with New Zealand disclosed
separately (based on its product offering) and Ireland included within
Consumer Leasing.
The segment information provided to the CEO for the reportable
segments for the year ended 30 June 2018 is as below:
2. CRITICAL ACCOUNTING
ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the
related actual results. Management also needs to exercise judgement in
applying the Group’s accounting policies.
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.
The estimates and judgements 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. Where applicable, residual
values are set at rates ranging between 0% and 20% depending on asset
type and the duration of the contract.
(ii) Provision for doubtful debts
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 investments 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 and
the assumptions made are set out in note 13.
(iv) Acquired intangible assets
Under the accounting standards, the assets and liabilities of businesses
acquired through a business combination are to be measured at their
acquisition date fair values. The Group applies judgements in selecting
valuation techniques and setting valuation assumptions to determine
the acquisition date fair values and to estimate the useful lives of these
assets as set out in notes 1 (h) and (s).
(v) Fair value of disposal group held for sale
The disposal group held for sale is recognised and measured at fair
value, being the lower of its value in use or its estimated recoverable
amount through sale less costs to sell. The fair value of the disposal
group held for sale is disclosed at note 4.
(vi) Fair value of financial instruments
All derivatives are recognised and measured at fair value. The derivatives
98
FlexiGroup Annual Report 2018
Annual Financial Statement
99
(b) Operating segments - 2018
(b) Operating segments - 2017
NZ
Leasing
37.3
NZ
Cards
123.1
Unallocated
Total
A$m
Certegy
AU Cards
Consumer
Leasing
Commercial
Leasing
NZ
Leasing
-
460.4
Total portfolio income
113.4
57.5
74.1
51.8
40.1
NZ
Cards
125.9
Unallocated
Total
-
462.8
Interest expense
Net portfolio income
Operating expenses
Impairment (losses) / reversals on
receivables and customer loans
Amortisation of acquired intangible assets
Profit / (loss) before income tax
Income tax expense
Statutory profit / (loss) for the year
Recurring non-cash adjustments:
(19.0)
(13.0)
(11.3)
(10.4)
(7.0)
(32.0)
(9.3)
(102.0)
94.4
44.5
62.8
41.4
33.1
93.9
(9.3)
360.8
(26.7)
(17.9)
(44.9)
(21.7)
(16.9)
(42.6)
(19.7)
(12.7)
(10.5)
(6.6)
(0.7)
(12.6)
(1.0)
47.0
(14.1)
32.9
(0.6)
13.3
(4.0)
9.3
(0.2)
7.1
(0.1)
7.0
(1.0)
12.1
(0.8)
14.7
(1.4)
37.3
(4.6)
(4.3)
(10.5)
2.8
(34.8)
7.5
10.4
26.8
(6.5)
87.4
-
-
-
(9.3)
(170.8)
(62.8)
(5.0)
122.2
Amortisation of acquired intangible assets 1
0.7
0.4
0.3
0.7
1.1
1.0
-
4.2
Other 2
-
-
1.4
-
-
-
-
1.4
Cash net profit after tax
33.6
9.7
5.6
11.3
11.5
27.8
(6.5)
93.0
Total segment assets at 30 June 2017
544.0
513.5
330.0
280.2
205.3
912.9
-
2,785.9
Non-recurring adjustments
Impairment of goodwill and
intangible assets 2
Customer remediation provision 3
Cash net profit after tax
-
-
89.1
-
-
-
-
-
32.0
-
7.2
4.9
0.4
-
13.0
-
-
-
10.9
29.5
(4.8)
89.1
4.9
88.2
1.
The acquisition of companies over the years has resulted in the recognition of merchant and customer relationships that are amortised over their
useful lives ranging between 3 and 7 years. The amortisation of acquired intangible assets (excluding IT development and software), is a cash
earnings adjustment because it is a non-cash item and does not affect cash distributions available to shareholders
2. The share of equity accounted losses is a non-cash, non-recurring item and is treated as an adjustment to the statutory profit for the
year. The investment in associate has been fully impaired as at 30 June 2017
A$m
Total portfolio income
Interest expense
Net portfolio income
Operating expenses
Impairment (losses) / reversals on
receivables and customer loans
Impairment of goodwill and other
intangible assets
Customer remediation provision 3
Amortisation of acquired intangible assets
Profit / (loss) before income tax
Certegy
AU Cards
Consumer
Leasing
Commercial
Leasing
111.0
(18.1)
92.9
79.2
(17.9)
61.3
60.0
(8.2)
51.8
49.8
(8.2)
41.6
(6.4)
(32.4)
(6.8)
(98.0)
30.9
90.7
(6.8)
362.4
(29.3)
(25.1)
(45.0)
(23.6)
(14.6)
(35.3)
-
(172.9)
(18.0)
(25.8)
(7.6)
0.5
(1.3)
(14.3)
-
(66.5)
-
-
(94.7)
-
-
-
-
(94.7)
-
(1.1)
44.5
-
(0.5)
(7.0)
(0.2)
9.9
(102.7)
-
(0.9)
17.6
(5.3)
12.3
-
(1.0)
14.0
-
-
(7.0)
(2.4)
-
38.7
(6.8)
(6.1)
15.2
(4.0)
(10.9)
2.0
(25.5)
10.0
27.8
(4.8)
(10.3)
Income tax expense
(13.3)
(3.0)
9.0
Statutory profit / (loss) for the year
31.2
6.9
(93.7)
Recurring non-cash adjustments:
Amortisation of acquired intangible assets 1
0.8
0.3
0.1
0.7
0.9
1.7
-
4.5
Total segment assets at 30 June 2018
570.3
680.4
175.4
346.8
168.9
912.4
-
2,854.2
1.
The acquisition of companies over the years has resulted in the recognition of merchant and customer relationships that are amortised over their
useful lives ranging between 3 and 27 years. The amortisation of acquired intangible assets (excluding IT development and software), is a cash
earnings adjustment because it is a non-cash item and does not affect cash distributions available to shareholders
2.
Impairments relate to the write down of the Consumer Leasing business. Refer to note 13 for further details. The impairment is non-cash and does not
affect cash distributions available to shareholders
3. This relates to a provision for customer remediation as a result of the proactive arrangement with CIO on the Company’s responsible lending
obligations. The amount is non-recurring and does not reflect the Group’s underlying performance
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FlexiGroup Annual Report 2018
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101
4. DISPOSAL GROUP HELD FOR SALE
5. TOTAL PORTFOLIO INCOME
6. EXPENSES
7. INCOME TAX EXPENSE
On 17 July 2018, FlexiGroup Australia Holdings Pty Ltd, a fully owned
subsidiary of FlexiGroup, signed a share sale agreement to sell Australian
Print Holdings Pty Limited (trading as Think Office Technology ‘TOT’),
a fully owned subsidiary entity within the Commercial Leasing segment,
into a joint venture structure. At 30 June 2018, the sale process was active
and as a result TOT is disclosed as a disposal group held for sale in the
statement of financial position. Refer to note 36 “Events occurring after
the reporting date” for further information.
a. Assets and liabilities of disposal group held for sale
A$m
Gross interest and finance lease income
Amortisation of initial direct
transaction costs
Other portfolio income
Sale of goods
Interest income
Sundry income
2018
387.4
2017
394.3
(24.5)
(26.9)
87.2
6.0
2.7
1.6
85.0
4.8
3.3
2.3
a. Impairment of goodwill and other intangible assets
a. Income tax expense
A$m
Impairment of goodwill (note 13)
Impairment of other intangible
assets (note 14)
Total impairment of goodwill and
other intangible assets
2018
75.9
18.8
94.7
2017
A$m
Current tax
2018
38.0
2017
33.0
Deferred tax expense
(12.5)
1.8
Total Income tax expense
25.5
34.8
b. Numerical reconciliation of income tax expense to
prima facie tax payable
The assets and liabilities of the disposal group were recognised as held
Total portfolio income
460.4
462.8
b. Depreciation and amortisation expenses
for sale and measured at the lower of fair value less costs to sell and the
carrying amount. The carrying values are presented in the table below:
A$m
2018
2017
Cash and cash equivalents
Inventories
Receivables
Plant and equipment
Goodwill
Other intangible assets
Deferred tax asset
Total assets of disposal group held
for sale
Payables
Provisions
Deferred tax liabilities
Total liabilities of disposal group held
for sale
2.9
1.9
1.3
2.0
1.9
2.3
0.2
12.5
1.1
0.8
0.5
2.4
-
-
-
-
-
-
-
-
-
-
-
-
b. Measurement of fair value of the disposal
group held for sale
The valuation technique used to arrive at fair value for the disposal
group is based on Enterprise Value/EBIT multiple adjusted for the
relative size, growth and margins relative to benchmark companies.
The fair value estimate was calculated at $13.8m.
A$m
Depreciation of plant and equipment
(note 12)
Amortisation of other intangible
assets (note 14)
Total depreciation and
amortisation expenses
c. Operating and other expenses
A$m
Advertising and marketing
Cost of goods sold
Customer remediation provision
(note 27)
Information technology and
communication
Operating lease rental expenses
Other occupancy, equipment and
related costs
Outsourced operation costs
Professional, consulting and
other service provider costs
Share of associate’s loss,
net of impairment
Onerous lease expenses
Other
Total operating and other expenses
2018
3.1
14.4
17.5
2018
9.1
3.8
7.0
15.5
5.5
3.6
11.1
19.5
-
-
1.5
76.6
-
-
-
13.6
16.2
2017
9.0
3.1
15.4
5.5
3.7
10.7
17.8
2.0
2.6
5.3
75.1
A$m
2017
Profit before income tax expense
2.6
Tax at the Australian tax rate of 30%
Tax effect of amounts which are not
deductible/(taxable) in calculating
taxable income:
Impairment of goodwill
Permanent differences
Effect of differences in tax rates in
foreign jurisdiction
Income tax expense
2018
15.2
4.6
22.8
(1.0)
(0.8)
25.5
2018
(1.7)
2017
122.2
36.7
-
(0.5)
(1.4)
34.8
2017
(2.2)
c. Amounts recognised directly in equity
A$m
-
Deferred income tax expense related to
items taken directly to equity
d. Deferred tax expense represent movements in
deferred tax assets/liabilities
A$m
2018
2017
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
Other intangible assets
Provisions and other liabilities
Deferred tax expense
(4.5)
(4.7)
(1.4)
(2.0)
(4.6)
(12.5)
(1.2)
0.6
7.1
1.8
102
FlexiGroup Annual Report 2018
Annual Financial Statement
e. Deferred tax assets and liabilities
f. Carryforward tax losses
Deferred tax assets
A$m
Provisions and other liabilities
Reclassified to disposal group held for
sale (note 4)
Total deferred tax assets
Deferred tax liabilities
A$m
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
Plant and equipment
Other intangible assets
Reclassified to disposal group held for
sale (note 4)
Others
Total deferred tax liabilities
2018
35.3
(0.2)
35.1
As at 30 June 2018, the balance of carryforward losses and the
associated deferred tax asset were both $Nil (2017: $Nil).
2017
31.3
g. Tax consolidation legislation
-
FlexiGroup Limited and its wholly-owned Australian entities
implemented the tax consolidation legislation from December 2006.
31.3
The accounting policy on implementation of the legislation is set out in
note 1(g).
2018
2017
Tax Consolidated Group entered into a Tax Sharing Agreement which
On adoption of the tax consolidation legislation, the entities in the
limits the joint and several liability of the wholly-owned entities in the
case of a default by the head entity FlexiGroup Limited.
28.1
33.1
The entities have also entered into a Tax Funding Agreement under
6.3
1.5
12.4
(0.5)
0.4
48.2
7.9
0.3
14.7
-
-
56.0
which the wholly-owned entities fully compensate FlexiGroup
Limited for any current tax payable assumed and are compensated
by FlexiGroup Limited for any current tax receivable and deferred tax
assets relating to the unused tax losses or unused tax credits that
are transferred to FlexiGroup Limited under the tax consolidation
legislation. The funding amounts are determined by reference to the
amounts recognised in the wholly-owned entities’ financial statements.
The amounts receivable/payable under the Tax Funding Agreement
are due upon receipt of the funding advice from the head entity, which
is issued as soon as practicable after the end of the financial year. The
head entity may also require payment of interim funding amounts to
assist with its obligations to pay tax instalments. The funding amounts
Net deferred tax assets
13.1
24.7
are recognised as intercompany receivables.
A$m
Amounts expected to be settled within
12 months
Amounts expected to be settled after
more than 12 months
Net deferred tax liabilities
2018
(6.4)
19.5
13.1
2017
(1.4)
26.1
24.7
103
2017
721.8
5.4
51.3
30.3
8. CASH AND CASH EQUIVALENT
10. RECEIVABLES
A$m
Cash at bank and on hand
2018
125.3
2017
167.3
A$m
Gross investment in finance lease
receivables 1
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:
Guaranteed residuals
Unguaranteed residuals
Unamortised initial direct
transaction costs
2018
684.9
7.9
42.9
24.3
A$m
Balance as above
TOT cash balance disclosed in disposal
group held for sale
2018
125.3
2.9
2017
167.3
Unearned future income
(157.3)
(176.2)
Net investment in finance lease
receivables
-
602.7
632.6
Balance per statement of cash flows
128.2
167.3
Provision for doubtful debts
(16.6)
(24.0)
Included in cash at bank are amounts of $100.1 million (2017: $125.2 million)
which are held as part of the Group’s funding arrangements and are not
available to the Group. The restricted cash balances are distributed to
various parties at a future date and are not available to the Group for any
other purpose.
9. INVENTORIES
A$m
Equipment, parts and accessories
Rental equipment
Total inventories
2018
2.0
0.6
2.6
Net investment in finance leases after
provision for doubtful debts
Loan to associate
Other debtors
Total receivables
586.1
608.6
-
13.8
1.3
18.4
599.9
628.3
1.
Refer to note 25 for disclosure of impaired lease receivables, past due
but not impaired lease receivables and the fair value of lease receivables
Maturity profile of net investment in finance lease
receivables before provision for doubtful debts
2017
2.8
1.9
A$m
4.7
Due within one year
Due after one year but not
later than five years
Due greater than five years
Unearned future income
2018
2017
365.2
413.8
393.4
394.0
1.4
1.0
(157.3)
(176.2)
Net investment in finance lease receivables
602.7
632.6
Movement in provision for doubtful debts
A$m
Carrying amount at beginning of the year
Provided for during the year, net of
utilisation of provisions
2018
24.0
2017
29.1
(7.4)
(5.1)
Carrying amount at the end of the year
16.6
24.0
104
FlexiGroup Annual Report 2018
Annual Financial Statement
105
11. CUSTOMER LOANS
12. PLANT AND EQUIPMENT
A$m
2018
2017
A$m
Gross customer loans
1,894.6
1,655.3
Cost
Unearned future income
(90.5)
(89.3)
Accumulated depreciation
Net loan receivables
1,804.1
1,566.0
Net book amount
2018
14.5
(6.2)
8.3
2017
5.8
(7.4)
8.4
13. GOODWILL
a. Carrying value
A$m
Cost
Balance at the end of the year
2018
2017
236.5 321.4
236.5
321.4
Movement in plant and equipment at net book amount
Movement in goodwill at net book amount
A$m
Balance at the beginning of the year
Additions or fair value adjustments
through business combinations
Additions
Transfer (to)/from disposal
group held for sale
Disposals
Depreciation (note 6b)
Balance at the end of the year
2018
8.4
-
5.4
2017
6.1
(0.2)
2.7
(2.0)
3.0
(0.4)
(0.6)
(3.1)
8.3
(2.6)
8.4
Provision for doubtful debts
Net investment in customer loans
(35.9)
1,768.2
(28.4)
1,537.6
Maturity profile of net customer loans
before provision for doubtful debts
A$m
2018
2017
Due within one year
1,238.6
1,130.5
Due after one year but not later than
five years
Due greater than five years
Unearned future income
634.9
504.6
21.1
(90.5)
20.2
(89.3)
Net loan receivables
1,804.1
1,566.0
Movement in provision for doubtful debts
A$m
Carrying amount at
beginning of the year
Additions or fair value adjustments
through business combinations
Provided for during the year, net of
utilisation of provisions
2018
28.4
-
7.5
2017
28.3
12.8
(12.7)
Carrying amount at the end of the year
35.9
28.4
Reconciliation of fair value of customer loans and lease
receivables acquired in business combinations
A$m
2018
Gross customer loans and receivables
Additions or fair value adjustments
through business combinations
Other fair value adjustments through
business combinations
Fair value
-
-
-
-
2017
616.4
(12.8)
(5.2)
598.4
The carrying amount of goodwill of each CGU is tested for impairment
at each statutory reporting date and whenever there is an indicator that
the asset may be impaired. If an asset is impaired, it is written down to its
recoverable amount. The recoverable amount is based on a value in use
calculation using cash flow projections based on the Board approved
3-year plan. Cash flows for a further 2-year period were extrapolated
using declining growth rates such that the long term terminal growth
was determined at 2% - 2.5%, which does not exceed the long term
average for the sectors and economies in which the CGUs operate.
At the interim reporting date, an assessment of the Consumer Leasing
CGU was performed, resulting in a pre-tax impairment of goodwill
($75.9m), acquired intangible assets ($0.4m) and capitalised
development software ($18.4m) totalling $94.7m. The impairment
resulted from the following factors:
The main product that underpinned the operations of the CGU, the
FlexiRent consumer lease product in Australia was retired in February
A$m
2018
2017
Balance at the beginning of the year
321.4
298.9
Additions or fair value adjustments
through business combinations:
- acquisition of subsidiaries
- NZ Cards (fair value adjustment)
-
-
1.0
15.2
Impairment of Consumer Leasing CGU (note 6a)
(75.9)
-
2018 and the receivables portfolio will run down over the next few
Transfer (to)/from assets in disposal
group held for sale
(1.9)
1.9
sufficient to support the value of the CGU net assets.
years. The future cash flows attaching to this product are therefore not
Effect of movements in exchange rates
(7.1)
4.4
The realignment of operating segments as described in note 3, resulted
in SME cash flows that previously were part of this CGU being excluded
from recoverable amount assessment. Management deemed that no
part of existing goodwill be allocated to a new CGU containing the SME
cash flows.
The CGU that has been impaired belongs to the Consumer Leasing
reportable segment
Balance at the end of the year
236.5
321.4
b. Impairment testing for cash generating units
containing goodwill
For the purpose of impairment testing, goodwill is allocated to
the Group’s operating business units, which represent the lowest
level within the Group at which goodwill is monitored for internal
management purposes.
The aggregate carrying amounts of goodwill allocated to each unit(s)
are as follows:
A$m
Consumer Leasing
Certegy
AU Cards
NZ Leasing
Think Office Technology 1
NZ Cards
Total goodwill
2018
-
30.7
18.9
17.6
-
169.3
236.5
2017
75.9
30.7
18.9
18.3
1.9
175.7
321.4
1.
TOT has been transferred to disposal group held for sale in the current year.
106
FlexiGroup Annual Report 2018
Annual Financial Statement
The key assumptions used in determining value in use for 30 June 2018 are:
Assumption
How determined
14. OTHER INTANGIBLE ASSETS
Forecast revenues and expenses beyond the 2020-21 financial year forecast period have been extrapo-
lated using declining growth rates such that the long-term terminal growth rates are as follows:
Forecast revenues and expenses
•
•
•
•
•
Consumer Leasing – 2.5% (2017: 2.0%)
Certegy – 2.5% (2017: 2.0%)
AU Cards – 2.5% (2017: 2.0%)
NZ Leasing – 2.0% (2017: 2.0%)
NZ Cards – 2.0% (2017: 2.0%)
Long-term growth rate
The above long-term growth rate for each of the CGUs does not exceed the long-term average growth
rate for the sector / industry in which the CGU operates.
The discount rate applied to the cash flows of each CGU is based on the risk free rate for ten-year
Commonwealth Government bonds, adjusted for a risk premium to reflect both the increased risk of
investing in equities and the risk of the specific Group operating company. In making this adjustment,
inputs required are the equity markets risk premium (that is the required increased return required over
and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjust-
ment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a
Cost of Equity Capital
Geared cash flows are used to calculate recoverable amounts for all CGUs.
whole, giving rise to the CGU specific Cost of Equity Capital.
The discount rates used for impairment testing are as follows:
•
•
•
•
•
Consumer Leasing – 19.7% (2017: 15.3%)
Certegy – 18.4% (2017: 15.2%)
AU Cards – 18.7% (2017: 15.3%)
NZ Leasing – 14.7% (2017: 13.5%)
NZ Cards – 18.2% (2017: 14.4%)
Sensitivity analysis
The Group has conducted sensitivity analysis of +/- 100 basis point movements on the growth rates and discount rates assumptions above to
assess the effect on recoverable amount of changes in the key assumptions.
The Group is satisfied that all the assumptions on which the recoverable amounts are based are fair and reasonable, and that currently, there are no
reasonable changes to these assumptions that would cause the aggregate carrying amount to exceed the aggregate recoverable amount of any of
the Group’s CGUs as at 30 June 2018.
A$m
At 1 July 2016
Additions
Additions and changes in fair value
through business combinations
Reclass of intangible assets included in a
disposal group classified as held for sale (note 4)
Amortisation (note 6b)
Effect of movements in exchange rates
At 30 June 2017
A$m
At 1 July 2017
Additions
Impairment 1 (note 6a)
Intangible assets included in a disposal group
classified as held for sale (note 4)
Amortisation (note 6b)
Effect of movements in exchange rates
At 30 June 2018
IT development
& software
Merchant & customer
relationships and
other rights
Non-compete
agreements
Brand
name
53.5
22.4
(5.0)
-
(8.8)
-
62.1
47.3
-
1.5
3.7
(4.8)
0.1
47.8
-
-
-
-
-
-
-
IT development
& software
Merchant & customer
relationships and
other rights
Non-compete
agreements
62.1
23.8
(18.4)
-
(8.7)
(0.6)
58.2
47.8
-
(0.4)
(2.3)
(5.7)
(1.5)
37.9
-
-
-
-
-
-
-
1.
Impairment relates to the write down of intangible assets relating to the Consumer Leasing CGU. Refer to note 13 for further details
107
Total
100.8
22.4
-
-
4.1
0.6
0.4
4.1
-
-
(13.6)
0.1
4.5
114.4
Brand
name
4.5
-
-
-
-
(0.2)
Total
114.4
23.8
(18.8)
(2.3)
(14.4)
(2.3)
4.3
100.4
108
FlexiGroup Annual Report 2018
Annual Financial Statement
19. CONTRIBUTED EQUITY
2018
2017
a.Share capital
Ordinary shares – fully paid
Subordinated perpetual notes
Total share capital
b. Movement in ordinary shares
1 July 2016
Issue of shares on reinvestment of dividend
30 June 2017
15. PAYABLES
A$m
Trade payables
Total payables
16. BORROWINGS
Secured
A$m
Corporate debt
Secured loans
17. PROVISIONS
2018
51.7
51.7
2017
A$m
50.3
Annual leave
50.3
Long service leave
Outstanding claims liability
Unearned premium liability
Customer remediation (note 27)
Other
Total provisions
3.8
2.4
1.2
0.2
7.0
-
14.6
3.8
2.7
0.5
0.2
-
0.7
7.9
2018
104.3
2017
126.2
2,058.7
1,903.8
18. DERIVATIVE FINANCIAL
INSTRUMENTS
Total secured borrowings
2,163.0
2,030.0
Loss reserve
Total borrowings
(38.3)
2,124.7
Maturity profile of borrowings, net of loss reserve
(22.3)
A$m
2018
2017
Due within one year
1,327.0
1,200.0
Due after one year but not later
than five years
797.7
807.7
Information about the Group’s exposure to credit risk, foreign ex-
change and interest rate risk and about the methods and assumptions
used in determining fair values is provided in note 25. The maximum
exposure to credit risk at the end of the reporting period is the carrying
amount of each class of derivative financial liabilities mentioned above.
Total borrowings
2,124.7
2,007.7
Assets pledged as security
The loans are secured by rentals and payments receivable in respect
of the underlying lease and loan receivable contracts. Under the terms
of the funding arrangements, some of the funders retain a part of the
gross amount funded as security against credit losses on the underlying
leases. This amount is referred to as a ‘loss reserve’ and represents a
reduction in the amount borrowed.
Financing arrangements
Unrestricted access was available at balance date to the following lines
of credit before loss reserves:
A$m
2018
2017
Total loan facilities available
2,782.4
2,784.4
Loan facilities used at balance date
(2,163.0)
(2,030.0)
Loan facilities unused at balance date
619.4
754.4
2,007.7
A$m
Interest rate swaps used for hedging
2018
6.4
2017
12.9
1 July 2017
Treasury shares purchased on market
Risk exposures and fair value measurements
Transfer from share capital reserve
Transfer from treasury shares on vesting of sign on rights and employee scheme shares
Expired options and rights transferred from share based payment reserve
30 June 2018
374.0
313.7
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and
amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share
is entitled to one vote. There is no current on market buy back of shares, other than shares purchased by the Share Plan Trust to satisfy vested
share based payments.
109
2017
A$m
312.1
49.1
361.2
A$m
307.7
4.4
312.1
A$m
312.1
(0.2)
0.1
0.3
1.4
2018
Shares
2017
Shares
374,050,685
374,145,403
49,129,075
49,129,075
2018
A$m
313.7
49.1
423,179,760
423,274,478
362.8
Number of
shares (m)
372.2
1.9
374.1
Number of
shares (m)
374.1
(0.2)
0.1
-
-
110
FlexiGroup Annual Report 2018
Annual Financial Statement
111
c. Subordinated perpetual notes
FlexiGroup Limited issued unsecured subordinated perpetual notes as
part of the consideration for the acquisition of Fisher & Paykel Finance.
The face value of the notes is $49.1m, the A$ equivalent of NZ$55.0m.
Interest is payable on the perpetual notes at the sole and absolute
discretion of the issuer commencing on 18 March 2018. Interest pay-
able or capitalised will be accounted for as a dividend in equity. In the
unlikely event that no interest is paid or capitalised on the perpetual
notes in any given year, the Group may not pay or declare any ordinary
dividends to the ordinary shareholders.
In limited circumstances upon a change of control, the noteholder may
elect to convert the perpetual notes having an aggregate principal
amount equal to the face value into 28.5 million ordinary shares. Prior
to conversion, the perpetual notes have no right to share in any surplus
assets or profits, ordinary dividends and no voting rights.
d. Performance and sign on incentive rights
Information relating to the FlexiGroup Employee Options and Per-
formance Rights Plan, including details of performance and sign on
incentive rights exercised and lapsed during the financial year and
performance and sign on incentive rights outstanding at the end of the
financial year, is set out in note 24.
e. Movement in treasury shares
1 July 2016
30 June 2017
1 July 2017
Treasury shares purchased on market
Transfer from treasury shares on vest-
ing of sign on rights
30 June 2018
Number of
shares (m)
0.1
0.1
Number of
shares (m)
0.1
0.2
(0.1)
0.2
A$m
0.3
0.3
A$m
0.3
0.2
(0.1)
0.4
Treasury shares are shares in FlexiGroup Limited that are held by the
FlexiGroup Tax Deferred Employee Share Plan Trust for the purposes
of issuing shares under the FlexiGroup Long Term Incentive Plan (see
note 24).
f. Capital risk management
The Group’s objectives when managing capital are to safeguard its
ability to continue as a going concern, so that it can continue to provide
returns for shareholders and to maintain an optimal capital structure to
facilitate growth in the business. Consistent with others in the industry,
the Group monitors capital on the basis of its gearing ratio. In order to
maintain or adjust its capital structure, the Group considers the issue
of new capital, return of capital to shareholders and its dividend policy
as well as its plans for acquisition and disposal of assets
20. RESERVES AND RETAINED EARNINGS
a. Reserves
A$m
Share-based payment reserve
Foreign currency translation reserve
Share capital reserve
Cash flow hedge reserve
Balance at 30 June
Movements: Share-based payment reserve
A$m
Balance at 1 July
2018
0.4
4.3
-
5.6
10.3
2018
1.4
Transfer to share capital
(1.4)
b. Retained earnings
2017
1.4
13.9
0.3
Movements in retained profits were as follows:
A$m
Balance at 1 July
2018
293.6
2017
247.5
Net (loss)/ profit for the year
(10.3)
87.4
1.4
17.0
Dividends (note 21)
Balance at 30 June
(28.8)
(41.3)
254.5
293.6
c. Nature and purpose of reserves
2017
(i) Foreign currency translation reserve
1.8
-
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
Share-based payment expense
0.5
(0.4)
net investment is disposed of.
Other changes
Balance at 30 June
(0.1)
0.4
-
1.4
(ii) Share-based payment reserve
The Share-based payment reserve is used to recognise:
•
•
•
the fair value of options and rights issued to Directors and
employees but not exercised,
the fair value of shares issued to Directors and employees,
and
other share-based payment transactions
(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.
Movements: Foreign currency translation reserve
A$m
Balance at 1 July
Other comprehensive income
Balance at 30 June
Movements: Share capital reserve
A$m
Balance at 1 July
Transfer to share capital
Balance at 30 June
Movements: Cash flow hedge reserve
A$m
Balance at 1 July
Other comprehensive income
Balance at 30 June
2018
13.9
(9.6)
4.3
2018
0.3
(0.3)
-
2018
1.4
4.2
5.6
2017
9.8
4.1
13.9
2017
0.3
-
0.3
2017
(3.8)
5.2
1.4
112
FlexiGroup Annual Report 2018
Annual Financial Statement
113
21. DIVIDENDS
Final dividends paid
22. EARNINGS PER SHARE
a. Earnings per share
Parent entity
cents
2018
2017
23. RECONCILIATION OF PROFIT AFTER INCOME TAX
TO NET CASH INFLOW FROM OPERATING ACTIVITIES
A$m
2018
2017
(10.3)
87.4
Exchange differences
(0.3)
(0.6)
A$m
Net (loss)/profit for the year after tax
Receivables and loan impairment
expenses
Depreciation and amortisation
Customer remediation provision
Share of losses from associate
Impairment of goodwill and other
intangible assets
Share-based payment
expense / (benefit)
2018
(10.3)
66.5
17.5
7.0
-
94.7
2017
87.4
62.8
16.2
-
2.0
-
0.5
(0.4)
Other non-cash movements
(1.0)
0.4
Net cash inflows from operating
activities before changes in operating
assets and liabilities
174.6
167.8
Change in operating assets and liabilities:
A$m
Decrease/(increase) in
other receivables
Increase in current tax receivables
Increase/(decrease) in payables
Decrease in inventories
Decrease/(increase) in
current tax liabilities
(Decrease)/increase in net
deferred tax liabilities
Net cash inflows from
operating activities
2018
5.4
-
3.2
0.1
2017
(8.7)
(0.5)
(0.8)
0.2
16.5
(1.3)
(11.1)
4.3
188.7
161.0
2017 final dividend paid on 13 October
2017: 3.85 cents
(2016 final dividend paid on 14 October
2016: 7.25 cents) per ordinary share
franked to 100%
Interim dividends paid
A$m
2018 interim dividend paid on 13 April
2018: 3.85 cents
(2017 interim dividend paid on 13 April
2017: 3.85 cents) per ordinary share
franked to 100%: Cash
Share capital reinvestment(2)
Total interim dividends paid
Total dividends paid (1)
1.
All dividends are franked at a tax rate of 30%
2. Dividend reinvestment plan was offered at 2% discount on the volume
weighted average share price for the 10 trading days commencing 15
March 2017 and ending on 28 March 2017
Final dividends proposed but not
recognised at year end
A$m
2018: 3.85 cents (2017: 3.85 cents) per
ordinary share franked to 100%
Franked dividends
Parent entity
2018
14.4
2017
14.4
14.4
27.0
Total basic earnings per share
attributable to the ordinary equity
holders of the Company
Total diluted earnings per share
attributable to the ordinary equity
holders of the Company
(2.8)
23.4
(2.8)
23.4
2018
2017
b. Reconciliation of earnings used in calculating
earnings per share
A$m
2018
2017
(Loss) / profit attributable to the
ordinary equity shareholders of the
Company used in calculating:
- basic earnings per share
14.4
9.9
-
14.4
28.8
4.4
14.3
41.3
- diluted earnings per share
(10.3)
87.4
c. Weighted average number of ordinary shares
Number
2018
2017
Weighted average number of ordinary
shares used in calculation of basic
earnings per share
Add: potential ordinary shares
considered dilutive
Weighted average number of
ordinary shares used in calculating
diluted earnings per share
374,061,938
372,631,358
-
-
374,061,938
372,631,358
Information concerning the classification of securities
Performance, sign on incentive and deferred STI rights granted to
The franked dividends recommended after 30 June 2018 will be frank-
employees under the FlexiGroup Long Term Incentive Plan are settled
ed out of existing franking credits, or out of franking credits arising
through an on-market share purchase. The rights are not considered
from the payment of income tax in the year ending 30 June 2018.
to be dilutive. The rights have not been included in the determination
Consolidated
Parent entity
are set out in note 24.
of basic and diluted earnings per share. Details relating to the rights
A$m
2018
2017
2018
2017
Franking credits available for
subsequent financial years based
42.1
48.9
42.1
48.9
on a tax rate of 30% (2017: 30%)
The above amounts are calculated from the balance of the franking account
as at the end of the reporting period, adjusted for franking credits and debits
that will arise from the settlement of liabilities or receivables for income tax and
dividends after the end of the year. The consolidated amounts include franking
credits that would be available to the parent entity if distributable profits of sub-
sidiaries were paid as dividends. share price for the 10 trading days commenc-
ing 15 March 2017 and ending on 28 March 2017.
114
FlexiGroup Annual Report 2018
Annual Financial Statement
115
Consolidated and parent entity – 2017
Grant date
Expiry date
Exercise price
Balance at
start of the
period
Granted
during the
period
Exercised
during the
period
Forfeited
during the
period
Balance at
end of
the period
Vested and
exercisable
at the end
of the period
Number
Number
Number
Number
Number
Number
3/6/11
3/6/11
5/8/11
19/3/12
23/4/12
10/8/12
3/7/14
1/12/14
26/11/15
22/11/16
Total
31/12/16
$0.00
19,3751
31/12/16
$2.11
426,4371
31/12/16
$0.00
12,4981
$2.18
$2.27
$3.05
$0.00
37,5001
7,5001
571,1001
-
$0.00
3,166,000
$0.00
1,353,000
31/12/16
31/12/16
31/3/16
31/3/16
15/10/18
15/10/19
31/10/20
31/10/21
15/10/18
15/10/19
31/10/20
31/10/21
15/10/18
15/10/19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,3751
426,4371
12,4981
37,5001
7,5001
571,1001
-
-
(1,354,000)
1,812,0002
-
(587,800)
765,2003
-
-
-
-
-
-
-
-
-
-
-
$0.00
-
72,000
5,593,410
72,000
-
-
-
72,000
(1,941,800)
3,723,610
Weighted average exercise price4
$0.00
$0.00
$0.00
1.
2.
3.
These instruments are all either TSR performance lapsed or expired and remain in share based payments reserve
Includes 732,000 (2016: 496,000) performance rights that are TSR lapsed and remain in share based payments reserve
Includes 125,200 performance rights that are TSR lapsed and remain in share based payments reserve
4. Excludes the weighted average exercise price of lapsed and expired options
24. 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
and performance rights and 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 or right, 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.
The table below shows options, performance rights, sign on incentive and deferred STI rights granted under the plan:
Consolidated and parent entity – 2018
Grant date
Expiry date
Exercise price
Balance at
start of the
period
Granted
during the
period
Exercised
during the
period
Forfeited
during the
period
Balance at
end of
the period
Vested and
exercisable
at the end
of the period
Number
Number
Number
Number
Number
Number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(19,375)1
(426,437)1
(12,498)1
(37,500)1
(7,500)1
(571,100)1
-
-
-
-
-
-
-
(1,452,500)2
359,500
-
(445,200)3
320,000
3/6/11
3/6/11
5/8/11
19/3/12
23/4/12
10/8/12
1/12/14
26/11/15
22/11/16
3/7/17
6/09/17
27/11/17
Total
31/12/16
$0.00
19,3751
31/12/16
$2.11
426,4371
31/12/16
$0.00
12,4981
31/12/16
31/12/16
31/3/16
15/10/18
15/10/19
31/10/20
31/10/21
15/10/18
15/10/19
31/10/20
31/10/21
15/10/18
15/10/19
1/10/18
1/10/19
15/10/18
15/3/22
$2.18
$2.27
$3.05
37,5001
7,5001
571,1001
$0.00
1,812,000
$0.00
765,200
$0.00
$0.00
$0.00
-
-
-
$0.00
72,000
(36,000)
40,000
(15,000)
-
-
36,000
25,000
117,193
1,730,052
-
-
(10,645)
106,548
-
1,730,052
3,723,610
1,887,245
(51,000)
(2,982,755)
2,577,100
Weighted average exercise price4
$0.00
$0.00
$0.00
$0.00
1.
These instruments were either TSR performance lapsed or expired and were written off to share capital
2. The forfeiture includes 843,200 performance rights that were TSR lapsed and were written off to share capital
3. The forfeiture includes 253,200 performance rights that were TSR lapsed and were written off to share capital
4. Excludes the weighted average exercise price of lapsed and expired options
-
-
-
-
-
-
-
-
-
-
-
-
-
116
FlexiGroup Annual Report 2018
Annual Financial Statement
117
The weighted average share price at the date of exercise of sign on
do not vary the disposal restrictions imposed on shares under the
incentive rights exercised during the year ended 30 June 2018 was
ESP Rules under which shares acquired under the ESP cannot be
$1.55 (2017: $Nil). The weighted average remaining contractual life of
transferred, sold or otherwise disposed of until the earlier of:
performance, deferred STI and sign on incentive rights outstanding at
the end of the year was 2.41 years (2017:1.15 years).
Fair value of performance, sign on and deferred STI rights
•
The time when the participant is no longer employed by the Group
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
The fair values at grant date for sign on and deferred share incentives
acquired, and
were internally determined, as the incentives were only subject to a
tenure vesting condition. For performance rights issued on 27 November
2017, the fair values at grant date were independently determined using
a binomial tree option pricing methodology that takes into account
the exercise price, the term of the performance rights, the impact of
•
the offer does not include any provisions for forfeiture of shares
acquired under the ESP in any circumstances
Consideration for grant
dilution, the share price at grant date and expected price volatility of the
The Board may determine the price at which the shares will be offered
underlying share, the expected dividend yield and the risk-free interest
to an employee. Shares may be granted at no cost to the employee
rate for the term of the performance rights.
or the Board may determine that market value or some other price is
The model inputs for performance rights granted during the year
appropriate.
ended 30 June 2018 included:
(a)
(b)
(c)
(d)
(e)
(f)
Exercise price: nil
Grant date: 27 November 2017
Expiry date: 15 March 2022
Allocation of shares
Shares allocated under the ESP 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 ESP will rank equally with those
Share price at grant date: $1.63
traded on the ASX at the time of issue. A participant under the ESP
Expected price volatility of the Company’s shares: 35%
Expected dividend yield: 4.8%
is entitled to receive distributions/dividends made in respect of,
and exercise voting rights attaching to, shares held under the ESP
(whether or not the shares are subject to disposal restrictions).
(g)
Risk-free interest rate: 2%
Shares provided on exercise of performance rights
Shares acquired under the ESP will be subject to the disposal
Nil (2017: Nil) ordinary shares in the Company were issued as a result
restrictions described above. FlexiGroup will implement such
of the exercise of any remuneration performance and sign on incentive
arrangements (including a holding lock) as it determines are necessary
rights. The vested 51,000 sign on incentive rights were settled
to enforce this restriction.
Restrictions on shares
through an on market share purchase and did not result in an increase
in issued share capital.
b. Employee share plan
Once the restriction is removed, and subject to FlexiGroup’s Share
Trading Policy, shares acquired under the ESP may be dealt with
freely. Details of FlexiGroup’s Share Trading Policy are contained in the
Corporate Governance Statement.
The Employee Share (Taxed Upfront) Plan (“ESP”) is a general employee
share plan pursuant to which grants of shares may be offered to
Employee gift offer
employees of FlexiGroup on terms and conditions as determined by the
There were no employee gift offers in the year ended 30 June 2018
Board from time to time. Nil shares were issued under this plan in 2018.
(2017: Nil).
The Board is responsible for administering the ESP in accordance
with the ESP Rules and the terms and conditions of specific grants of
shares to participants in the ESP. The ESP Rules include the following
c. Expenses arising from share-based payment
transactions
provisions:
Eligibility
The Board may determine which persons will be eligible to be offered
the opportunity to participate in the ESP from time to time. The Board
may make offers to eligible persons for participation in the ESP.
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
Total expenses arising from share-based payment transactions
recognised during the period as part of employee benefit expense were
as follows:
A$m
Performance, sign on incentive and
deferred STI rights issued under LTIP
2018
2017
500,000
(397,000)
25. FINANCIAL RISK MANAGEMENT
Overview
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’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 lease receivables and customer loans consist of:
•
fixed rate consumer and commercial instalment lease contracts.
The interest rate is fixed for the life of the contract. Lease
contracts are typically 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. The 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 Group uses derivative financial instruments – interest rate swaps
the borrowing amount.
– 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 finance, treasury,
credit and risk departments.
Market risk
Market risk is the risk of an adverse impact on Group earnings
resulting from changes in market factors, such as interest rates and
foreign exchange rates.
a. 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.
•
an interest free consumer loan portfolio where the payments are
fixed for the term of the loan.
•
a credit cards business portfolio where the payments are variable
for the term of the loan.
Borrowings to fund the receivables are a mix of fixed rate borrowings
and variable rate borrowings where the rates are reset regularly to
current market rates. Where appropriate, interest rate risk is managed
on these borrowings by entering into interest rate swaps, whereby the
Group pays fixed rate and receives floating rate.
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 hedging
relationship ceases. In the year ended 30 June 2018, nil amounts were
reclassified into profit or loss (2017 – Nil) and included in interest
expenses. There was no material hedge ineffectiveness in the current
or prior year.
At the end of the reporting period, the Group had the following variable
rate borrowings outstanding:
Floating rate borrowings
Interest rate swaps (notional principal amount)
Unhedged variable borrowings
2018
2017
Weighted average
interest rate %
2.00%
2.79%
Weighted average
interest rate %
1.76%
2.75%
$Am
2,003.0
(1,046.6)
956.4
$Am
1,843.4
(1,240.7)
602.7
118
FlexiGroup Annual Report 2018
Annual Financial Statement
Interest rate risk sensitivity analysis
The analysis demonstrates the impact of 100 basis point change in
interest rates, with all other variables held constant. A sensitivity level
of +/-100 basis point change is determined considering the range of
interest rates applicable to the following variable rate financial assets
and financial liabilities in the Group:
c. Credit risk
Credit risk is the risk that a contracting party will not complete its
obligations under a financial instrument and, as a result, cause the
Group to incur a financial loss. The Group has exposure to credit risk on
all financial assets included in its balance sheet. The Group’s maximum
exposure to credit risk on its financial assets is its carrying amount.
A$m
Customer Loans
Cash and cash equivalents
Loss reserve on borrowings
2018
604.8
125.3
38.3
2017
To manage credit risk, the Group has developed a comprehensive credit
514.5
167.3
23.3
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
Floating rate borrowings
2,003.0
1,843.4
Interest rate swaps
(notional principal amount)
(1,046.6)
(1,240.7)
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 bureau determines the creditworthiness
Based on the variable rate financial assets and financial liabilities
of applications based on the statistical interpretation of a range of
held at 30 June 2018, if interest rates had changed by +/- 100 basis
application information. These credit risk assessments are supported
points from the year-end rates with all other variables held constant,
by reviews of certain applications by dedicated credit staff who apply
the impact on the Group’s after-tax profits and equity on the above
the Group’s credit and underwriting policy within specific approval
exposures would have been $1.3m lower / $1.3m higher (2017: $0.7m
authorities. Portfolio performance and credit risk of new applications
higher / $0.7m lower).
Cash flow hedges
The Group hedges a portion of the variability in future cash flows
attributable to the interest rate risk on floating rate borrowings 52%
(2017 – 67%) using interest rate swaps. There were no forecast
transactions for which cash flow hedge accounting had to be ceased as
a result of the forecast transaction no longer being expected to occur
in the current or prior period.
b. Foreign exchange risk
Foreign exchange risk results from an impact on the Group’s profit
after tax and equity from movements in foreign exchange rates.
Changes in value would occur in respect of translating the Group’s
capital invested in overseas operations into Australian dollars at the
reporting date (translation risk).
is monitored monthly by management. The Group has a specialist
collections function, which manages all delinquent accounts.
A primary measure of delinquency used by the Group is the proportion
of contracts with an outstanding payment that is 30, 60, 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.
Counterparty risk is where the Group incurs credit exposures to banks
as a consequence of hedging of interest rate risks. Credit limits for
counterparties are based on external ratings and the Group manages
and controls its credit risk by setting limits on the amount of risk it
is willing to accept for individual counterparties and by monitoring
exposures in relation to such limits. Determination of the fair value of
the derivatives includes credit valuation adjustment (CVA) to reflect
the credit worthiness of the counterparty.
The Group’s only material exposure to this risk arises from its
Loans and receivables
investment in its New Zealand businesses. The foreign exchange
The majority of the Group’s lease and loan receivable balances are high
gain or loss on translation of the investment in foreign subsidiaries to
volume low value lease and loan receivables advanced to individual
Australian dollars at the end of the reporting period is recognised in
customers and small businesses. In the vast majority of cases no
other comprehensive income and accumulated in the foreign currency
externally assessed credit rating is available for these counterparties.
translation reserve, in shareholders’ equity.
The table below provides information about customer loans and
The Group has designated NZ$73.5m (2017:NZ$73.5m) of the
receivables from customers by payment due status.
acquisition corporate debt as a hedging instrument against the net
assets of the acquired entity. At the end of the financial year NZ$14.0m
(2017: NZ$68.5m) was outstanding. This creates a natural hedge
between the underlying business cash flows and debt. Movements in
foreign currency are accounted for in other comprehensive income as a
translation reserve in equity to the extent that the hedging relationship
remains effective. The reserve will be reclassified to profit and loss on
disposal of the hedged entity.
As at 30 June 2018
Past due loans and receivables(1)
Past due under 30 days
Past due 30 days to under 60 days
Past due 60 days to under 90 days
Past due 90 days and over
Total past due loans and receivables
Total loans and receivables
Past due as a percentage of total loans and receivables
Past due 30 days and over as a percentage of total loans and receivables
As at 30 June 2017
Past due loans and receivables(1)
Past due under 30 days
Past due 30 days to under 60 days
Past due 60 days to under 90 days
Past due 90 days and over
Total past due loans and receivables
Total loans and receivables
Past due as a percentage of total loans and receivables
Past due 30 days and over as a percentage of total loans and receivables
1.
This excludes unamortised initial direct transactions costs and net of provision for doubtful debts
119
A$m
138.7
23.4
9.4
12.2
183.6
Contracts
47,193
12,874
8,043
15,395
83,505
833,780
2,338.0
7.9%
1.9%
A$m
142.2
25.1
9.7
9.0
186.0
2,115.9
8.8%
2.1%
Contracts
47,456
10,892
5,670
8,239
72,257
831,686
For impaired lease receivables, the Group has a right to recover the
monitored by the Board.
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.
For the majority of its receivables, the Group does not identify any
individual receivables as significant, and accordingly for those
receivables, no unimpaired past due loans are identified and the
allowance for losses is calculated on a collective basis. However, a small
portion of the Group’s receivables are individually significant (primarily
in the Commercial portfolio). At 30 June 2018, there were no significant
single individual exposures that were considered to be impaired.
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 16. Amounts due to funders
are repaid directly by rentals and repayments received from the Group’s
The Group either writes off or recognises a 100% allowance for all past
customers. For the current year, the Group raised funding of A$285m
due receivables between 120 and 180 days past due (2017: 120 and 180
and NZ$202m (2017: A$265.0m and NZ$89.5m) through the asset-
days past due) depending on the portfolio.
backed securitisation program.
d. Liquidity risk
Loan covenants
Liquidity risk is the risk that the Group cannot meet its financial liabilities
The Group has complied with all debt covenants throughout the
or take advantage of investment opportunities at a reasonable cost in a
reporting period for corporate debt.
timely manner. Treasury is responsible for ensuring that the Group has
continuous access to funds in accordance with policies established and
120
FlexiGroup Annual Report 2018
Annual Financial Statement
121
Contractual maturity of financial liabilities on an undiscounted basis
presented in the balance sheet as amounts incorporate net cash flows
The table below shows cash flows associated with financial liabilities
including derivative financial liabilities within relevant maturity
on an undiscounted basis and include both principal and associated
future interest payments.
groupings based on the earliest date in which the Group may be
It should be noted this is not how the Group manages its liquidity risk,
required to pay. The balances in the table will not agree to amounts
which is detailed above.
As at 30 June 2018
Non-derivative financial liabilities
A$m
Payables
Borrowings before loss reserves
Derivative financial instruments
Interest rate swaps
Less than 1 year
1 to 2 years
2 to 5 years
5 years plus
51.7
-
-
1,420.7
500.9
444.7
-
-
-
-
Total
51.7
2,366.2
6.6
2,424.5
Total
50.3
2,198.6
13.2
2,262.1
Total undiscounted financial liabilities
1,477.0
502.3
4.7
1.4
0.5
445.2
As at 30 June 2017
Non-derivative financial liabilities
A$m
Payables
Borrowings before loss reserves
Derivative financial instruments
Interest rate swaps
Total undiscounted financial liabilities
Less than 1 year
1 to 2 years
2 to 5 years
5 years plus
50.3
1,271.7
8.9
1,330.9
-
511.8
3.7
515.5
-
415.1
0.6
415.7
-
-
-
-
e. Fair value of financial assets and financial liabilities
Cash and cash equivalents
Fair value reflects the amount for which an asset could be exchanged
The carrying amount of cash and cash equivalents is an approximation of
or a liability settled, between knowledgeable, willing parties in an
fair value as they are short term in nature or are receivable on demand.
arm’s length transaction. Quoted prices or rates are used to determine
fair value where an active market exists. If the market for a financial
instrument is not active, fair values are estimated using present value
or other valuation techniques, using inputs based on market conditions
prevailing on the measurement date.
Financial instruments measured at fair value are categorised under a
three level hierarchy as outlined below:
Receivables and customer loans
The fair value of lease receivables and customer loans are estimated
by discounting the future contractual cash flows at the current market
interest rate that is available to the Group. The nominal value (including
unamortised initial direct transaction costs) less estimated credit
adjustments of lease receivables and customer loans are assumed to
Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities.
approximate their fair values.
Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Payables
The carrying amount of payables is an approximation of fair values as
they are short term in nature.
Borrowings and derivative financial instruments
The Group has assessed its financial instruments recorded at fair value
and these are categorised as per below under fair value hierarchy.
The fair value of borrowings is estimated by discounting the future
contractual cash flows at the current market interest rate that is
The table below summarises the carrying amount and fair value of
available to the Group.
financial assets and financial liabilities held at amortised cost. The
methodology and assumptions used in determining fair values are as
follows:
2018
Financial assets
A$m
Carrying amount
Fair value
26. LEASE COMMITMENTS
Cash and cash equivalents (note 8)
Receivables (note 10)
125.3
599.9
125.3
599.9
Lease commitments for property, plant and equipment
Operating leases are entered into to meet the business needs of the
entities in the Group. Leases are for premises and plant and equipment.
Customer loans (note 11)
1,768.2
1,768.2
Lease rentals are determined in accordance with market conditions
Financial liabilities
Payables
Borrowings1
- Floating interest rate1
- Fixed interest rate
when leases are entered into or on rental review dates.
Non-cancellable operating leases contracted for but not capitalised in
the financial statements due:
51.7
51.7
A$m
2,003.0
2,003.0
- within one year
160.0
160.4
- after one year but not later than five years
2018
3.0
10.4
9.4
22.8
2017
4.8
13.6
13.4
31.8
Total borrowings before loss reserves
2,163.0
2,163.4
- greater than five years
Derivative financial instruments
6.4
6.4
FlexiGroup has a call centre service agreement, where the Group will
receive call centre services. At 30 June 2018, the minimum future com-
mitment on this agreement was approximately $5.2m (2017: $5.4m).
Additionally, in the normal course of the business at 30 June 2018 the
Group has approved customer loan and lease receivable accounts,
which have not been drawn at year end. Committed amounts are typical-
ly drawn within a short period of the loan or lease being approved.
2017
Financial assets
A$m
Carrying amount
Fair value
Cash and cash equivalents (note 8)
Receivables (note 10)
167.3
628.3
167.3
628.3
Customer loans (note 11)
1,537.6
1,537.6
Financial liabilities
Payables
Borrowings1
- Floating interest rate1
50.3
50.3
1,843.4
1,843.4
- Fixed interest rate
186.6
190.3
Total borrowings before loss reserves
2,030.0
2,033.7
Derivative financial instruments
12.9
12.9
1.
Refer note 25a for further information on how the Group manages its
interest rate risk
Fair value hierarchy
The fair value hierarchy is determined by reference to observability of
inputs into the fair value models.
(a) Receivables and customer loans
Unobservable inputs such as historic and current product margins
and credit risk are considered to determine the fair value. These are
classified as level 3.
(b) Borrowings and derivative financial instruments
These are classified as level 2 as the inputs into the fair value models
used to determine fair value are observable. There are no level 1 or
level 3 financial assets or liabilities.
122
FlexiGroup Annual Report 2018
Annual Financial Statement
123
27. CONTINGENT LIABILITIES
29. INVESTMENTS IN SUBSIDIARIES
FlexiGroup and its wholly-owned consumer leasing subsidiary,
The consolidated financial statements incorporate the assets, liabilities
FlexiRent Capital Pty Limited (FlexiRent), have been proactively en-
and results of the following controlled entities in accordance with the
gaging with the CIO regarding historic responsible lending practices in
accounting policy described in note 1(b):
TOT MKY Pty Limited (2)
TOT SC Pty Limited (2)
TOT TBA Pty Limited (2)
TOT TSV Pty Limited (2)
100%
100%
100%
100%
100%
100%
100%
100%
30. KEY MANAGEMENT
PERSONNEL DISCLOSURES
a. Directors
Country of incorporation: Australia
Percentage of shares
Country of incorporation: Ireland
Percentage of shares
The following persons were Directors of FlexiGroup Limited during the
relation to the FlexiRent product, which ceased being sold in February
2018. As part of this engagement, FlexiGroup has been focussed on
seeking to ensure that its practices meet evolving consumer demands
2018
2017
and community expectations and utilise available technology. A reme-
Australian Print Holdings Pty Limited (2)
100%
100%
diation program has been agreed with the CIO to compensate affected
customers.
Based on information available to date, a provision of $7m has been
Certegy Ezi-Pay Pty Ltd (2)
Flexi ABS Trust 2010-2
recognised in the financial statements with respect to the refund of fees
Flexi ABS Trust 2015-1 (3)
charged to impacted customers that can be identified and the financial
impact being reliably estimated.
Discussions with the Australian Securities and Investments Commission
(ASIC) and the CIO are still ongoing with respect to other matters and it
Flexi ABS Trust 2015-2 (3)
Flexi ABS Trust 2016-1 (3)
Flexi ABS Trust 2017-1
is possible that future remediation may be undertaken. At this stage,
Flexi ABS Trust 2018-1 (1)
uncertainties remain as to the nature, timing and amount of this.
FlexiRent continues to work proactively with both ASIC and the CIO, to
Flexi ABS Warehouse Trust No. 2
ensure its responsible lending practices are appropriate.
Flexi ABS Warehouse Trust No. 3
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
There are no other material contingent liabilities at the date of
FlexiGroup Employee Share Plan Trust
100%
100%
this report.
28. INSURANCE
FlexiGroup Management Pty Limited
100%
100%
FlexiGroup SubCo Pty Limited (2)
100%
100%
FlexiGroup Australia Holdings Pty Limited (2)
100%
100%
Flexirent SPV Number 2 Pty Limited
100%
100%
The Group conducts insurance business through its controlled entity
Flexirent Capital Pty Limited (2)
100%
100%
in New Zealand, Consumer Insurance Services Limited (CISL). CISL’s
primary insurance activities are the development, underwriting and
Flexirent SPV Number 4 Pty Limited (3)
100%
100%
management of non-life insurance products under The Insurance
Flexirent SPV Number 7 Pty Limited (3)
100%
100%
(Prudential Supervision) Act 2010. The non-life insurance products are
in respect of Goods Cover, Payment Protection and Extended War-
ranty Cover. The solvency capital of CISL at 30 June 2018 of NZ$ 4.1m
Flexirent SPV Number 8 Pty Limited (3)
100%
100%
Flexicards Australia Pty Limited (2)
100%
100%
FlexiFi Europe Limited
FlexiFi Europe Holdings Limited
Flexirent Ireland Limited
2018
2017
financial year:
100%
100%
100%
100%
S Brewis-Weston
(resigned 3 September 2018)
100%
100%
A Abercrombie
Executive Director and Chief
Executive Officer
Non-Executive Director
FlexiFi Europe Services Limited
100%
100%
C Campbell (appointed on 17 May 2018)
Non-Executive Director
Country of incorporation: New Zealand
Percentage of shares
C Christian
R Dhawan
J Leonard
Non-Executive Director
Non-Executive Director
Non-Executive Director
Columbus Financial Services Limited
100%
100%
2018
2017
J Skippen (resigned on 27 November 2017)
Non-Executive Director
Columbus Trust
100%
100%
b. Other key management personnel
Consumer Finance Limited
100%
100%
The following persons also had authority and responsibility for
Consumer Insurance Services Limited
100%
100%
planning, directing and controlling the activities of the Group during
the financial year:
Flexi Cards Limited
Flexi Finance Limited
Flexi Financial Services Limited
FlexiGroup New Zealand Limited
FlexiGroup NZ SPV1 Limited
FlexiGroup NZ SPV 2 Limited
FlexiGroup NZ SPV 3 Limited
Q Card Trust
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
R Aucutt
V Gilpin
C Lamers
K Richards
P Lirantzis
Chief Financial Officer (1)
General Manager - Sales
Chief Executive Officer - New Zealand
General Manager - Commercial
Chief Operating Officer
1.
Ross Aucutt is Chief Executive Officer (Acting) until 2 October 2018.
100%
100%
c. Key management personnel compensation
Retail Financial Services Limited
100%
100%
$
2018
2017
(A$ 3.8m) (2017: NZ$ 5.2m (A$ 5.0m)) is greater than the minimum
Helix Trust
required solvency capital of NZ$ 3.0m (A$ 2.8m) (2017: NZ$ 3.0m (A$
2.9m)). The insurance business of CISL comprises less than two percent
ICT Finance Pty Limited (2)
100%
100%
100%
100%
RFS Trust 2006-1 (3)
TRL Leasing Limited
100%
100%
100%
100%
Short-term employee benefits
4,338,130
4,770,057
Post-employment benefits
171,877
241,571
of the total assets of the Group.
Lighthouse Warehouse Trust No.9
100%
100%
1.
Created during the year ended 30 June 2018
Long-term benefits
-
21,528
Lombard Warehouse Trust No.1
Once Credit Pty Limited (2)
OxiPay Pty Limited
RentSmart Finance Limited (2)(3)
RentSmart Pty Limited (2)(3)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
RentSmart Servicing Pty Limited (2)(3)
100%
100%
RentSmart Unit Trust (3)
SmartCheck Pty Limited (2)(3)
ThinkSmart Trust (3)
TOT CNS Pty Limited (2)
TOT GNE Pty Limited (2)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2. These controlled entities have entered into a deed of cross guaran-
tee (refer note 33) with the Company pursuant to ASIC Class order
98/1418 dated 13 August 1998. These controlled entities and the Com-
pany form a closed group (closed group is defined as a group of enti-
ties comprising a holding entity and its related wholly owned entities).
Relief was granted to these controlled entities from the Corporations
Act 2001 (Cth) requirements for preparation, audit and publication of
an annual financial report
3. These are in the process of being wound up
Share-based payments
330,357
(124,848)
Total
4,840,364
4,908,308
Further remuneration disclosures are provided in the Remuneration Report
on pages 56-66.
d. Other transactions with related parties
Rental of Melbourne premises
Flexirent Capital Pty Limited has rented premises in Melbourne owned by
entities associated with Mr A Abercrombie. The rental arrangements for
these premises are based on market terms.
$
2018
2017
Rental expense for premises
177,353
172,187
124
FlexiGroup Annual Report 2018
Annual Financial Statement
31. RELATED PARTY TRANSACTIONS
32. REMUNERATION OF AUDITORS
a. Parent entity
The parent entity of the Group is FlexiGroup Limited.
During the year the following fees were paid or payable for services
provided by the auditor of the parent entity and its related parties.
b. Subsidiaries and associate
Interests in Group entities are set out in note 29.
c. Transactions with related parties
There were no transactions between the Group and related parties other
than those disclosed in note 30 (d).
a. Audit and assurance services
Audit services
$
2018
2017
PricewaterhouseCoopers Australian firm
708,237
701,283
Network firms of PricewaterhouseCoopers
420,423
376,859
Other Assurance Services
$
2018
2017
PricewaterhouseCoopers Australian firm
-
-
1,128,660
1,078,142
Employment expenses
(66.8)
(59.1)
125
2017
19.5
69.6
3.9
6.6
127.4
50.4
177.6
2018
21.1
83.4
2.8
5.2
51.6
39.8
92.3
296.2
455.0
2018
40.1
2017
32.5
104.5
126.2
13.2
1.1
8.9
5.7
0.9
3.7
33. CLOSED GROUP
The table below presents the consolidated proforma income statement
b. Statement of financial position
and balance sheet for the Company and controlled entities, which are
party to the deed of cross guarantee (referred to as a closed group). For
further information, refer note 29, footnote 2. The effects of transactions
Assets
A$m
between entities to the deed are eliminated in full in the consolidated
income statement and consolidated statement of financial position.
Cash and cash equivalents
Receivables and customer loans
a. Statement of comprehensive income
A$m
Total portfolio income
Dividend income
Interest expense
Net portfolio income
2018
18.9
71.8
(6.2)
84.5
Inventories
Plant and equipment
Goodwill
Other intangible assets
Other financial assets
Total assets
2017
27.5
67.8
(6.9)
88.4
Receivables and customer loan
impairment expenses
(13.2)
(12.4)
Liabilities
A$m
Goodwill and other impairment expenses
(94.7)
-
Payables
Depreciation and amortisation expenses
(10.5)
(11.4)
Borrowings
Operating and other expenses
(40.0)
(30.0)
Provisions
Profit before income tax
(140.7)
(24.5)
Deferred and contingent consideration
Income tax expense
Profit for the year
9.0
(9.1)
Deferred tax liabilities
(131.7)
(33.6)
Total liabilities
167.8
169.0
Other comprehensive income
Items that may be reclassified to profit or loss
Equity
A$m
A$m
2018
2017
Contributed equity
Changes in the fair value of cash flow
hedges, net of tax
Other comprehensive income for the year,
net of tax
1.4
1.4
5.2
5.2
Reserves
Accumulated losses
Total equity
Total comprehensive income for the year
(130.3)
(28.4)
2018
2017
362.9
361.2
3.0
1.6
(237.5) (76.8)
128.4
286.0
Total remuneration for audit and
assurance services
b. Non-audit services
Taxation services
$
2018
2017
PricewaterhouseCoopers Australian firm
16,600
8,240
Network firms of PricewaterhouseCoopers
61,706
-
Other Services
$
2018
2017
PricewaterhouseCoopers Australian firm
157,898
3,500
Network firms of PricewaterhouseCoopers
20,678
49,999
Total remuneration for audit and
assurance services
256,882
61,739
Total remuneration of PwC
1,385,542
1,139,881
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 regulatory au-
dits, procedures performed as part of completing funding agreements,
tax advice and due diligence reporting on acquisitions, or where PwC is
awarded assignments on a competitive basis.
126
FlexiGroup Annual Report 2018
Annual Financial Statement
127
34. PARENT ENTITY FINANCIAL INFORMATION
a. Summary financial information
The parent entity financial information is presented as follows:
Balance sheet
A$m
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued share capital
Share based payment reserve
2018
2017
475.6
531.3
7.9
8.5
483.5
539.8
(31.9)
(38.3)
(107.2)
(126.2)
(139.2)
(164.5)
344.3
375.3
763.3
763.6
(10.2)
(9.9)
Hedge reserve of net investment (refer note 25 b)
2.7
-
Accumulated losses
Shareholders’ equity
(Loss)/Profit for the year
Exchange differences on hedged net investment
Total comprehensive income
(411.5)
(378.4)
344.3
375.3
(4.2)
2.7
(1.5)
-
-
-
b. Guarantees entered into by the parent entity
Pursuant to Australian Securities and Investment Commission Class
Order 98/1418 dated 13 August 1998, relief was granted to certain
controlled entities (note 29, footnote (2)) from the Corporations Act 2001
(Cth) requirements for preparation, audit and publication of annual
financial reports. It is a condition of the Class Order that the Company and
each of the controlled entities are party to a deed of cross guarantee. The
effect of the deed is that the Company guarantees to each creditor
payment in full of any debt in the event of winding up of any of the
controlled entities under certain provisions of the Corporations Act 2001
(Cth).
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 2018 (2017: $nil).
35. SECURITISATION AND SPECIAL
PURPOSE VEHICLES
The Group sells receivables and customer loans to securitisation vehi-
cles through its asset-backed securitisation program and other special
purpose vehicles. The securitisation and special purpose vehicles are
consolidated as set out in note 29 as the Group is exposed or has rights
to variable returns and has the ability to affect its returns through its
power over the securitisation and special purpose vehicles. The Group
may serve as a sponsor, servicer, manager, liquidity provider, purchas-
er of notes and/or purchaser of residual interest and capital units.
The table below presents assets securitised and the underlying bor-
rowings as a result of the securitisations.
A$m
Receivables
Customer loans
2018
2017
483.8
519.6
1,747.6
1,520.6
Cash held by securitisation vehicles
100.1
125.2
Total
Borrowings related to receivables
and customer loans
2,331.5
2,165.4
2,020.4
1,881.4
36. EVENTS OCCURRING
AFTER THE REPORTING PERIOD
On 17 July 2018, Flexigroup Australia Holdings Pty Ltd, a fully owned
subsidiary of FlexiGroup, signed a share sale agreement to sell Aus-
tralian Print Holdings Pty Limited (trading as Think Office Technology
‘TOT’), a fully owned subsidiary entity within the Commercial Leasing
segment. The Group will retain a 35% interest in the new joint venture
(“acquirer”), whose effective sale date is 1 July 2018 and will equity
account the investment as an associate. TOT, with a book value of
$10.1m, was sold to the acquirer for a fair value of $13.8m, being the
fair value of assets contributed to the JV, resulting in a profit on sale of
$2.3m. Refer note 4.
There have been no other significant events occurring after the end of
the reporting period.
128
FlexiGroup Annual Report 2018
Independent Auditor’s Report
129
DIRECTORS’ DECLARATION
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 79 to 127 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 2018 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 closed group identified in note 29
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 33.
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.
Andrew Abercrombie
Chairman
Sydney
26 September 2018
PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Independent auditor’s report To the members of FlexiGroup Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of FlexiGroup Limited (the Company) and its controlled entities (together the Group or FlexiGroup) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: the consolidated statement of financial position as at 30 June 2018 the consolidated income statement for the year then ended the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
130
FlexiGroup Annual Report 2018
Independent Auditor’s Report
131
Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. The Group is structured along 6 core business areas – Certegy, Australia Cards, Consumer Leasing (which includes the Australian and Irish consumer leasing portfolios), Commercial Leasing, New Zealand Leasing and New Zealand Cards. The Group operates across 3 geographical locations – Australia, New Zealand and Ireland. Materiality For the purpose of our audit we used overall Group materiality of $5,495,000, which represents approximately 5% of the Group’s profit before tax, adjusted for the impact of unusual or infrequently occurring items (as described below). We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured and is a generally accepted benchmark. We adjusted for the impact of the impairment recognised on goodwill and other intangible assets, as this was an unusual or infrequently occurring matter impacting the Group’s profit before tax. We used a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. We decided the nature, timing and extent of work that needed to be performed by us and component auditors operating under our instruction. We then structured our audit approach as follows: We identified two components, FlexiGroup Core (composed of the Consumer Leasing, Commercial Leasing, Australia Cards, New Zealand Leasing, Certegy and unallocated segments) and New Zealand Cards, based on a combination of reportable operating segments and shared operating centres with consistent processes and controls. Audit procedures over the FlexiGroup Core component were performed by PwC Australia. Work was performed by component auditors in New Zealand in regards to the New Zealand Cards component. For these procedures, we decided on the level of involvement required from us to be able to conclude whether sufficient appropriate audit evidence had been obtained. Our involvement included discussions, written instructions and receiving reporting throughout the year from the component auditors. Where deemed appropriate, we performed tests of relevant controls to evaluate whether they were appropriately designed and operated effectively during the year for the purpose of our audit. We considered the results of the controls tests and the implications for our remaining audit work. We performed further audit procedures at a Group level, including over the consolidation of the Group’s reporting units and the preparation of the financial report. Our team included specialists and experts in information technology, taxation, data analytics, credit modelling and financial instruments. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit Committee. Key audit matter How our audit addressed the key audit matter Provision for doubtful debts for receivables and customer loans (Refer to notes 1.k, 10, 11 and 25.c) [$52.5m] This was a key audit matter because the determination of the provision was driven by complex and subjective judgements made by the Group in determining the approach for predicting incurred losses. This included estimating the probability of a contract defaulting and the potential loss resulting from that default. Collective provision: Where the provision was calculated on a collective basis we tested the incurred loss estimate models, and the data and assumptions used, by performing the following procedures: We assessed relevant controls over the historical data used in the collective provision calculations. These controls included those over the identification of those loan and lease receivables that were past due, and over the 132
FlexiGroup Annual Report 2018
Independent Auditor’s Report
133
Key audit matter How our audit addressed the key audit matter The majority of the receivables and customer loans balances were low value and therefore the provision was modelled and calculated on a collective basis. The need for a provision for a certain number of Commercial contracts, as well as the incremental risk of losses from operational issues with specific vendors and contracts were individually assessed. accuracy of the time and value of amounts past due. We compared the key assumptions underlying the calculation of the provision and found them to be consistent with generally accepted market practices. We tested the mathematical accuracy of the calculations in the models used to calculate the provision. We considered the potential for the provision to be affected by events which were not captured by the models and evaluated how the Group had responded to these by making further adjustments where appropriate. We evaluated the conceptual soundness of the provision model approach for estimating incurred losses. We assessed how the Group aggregated contracts into homogeneous portfolios for the purpose of determining the collective provision. Specific provisions: We performed a number of procedures, including the following: Discussed the provisioning methodology with the Group to develop an understanding of the factors taken into account when assessing the need for and the amounts of provisions against these contracts. Inspected evidence held by the Group and external publically available information (e.g., debtor updated financial information), as applicable, to assess the loss event leading to the provision. After evaluating the assumptions made by the Group, recalculated the provision and assessed its appropriateness having regard to the applicable Australian Accounting Standards. Key audit matter How our audit addressed the key audit matter Revenue recognition (Refer to notes 1.e and 5) [$460.4m] FlexiGroup has three main streams of revenue: finance lease interest income, customer loans interest income and other portfolio income. This was a key audit matter due to the risk in revenue recognition, specifically because of: The significance of interest income and other portfolio income in the context of the profit of the Group. The judgement involved in the estimation of the finance lease residual values, which should reflect the amount the Group expects to realise at the end of the lease contractual period. The residual value is included in the calculation of the effective interest rate at the commencement of the lease contract, which affects the revenue recognition. We performed tests over the relevant controls covering the finance lease and customer loan product systems. Additionally, we performed the following procedures, amongst others: Re-performed the automated calculation of interest income for a sample of significant products. Inspected and re-performed the reconciliations between the product systems and the general ledger as of 30 June 2018. Inspected and compared contract data contained in the product system to the signed contract for a sample of finance leases. For a sample of customer loans, compared the income recognised and the cash received reflected in the product system to the relevant signed contract and bank statements. For all open contracts at year-end with unguaranteed residuals, compared the estimate of the residual value with the actual historical experience of residual value collections of FlexiGroup. Valuation of goodwill (Refer to notes 1.s, 1.t and 13) [$236.5m] This was a key audit matter because the carrying value of goodwill was material for the Group and the determination of its value was impacted by subjective judgements and assumptions, as further explained below. The recoverable amount of goodwill was determined through a ‘value in use’ valuation model based on the Group’s cash flow forecasts from the latest board approved business plans for each cash generating unit (“CGU”). The most significant judgements related to the discount rate applied together with the assumptions supporting the underlying forecast cash flows, in particular, revenue growth rates and terminal growth rates. The Group considered that each reportable operating segment constituted its own CGU. We assessed the Group’s cash flow forecasts for all CGUs disclosed in note 13 of the financial statements and the process by which they were developed. We considered whether the cash flows were based on supportable assumptions by: comparing these forecasts to Board approved business plans. comparing previous forecasts to actual results to assess the Group’s historic ability to forecast future cash flows. performing a sensitivity analysis on the assumed growth rate in revenue, the expense cash flows and the terminal growth rate. In testing the valuation model: we checked the calculations for mathematical accuracy and the consistency of the 134
FlexiGroup Annual Report 2018
Independent Auditor’s Report
135
Key audit matter How our audit addressed the key audit matter FlexiGroup also incurred on a significant impairment loss for the year ending 30 June 2018 on its Consumer Leasing CGU. methodology with the ‘value in use’ valuation approach. we considered the sensitivity of the calculation by varying the assumptions (e.g., discount rates) and applying other values within a reasonably possible range. Disclosure of the impact of AASB 9 implementation (Refer to note 1.a) [$82m] For the financial year beginning 1 July 2018, FlexiGroup adopted Australian Accounting Standard AASB 9 Financial Instruments (AASB 9), which replaces Australian Accounting Standard 139 Financial Instruments: Recognition and Measurement (AASB 139). The three key areas of AASB 9 are classification and measurement of financial instruments, the impairment model, and hedge accounting. The Group has included disclosure in note 1.a to provide an understanding of the expected impact of adopting AASB 9. The standard requires the Group to make further detailed disclosures in the financial statements in the year of adoption, which will be the year ended 30 June 2019. Under the new AASB 9 impairment model, losses are recognised on an expected credit loss (ECL) basis which incorporates forward-looking information that reflects the Group’s view of potential future economic events. The increased complexity requires FlexiGroup to develop new models that use significant judgements and require an increase in the data inputs. We considered this a key audit matter because: the models used to calculate ECLs (ECL models) are inherently complex and judgement is applied in determining the correct construct of model to be applied judgement is applied in determining the most appropriate information and datasets to be used as inputs to the models We have performed the following procedures, amongst others: examined and assessed the ECL model developed by the Group, including using PwC credit modelling experts in considering the key judgements and assumptions supporting the ECL against the requirements of AASB 9. together with PwC credit modelling experts, assessed the reasonableness of forward-looking information incorporated into the impairment calculations by challenging the forecasts, assumptions and probability weightings applied in the multiple economic scenarios, and comparing on a sample basis against supporting evidence where applicable. assessed the integrity of data used as inputs into the models by tracing a sample of inputs used in the models to source systems and calculations considered the accuracy and reasonableness of the modelled calculations by re-performing the ECL calculations, on a sample basis. assessed the post-model adjustments in the context of the key model and data limitations identified by the Group, considered their rationale and recalculated, where necessary. Key audit matter How our audit addressed the key audit matter there are a number of key assumptions made by the Group concerning the values of inputs to the models (e.g. statistical assumptions used to determine forward looking loan probability of default and discount rates) and how inputs correlate with one another. Current tax liabilities and deferred tax liabilities (Refer to notes 1.g and 7) [$12.7m and $13.1m, respectively] FlexiGroup was subject to taxation in each location in which it operated. The assessment of the amounts expected to be paid to tax authorities was considered initially by FlexiGroup at a local level and then reviewed centrally, with consideration given to particular tax positions in certain jurisdictions. In some cases, the treatment of tax positions required judgement related to the determination of temporary and permanent differences, tax treatment for different locations as well as the impact of business combinations. We considered this to be a key audit matter due to the extent of judgement involved by the Group. Our procedures included evaluating the analysis performed by FlexiGroup which set out the basis for judgements made in respect of the ultimate amounts expected to be paid to tax authorities. We used our understanding of the business, assisted by PwC tax specialists, and where applicable, read a risk-focused selection of correspondence with tax authorities to assess the completeness and quantum of the provisions for tax. We considered the likelihood of additional tax exposures occurring. We assessed the appropriateness of FlexiGroup's disclosure in the financial report in light of the requirements of Australian Accounting Standards. Other information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, including Performance highlights, Chairman’s report, CEO’s report, Executive team, Directors’ report, Corporate governance statement, Sustainability report, Shareholder information and Corporate directory, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 136
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Independent Auditor’s Report
137
Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 43 to 66 of the Directors’ report for the year ended 30 June 2018. In our opinion, the remuneration report of FlexiGroup Limited for the year ended 30 June 2018 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Rob Spring Sydney Partner 26 September 2018 138
FlexiGroup Annual Report 2018
Shareholder Information
139
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 13 September 2018:
a. Distribution of equity securities
Class of equity security
A$m
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Total
Ordinary shares
Options
No. of holders
No. of shares
No. of holders
No. of shares
2,107
3,692
1,482
1,072,110
10,177,906
11,051,133
1,483
30,308,933
165
113
11,423,831
310,243,265
9,042
374,277,178
-
-
-
-
-
-
-
-
-
-
-
-
-
-
There were 592 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:
Unquoted equity securities
Options and performance rights issued under the FlexiGroup Limited Long Term
Incentive Plan to take up ordinary shares
Number on issue
Number of
holders
1,877,690
31
The Company has no other unquoted equity securities.
c. Substantial holders
Substantial holder in the Company is set out below:
The Abercrombie Group Pty Ltd
d. Voting rights
The voting rights attaching to equity securities are set out below:
a) Ordinary shares
Numbers held
Percentage %
90,766,593
24.25
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, performance rights and subordinated perpetual notes
No voting rights.
The Abercrombie Group Pty Ltd
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
National Nominees Limited
Behan Superannuation Pty Ltd
Warbont Nominees Pty Ltd
Mr Brendan Charles Behan & Mrs Dawn Helen Behan
BNP Paribas Noms (NZ) Ltd
Brazil Farming Pty Ltd
S M & R W Brown Pty Ltd
Timsim Holdings Pty Ltd
Mr Dennis John Banks
Mrs Kirsty Amanda Gold
Mr Peter Raymond Davies
Mr John Chinseng Chew
Mr Andrew Charles Darbyshire & Mrs Catherine Jane Darbyshire
Bond Street Custodians Limited
Charles Low Investments Pty Ltd
Total
Ordinary shares
Numbers held
Percentage of
issued shares%
90,766,593
76,035,258
41,472,750
31,616,511
21,812,963
13,884,652
4,745,524
3,195,750
2,660,000
1,887,414
1,573,477
1,200,000
830,000
572,871
489,687
420,000
400,000
391,583
379,061
370,000
24.25
20.32
11.08
8.45
5.82
3.71
1.27
0.85
0.71
0.50
0.42
0.32
0.22
0.15
0.13
0.11
0.11
0.10
0.10
0.10
294,704,094
78.74
140
FlexiGroup Annual Report 2018
Notes
141
CORPORATE DIRECTORY
Directors
Andrew Abercrombie (Chairman)
Christine Christian (Deputy Chairman)
Rajeev Dhawan
Jodie Leonard
Carole Campbell
Secretary
Elizabeth Wray
Notice of Annual General Meeting
The Annual General Meeting of FlexiGroup Limited
will be held at the Sydney offices of PwC, at One International Towers,
Watermans Quay, Barangaroo, NSW, 2000 at 4.00pm on 15 November 2018.
Principal registered office in Australia
Level 7, 179 Elizabeth Street, Sydney
NSW, 2000 Australia
Share Register
Link Market Services Limited
Level 12, 680 George Street, Sydney
NSW, 2000 Australia
Auditor
PricewaterhouseCoopers
One International Towers Watermans Quay, Barangaroo,
NSW, 2000 Australia
Solicitors
King & Wood Mallesons
Level 60, Governor Phillip Tower
1 Farrer Place, Sydney,
NSW, 2000 Australia
Bankers
Australia and New Zealand Banking Group
Stock Exchanges listing
FlexiGroup Limited shares are listed on the Australian Securities Exchange
under the code FXL
Website
www.flexigroup.com.au
142
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