201 9 A NNUAL REPORT
PROVIDING
EVERYDAY
CANADIANS
A PATH TO
A BETTER
TOMORROW,
TODAY.
is one of Canada’s leading
providers of non-prime
leasing and lending services
offering a wide variety of
financial products that help
put Canadians on a path to a
better financial future.
Our commitment to helping the 9.4 million non-prime Canadians
that are often denied for credit by banks and other traditional
financial institutions, is grounded in our vision of helping put
everyday Canadians on a path to a better tomorrow, today.
With a wide variety of financial products and services including
unsecured and secured installment loans and consumer
leases, goeasy aspires to help Canadians rebuild their credit
and graduate to prime lending. Our unique omnichannel model
that includes online and mobile, as well as over 400 leasing
and lending locations across Canada, is supported by over
2,000 employees from coast-to-coast.
Our growth story is rooted in the lease-to-own business, which
was founded in 1990 and then rebranded as easyhome in 2003.
The rapid expansion of our leasing business was our first wave of
growth. After testing several ideas for new lines of business, in 2006
we launched our consumer lending division, easyfinancial, which
offered a single-priced unsecured installment loan. Designed as a
better alternative to the expensive and inflexible nature of payday
loans, the objective was to create a complementary business,
serving the same customer that had been walking through
our doors for over 15 years. Our initial expansion followed our
rigorous test and learn philosophy, by gradually opening kiosks
within our existing easyhome locations, until we had proven the
model. Between 2010 and 2012, we centralized credit decisioning,
opened our first stand-alone branch, launched a new core loan
platform and began to scale the loan portfolio, in what became our
second wave of growth. Now, in what we consider to be the early
stages of our third wave of growth, we have begun expanding
our financial services product range, broadening our channels
of distribution, and expanding the geographies that we operate
in, while remaining focused on providing our customers with a
best-in-class experience.
goeasy Ltd. 2019 Annual Report 1
GOEASY OVERVIEW
OF LEASING AND LENDING EXPERIENCE
29 YEARS
1 MILLION +
CANADIANS SERVED
TOTAL LOAN ORIGINATIONS
$3.9 BILLION
60% 1IN3
OF CUSTOMERS
IMPROVE THEIR
CREDIT SCORE1
CUSTOMERS
GRADUATE TO
PRIME CREDIT 2
(1) As measured by an increase in TransUnion Risk Score within 12 months of borrowing from us.
(2) Prime credit is defined as opening a trade with a prime bank lender within 12 months of borrowing from us.
goeasy Ltd. 2019 Annual Report 2
A HISTORY
IN THE MAKING
Our 29 year journey is one of growth,
evolution and innovation, with the one
constant being our desire to help give
our customers a better financial future.
1990
RTO
ENTERPRISES
FOUNDED
2001
DAVID INGRAM
APPOINTED CEO
AND COMPANY
RETURNS TO
PROFITABILITY
2003
EASYHOME LTD.
IS BORN,
CONSOLIDATED
FROM 6 BRANDS
2006
EASYFINANCIAL
LAUNCHES
2015
CORPORATE
NAME CHANGED
TO GOEASY LTD.
2011
FIRST EASYFINANCIAL
STAND ALONE
BRANCH OPENS
CENTRALIZED CREDIT
ADJUDICATION
INTRODUCED
2016
2017
RISK ADJUSTED
INTEREST
RATE LOANS
LAUNCHED
RECAPITALIZED THE
BUSINESS WITH C$530
MILLION IN FINANCING
SECURED
LENDING
PRODUCT LAUNCHED
EXPANDED
INTO QUEBEC
2018
NEXT GENERATION
PROPRIETARY ONLINE
LOAN APPLICATION
LAUNCHED
CREDITPLUS STARTER
LOAN LAUNCHED
2018 AWARDS
• GLASSDOOR
TOP CEOs
• MOST ADMIRED
CORPORATE
CULTURES
2019
DAVID INGRAM TRANSITIONS TO EXECUTIVE CHAIRMAN
$1.1 BILLION LOAN PORTFOLIO
JASON MULLINS APPOINTED PRESIDENT AND CEO
STRATEGIC PARTNERSHIP & INVESTMENT IN PAYBRIGHT
RECAPITALIZED THE BUSINESS WITH C$728 MILLION
IN FINANCING
D
N
O
Y
E
• GREATER TORONTO’S TOP 2020 EMPLOYERS B
2019 AWARDS
• ACHIEVERS 50 MOST ENGAGED WORKPLACES
• TOP 50 FINTECH COMPANIES
• TSX 30
• CANADAS TOP GROWING COMPANIES
REACHED $1 BILLION MARKET CAPITALIZATION
goeasy Ltd. 2019 Annual Report 3
goeasy Ltd. 2020 Annual Report 2
2019 HIGHLIGHTS
BUSINESS UNIT
OVERVIEW
Launched in 2006, easyfinancial is our non-prime consumer
lending division that began with the goal of bridging the gap
between traditional financial institutions and costly payday lenders.
Since then, easyfinancial has significantly expanded and evolved
to support our core vision of providing everyday Canadians a path
to a better tomorrow, today, as they improve their credit and work
their way back to prime lending. Offering a suite of unsecured
and secured lending products up to $45,000 with rates starting at
19.99%, easyfinancial is uniquely positioned in the market. With
an omnichannel business model, our customers can transact
conveniently through our national branch network of 256 locations,
online, or through one of our many retail and merchant point-of-
sale partnerships. Through a disciplined approach to managing risk,
easyfinancial has demonstrated a history of stable and consistent
credit performance. We believe our proprietary industry-leading
credit models built using machine learning and advanced analytical
tools, coupled with the personal relationships we develop with our
customers in our branches, strikes the optimal balance between
growth and prudent risk management and underwriting. Over
the past 14 years, we have served over 450,000 customers and
originated over $3.9 billion in loans, with $1.1 billion originated
in 2019. With several additional value-add services, including our
starter loan product for those with no credit or damaged credit,
a credit optimizer tool to help consumers track their progress to
improving their credit score, and free financial education tools, our
commitment to helping our customers on their journey towards a
better financial future has never been stronger.
$1.1B
Total Consumer Loan Portfolio
Includes easyhome lending loan book
$470M
REVENUE
$189M
OPERATING INCOME
256
LOCATIONS
186K
ACTIVE CUSTOMERS
goeasy Ltd. 2019 Annual Report 4
2019 HIGHLIGHTS
BUSINESS UNIT
OVERVIEW
easyhome, Canada’s largest lease-to-own Company, has been
in operation since 1990 and offers customers brand name
household furniture, appliances and electronics through flexible
lease agreements. Through our 163 locations, which includes 35
franchise stores or through our eCommerce platform, Canadians
turn to easyhome as an alternative to purchasing or financing
their goods. With no down payment or credit check required, we
offer a variety of solutions that help customers get access to the
goods they need, with the flexibility to terminate their lease at any
time without penalty. In 2017, easyhome began offering unsecured
lending products in over 100 easyhome locations. This expansion
allowed us to further increase the distribution footprint of our
financial services products by leveraging our existing real estate
and employee base. Offering lending at our easyhome locations
has enabled our stores to diversify their product offering and meet
their customers broader financial needs. In 2019, easyhome also
began reporting customer’s lease payments to the credit reporting
agencies to further enhance our vision of providing our customers
with a path to a better tomorrow. With every on-time lease payment,
easyhome customers can now build their credit and use easyhome
as a stepping stone into other financial products and services.
$38M
EASYYHOME LENDING
LOAN BOOK SIZE
$139M
REVENUE
$25M
OPERATING INCOME
163
LOCATIONS
109 WITH LENDING
44K
ACTIVE CUSTOMERS
goeasy Ltd. 2019 Annual Report 5
FINANCIAL
SUMMARY
(in $000s except per share amounts, store counts, employee
counts, annual dividends, percentages and ratios)
2019
2018
2017
2016
2015
INCOME STATEMENT
Revenue
Operating income
Net income
Diluted earnings per share
BALANCE SHEET
Cash
609,383
506,191
401,728
347,505
304,273
168,793
119,717
87,393
62,516
48,052
64,349
4.17
53,124
36,132
31,049
23,728
3.56
2.56
2.23
1.69
46,341
100,188
109,370
24,928
11,389
Gross consumer loans receivable
1,110,633
833,779
526,546
370,517
289,426
Lease assets
Total assets
External debt
Shareholders’ equity
FINANCIAL METRICS
Revenue growth
Adjusted operating margin1
Adjusted net income1
Adjusted diluted earnings per share1
Adjusted return on equity1
Net debt to net capitalization
Annual dividend per share
OPERATING METRICS
Same store revenue growth
Gross loan originations
48,696
51,618
54,318
55,288
60,753
1,318,622
1,055,676
749,615
503,062
418,502
859,126
691,062
449,178
263,294
211,720
332,421
301,529
228,244
196,031
176,059
20.4%
27.7%
26.0%
23.7%
16.6%
21.8%
14.2%
19.0%
17.4%
15.8%
80,315
53,124
42,158
33,155
23,728
5.17
25.3%
0.71
1.24
3.56
21.8%
0.66
0.90
2.97
19.8%
0.60
0.72
2.38
17.9%
0.55
0.50
1.69
14.4%
0.53
0.40
19.5%
25.7%
18.3%
12.1%
16.3%
1,095,375
922,550
579,494
398,739
330,689
Growth in gross consumer loans receivable
276,854
307,233
156,029
81,091
97,201
Net charge-offs as a percentage of
average gross consumer loans receivable
13.3%
12.7%
13.6%
15.4%
14.8%
OPERATIONS
Total Store Count:
easyfinancial
easyhome
easyfinancial branch openings
Employees
256
163
15
241
165
23
228
171
22
208
176
17
202
184
64
2,024
1,821
1,729
1,587
1,566
1 Certain financial statement amounts have been adjusted to exclude unusual and non-recurring
items. Further details on such adjustments can be found in Management’s Discussion and Analysis.
goeasy Ltd. 2019 Annual Report 6
ADJUSTED NET INCOME GROWTH1
33.2%
TOTAL LOAN BOOK GROWTH
20.4%
TOTAL REVENUE GROWTH
51.2%
ADJUSTED NET INCOME GROWTH1
45.2%
ADJUSTED DILUTED EPS GROWTH1
25.3%
ADJUSTED RETURN ON EQUITY1
(1) Excludes the impact of non-recurring financing charge in 2019
goeasy Ltd. 2019 Annual Report 7
ANNUAL REVENUE
(In dollar millions)
13.1%
CAGR
600
500
400
300
200
100
$65.9
$70.5
$76.0
$86.1
$116.3
$100.3
$139.7
$347.5
$304.3
$259.2
$188.3
$199.7
$218.8
$168.2
$174.2
$158.1
$609M
$506.2
$401.7
$-
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Note: All revenue restated to IFRS. CAGR = Compound Annual Growth Rate
ADJUSTED ANNUAL
NET INCOME
(In dollar millions)
$80M
80
70
60
50
40
30
20
10
$-
30.1%
CAGR
$53.1
$42.2
$33.2
$23.7
$18.6
$14.2
$6.5
$7.7
$9.0
$10.4
$9.0
$8.8
$6.8
$9.6
$10.5
$2.6
$4.0
$0.7
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Note: 2001 to 2009 amounts reported on a Canadian GAAP basis. 2010 to 2019 amounts reported under IFRS. Certain financial statement amounts have been adjusted to exclude unusual and non-recurring items. Further details on such
adjustments can be found in the Management Discussion and Analysis. CAGR = Compound Annual Growth Rate
goeasy Ltd. 2019 Annual Report 8
WE SEE
BEYOND OUR
CUSTOMER’S
SITUATION
TODAY, AND
WE SEE THEIR
POTENTIAL
FOR A BETTER
FUTURE,
TOMORROW.
Our customers are hardworking everyday Canadians that have typically
been turned down by banks and traditional lenders. Often met by life
circumstances that have negatively impacted their credit, they turn to
goeasy for financial relief and a second chance. Our customers come
to us when they have nowhere else to turn and put their trust in us at
their most critical time of need. That sense of trust is core to the strong
and lasting relationships we build with each individual customer as we
provide them with knowledge and guidance to help build their financial
confidence. We understand our customers better than anyone else and
go above and beyond to treat every customer with empathy, care and
most importantly heart, because many of us were once in their shoes.
OF CUSTOMERS STRUGGLE
WHEN A FINANCIAL
EMERGENCY COMES UP
goeasy Ltd. 2019 Annual Report 9
56%
OF CUSTOMERS REPORT
HAVING NO OPTION OTHER
THAN TO BORROW FROM
EASYFINANCIAL
80%
OF CUSTOMERS STRUGGLE
WHEN A FINANCIAL
EMERGENCY COMES UP
78%
OF CUSTOMERS HAVE
BEEN DENIED CREDIT BY A
BANK OR CREDIT UNION
2X
AS MANY CUSTOMERS BELIEVE THEIR
FINANCIAL SITUATION IS BETTER
THAN IT WAS 12 MONTHS AGO VERSUS
THE CANADIAN AVERAGE
Source: goeasy customer loan data and goeasy non-prime research (February 2020).
goeasy Ltd. 2019 Annual Report 10
OUR
AWARD
WINNING
CULTURE
With over 2,000 employees across the country, our workforce
is as diverse as Canada itself. The one thing that unites us is the
passion we have for our customers and the deep sense of care we
have for everyone that steps foot into our stores and branches. We
are a performance-driven culture, where our team members are
given the opportunities and challenges to impact and influence
the organization. We are obsessed with our front-line workforce
and the customers they serve, never taking our eye off the critical
connection and relationship that is so essential to our customer
experience. We are entrepreneurial in spirit and mindset and
are relentless about finding a way to get things done, avoiding
complexity and bureaucracy from stifling our growth and ambitions.
We also believe strongly in investing in our people. With programs
such as our Women in Leadership initiatives, now in its 5th year,
we have helped thousands of our female leaders participate in a
variety of training and development programs catered to providing
them the tools they need to be successful leaders. Through our
“future stars” and “goforum” programs, we are training our best
and brightest talent to have the skills and experience they need to
become our leaders of tomorrow. With a culture that is all in, we
truly embody the notion of working hard and playing hard through
events, sports teams and celebrations that acknowledge the hard
work and accomplishments of our teams.
2,000+
EMPLOYEES
ACROSS CANADA
2019
WINNER
goeasy Ltd. 2019 Annual Report 11
ANDREA
FIEDERER
EVP & CMO
STEVEN
POOLE
SVP, OPERATIONS &
MERCHANDISING
JASON
APPEL
EVP & CRO
JASON
MULLINS
PRESIDENT & CEO
HAL
KHOURI
EVP & CFO
DAVID
COOPER
SVP, HR
SHANE
PENNELL
SVP, OPERATIONS &
SHARED SERVICES
SABRINA
ANZINI
SVP, LEGAL &
CORPORATE AFFAIRS
2,000+ 51% 40
EMPLOYEES
ACROSS CANADA
FEMALE
EMPLOYEE BASE
NATIONALITIES
REPRESENTED WITHIN
OUR EMPLOYEE BASE
goeasy Ltd. 2019 Annual Report 12
CORPORATE SOCIAL
RESPONSIBILITY
Our vision of providing
everyday Canadians
a better tomorrow,
extends beyond
our customers
and runs deep within the communities in which we operate. To date,
goeasy has contributed over $3 million through our longstanding
partnership with Boys and Girls Clubs of Canada, to help the clubs
with their mission of providing safe, supportive places where children
and youth can grow and experience new opportunities. In 2014, we
expanded our partnership with the clubs and launched easybites, an
ambitious $2.5 million, 10-year initiative to build functioning kitchens
in all 100 Boys and Girls Clubs across Canada. In 2019, we completed
our 50th kitchen on our journey to help feed today’s youth, while
helping them learn how to prepare quality meals and encourage the
development of healthy habits and life skills. Our Corporate Social
Responsibility efforts also extend beyond local communities as we
support charitable endeavours in developing countries through our
partnership with Habitat for Humanity’s Global Village program.
Since 2015, we have taken over 125 goeasy employees to Nicaragua,
India, Guatemala, Cambodia and Bolivia, where we have helped build
27 homes and 18 smokeless stoves for a total of 45 housing solutions
for families in extreme poverty.
15
YEARS PARTNERING
WITH BOYS AND GIRLS
CLUBS OF CANADA
RAISED TO
SUPPORT
CHARITIES
TO DATE
$3M+
45
HOUSING SOLUTIONS
BUILT THROUGH HABITAT
FOR HUMANITY
GLOBAL VILLAGE
50
EASYBITES KITCHENS
BUILT ON OUR WAY TO
100 BY 2024
goeasy Ltd. 2019 Annual Report 13
MESSAGE FROM THE
EXECUTIVE CHAIRMAN
OF THE BOARD
Successful CEO
Transition Plus Strong
Operational Execution
Equals High Returns
for Investors.
increasing our total capitalization from $993 million to $1.2 billion,
while reducing our fully drawn interest costs from 6.8% to 5.5%
and providing sufficient liquidity to meet our loan book forecast
until the end of 2021. The strong cash flow and build in retained
earnings enables us to meet our dividend objective of paying 35%
of prior year earnings, while still investing capital in operations and
repurchasing our shares opportunistically. The slightly increased
leverage combined with lower relative costs, resulted in return
on equity improving from 21.8% to 25.3% in 2019. As a lender,
our priority since 2012 has been to ensure that we apply capital
to first meet customer demand, so that our portfolio expands its
future profitability. We have compounded the return on investment
through this use of capital at approximately 25%. Our next use of
capital has been dividend payments, which have been applied with
consistency and thoughtful rationality for 16 years, with the last 6
years compounding at growth of 32%. We have often chosen to defer
paying down debt as our incremental draws on the credit facility have
lowered to only 4.3%. With the recent volatility in our share price, it
has created a dislocation from our pre-COVID-19 share price and an
opportunity to generate a 50%+ return by buying our own shares.
This approach has served us well with our total shareholder return
since December 2000 to December 2019 being 7709% vs. the S&P/
TSX Financial Index of 491%. As we move forward, we will see many
more opportunities for the use of capital, as the industry creates
winners and losers and international M&A becomes more attractive
than in the past. Therefore, managing internal hurdle rates for where
and when to send our cash is even more critical.
TALENT MANAGEMENT – One of my most memorable interactions
with Jason Mullins was the way in which he brought to my attention
the bad news regarding a fraud in one of our branches back in 2010,
only a few months after he joined the organization. It was presented
logically with a timeline that was backed up with data and events,
and it made us believe we had recruited a star. This was someone
who got my attention by digging below the surface and providing a
sense of trust and acumen while having the confidence to deliver
devastating news. My belief in Jason’s capabilities was reaffirmed
in 2012, when Sean Morrison, one of our Directors, noted on our
annual directors’ survey that our “Company’s Top Risk” was not the
typical response of access to capital or credit risk, but rather “losing
Jason Mullins”. Yet, a year earlier in 2011, when we parted ways
with five directors, none of them thought he was CEO potential. So,
after investing in extensive training, including an Executive MBA at
goeasy Ltd. 2019 Annual Report 14
First and foremost I'd like to acknowledge the difficulty and severity
we have all been facing together as a result of the Coronavirus. Our
hearts go out to the families and communities around the World who
have been affected by the pandemic. We are sincerely grateful to
everyone on the front lines of this crisis for the courageous work they
are doing to keep us all protected.
After 18 years as the President & CEO of goeasy, I am pleased to
write my first letter as the Executive Chairman. I will provide some
reflection on 2019, while concluding with some thoughts on the
exciting journey ahead of us. My time with the Company, which
spans a period of nearly two decades, has given me perspective
and experience gained from working with three different sets of
directors and having over 1,000 discussions with investors. This has
provided me with the benefit of valuable lessons that accumulate
to build a “tool box” that can be applied to strategy, leadership, risk
management, governance and ultimately, serves as a scorecard of
your judgement. When I reflect upon the many insights that I have
learned, what stands out the most is that while growth in revenues
and profits have significant importance within the research analyst
community, what truly matters is the absolute total shareholder
return compounded over the long-term. To this end, it’s incumbent
on the Board to help support management in determining where to
focus and how to optimize the long-term success for goeasy in order
to maximize the return for shareholders. Although it can be difficult
to narrow down that focus, the two areas that myself and the Board
believe require particular attention and mastery are capital allocation
and talent management.
CAPITAL ALLOCATION & THE STRENGTH OF OUR PLATFORM –
We entered 2020 with a strong financial position due largely to
the Ivey School of Business, working with an external coach and
receiving guidance from many of our current Board members,
Jason began his journey to the position of CEO. This illustrated
how important the Board’s role is to align on the selection of talent,
mentoring that talent and providing high potential individuals with
access to these important role models. Taking this even further, this
philosophy has shaped our approach to showcasing talent within
the Board. goeasy team members from across a variety of levels
can participate in “lunch and learn” sessions that provide high
potential employees with the ability to prove their capabilities and
get sponsorship from our Directors.
In Jason’s first year as CEO, I am extremely proud to say he repaid
the trust in his appointment by hitting all seven of the publicly guided
targets, while growing revenue by 20% and adjusted diluted earnings
per share by 45%. In addition to the capital restructuring, Jason also led
the team through the successful completion of a strategic investment
in PayBright, Canada’s leader in point-of-sale financing. Furthermore,
he has energized the entire goeasy team and is putting the finishing
touches on building his management team, who are being recruited
with the horsepower to build a multi-billion-dollar organization.
OUTLOOK – As Jason builds his management team for our third
wave of growth, we are applying the same investment in building our
Board of Directors that will be positioned to give strategic support
over the next decade of our continued expansion. Our shared ambition
goes beyond becoming the biggest and best non-prime lender in
Canada. Through our purpose driven vision, access to capital, credit
risk expertise and management talent, we believe we can lead in
other international markets. In 2019, after much discussion with the
Board and management, we completed a skill matrix assessment
that determined we would need to find three new board members
to complement the existing team, while providing the leadership
and mentorship required to fuel our expansion ambitions. The
first position was recently filled by James Moore, who was elected
in March of this year as Chair of the Governance Committee. His
experience as Industry Minister for the Federal Government will be
invaluable as we strive to create strong relationships at all levels of
government. The next position that we are looking to fill is Chair for
the Human Resource Committee, ideally with a candidate that has
global experience with larger organizations and M&A experience
working across borders. Lastly, we plan to add an individual who
brings global capital markets experience and is a proven leader
in capital allocation. We are fortunate to have a Board that is very
engaged, provides diligent questions, has been extremely responsive
to both Jason and I, and above all is excited to help lead us into the
future. I truly appreciate their commitment and sound advice.
On behalf of our Board of Directors, I want to congratulate Jason and
his senior team for the execution of their strategy and to express
sincere gratitude to all of our colleagues, especially those who work
tirelessly on the front-lines to serve our 230,000 customers. I also want
to pay tribute to David Thomson, who passed away in February this
year after being the Company’s Audit Committee Chair since 2012. He
was a true gentleman who served the Company to the highest ethical
standards and was a friend to us all. He is deeply missed.
goeasy is a Company that has a healthy disrespect for the way
things are. We want to build an enduring organization that prevents
the inertia, sluggish drive for innovation and bureaucracy that holds
many Companies back as they scale and mature. As Jason will tell
you, we are truly just getting started!
David Ingram
Executive Chairman of the Board, goeasy Ltd.
goeasy Ltd. 2019 Annual Report 15
LETTER TO
SHAREHOLDERS
I write this letter
amidst one of the
greatest periods
of challenge and
uncertainty in
many generations.
plenty of exceptional learning moments and a greater level of
ultimate accountability, I never felt unequipped. To that I owe the
years of preparation, the thoughtful planning of our Board to lay
the groundwork for a successful transition plan and the training
camp atmosphere that David Ingram, our Executive Chairman
and former CEO, created through a progressive handover of
responsibility. Fast forward to leading the organization through
a crisis, for which there is no playbook, during which I continue
to lean heavily on the leadership principles instilled over many
years of training. Preparation is key.
We are living in a remarkable time, during which the pressure
on economies, communities and families could not be greater.
As the COVID-19 pandemic sweeps around the globe, it has
acted as a stark reminder of how fortunate we are and what
truly matters. Although at the time of this letter, many lives have
been lost and we remain in a period of economic disruption,
there are many signs that a recovery is in sight and I am
confident we will emerge from this stronger than ever.
Before I begin, I want to first thank all of those on the front-line
of this crisis and the 2,000 goeasy team members that have
stood by our customers through this event. To all those that
are working hard to keep our families and communities safe,
maintain the availability of our essential services and keep our
economy running, we are grateful and thank you.
In the following pages I will provide a reflection on my first
year as CEO, discuss our results for the year, reaffirm why our
business model is built to withstand the test of time and provide
an update on our strategy and outlook for the future.
REFLECTIONS ON THE FIRST YEAR
PREPARATION – As I walked into the office on January 2nd,
2019, it felt like any other day from the several years preceding
it. Looking back now, that was how it should have felt. As the
beneficiary of a well-orchestrated multi-year CEO succession
plan that began in 2015, I was well prepared. While there were
THE TEAM – Business is a team sport. Full stop. When you run
a large business, this becomes more real than ever. I have been
incredibly fortunate to be surrounded by great talent, up and
down the organization. The entire Board have acted as a group of
supportive advisors and David has continued to be an invaluable
mentor, providing near on-demand guidance and counsel. I
am also privileged to lead a talented senior leadership team.
With the addition of Hal Khouri as CFO, the recent appointment
of Michael Eubanks as CIO, and the strength of our existing
leadership team, we are building a management group that
can lead the business through our next stage of growth. Most
important has been the unwavering support of our front-line
team, as they are the engine of our organization. Their passion
and energy to deliver on our vision has never been stronger and
I continue to be inspired by their teamwork and comradery. In
their own words, their bonds are as strong as family.
THE CULTURE – In the letter last year I suggested one of my
key responsibilities was to protect and preserve the core
values and leadership principles that have been progressively
embedded into the DNA of our company. After the extreme
contrast between a record year, followed quickly by a crisis, it is
evident that there is no aspect of my job more important than
nurturing and developing our culture. At the core of our culture
is a purpose driven vision - to put our customers on the path
to a better tomorrow - while making a positive impact on the
communities we serve. It is our purpose that fuels us to face
adversity with grit and perseverance, drives us to perform at
a high level and ignites our desire to care for each other and
our customers. Carefully selecting the talent that embraces
our philosophies as we scale the organization will be key to
our success. As the renowned management consultant Peter
Drucker once said, “culture eats strategy for breakfast”.
goeasy Ltd. 2019 Annual Report 16
JASON MULLINS
PRESIDENT & CEO, GOEASY LTD.
PERSONAL DEVELOPMENT – Despite the benefits of intense
preparation, it was without question a period of significant
learning. Throughout the year I kept a journal of personal
reflections, which included a long list of insights about the
way I needed to continue evolving my leadership. I learned to
rethink my time management, delegate more, sharpen my
communication, adapt my coaching style and improve how
we prioritize initiatives across the organization. This is only
the beginning of my personal growth journey as a CEO and we
will continue to prioritize and invest in the development of our
people. We will never stop learning.
REVIEW OF 2019
2019 was another significant year for our organization,
highlighted by record financial results, several major milestones
and great progress made against our strategic initiatives. We
were also pleased to achieve all seven of the revised commercial
targets published for the year.
We continued to build our brand in Canada with the launch of
our latest fully integrated media campaign, which focused on
authentic and relatable moments for our customers and the
inspiration for a better tomorrow. The campaign included a new
TV spot, new radio ads, as well as new digital, print and out-
of-home creative. Collectively, the campaign helped drive a 31%
increase in web traffic over the prior year, lifting our aided brand
awareness to an all-time high of 85% and produced a record
level of loan application volume, which was up 19% over 2018.
Our positioning in the market is simple; we aim to provide the
approximately 9.4 million non-prime Canadians with access
to the credit they need, while helping put them on a path to a
better tomorrow. In early 2019 we began sharing the impact we
are having on our customers' credit improvement. With 1 in 3 of
them graduating to prime credit, and 60% increasing their credit
score within 12 months of borrowing from us, we believe we are
making a positive difference in their financial lives.
goeasy Ltd. 2019 Annual Report 17
The improved brand awareness and strong customer demand
led to loan originations of $1.1 billion, which were up 19% from
2018. Furthermore, 2019 was a record year for new customer
growth, adding over 33,000 new borrowers to our easyfinancial
portfolio. The elevated originations resulted in total organic loan
growth of $277 million, leading to one of the most significant
achievements in our history, crossing the $1 billion milestone.
Having joined the Company ten years prior when the loan
portfolio had just crossed $15 million, this was certainly a
moment to be proud of. By year-end we finished with a loan
portfolio of $1.1 billion, which was up 33% from 2018.
We continued to pursue our strategy of expanding the product
range and increasing the use of risk-based pricing to reduce
the cost of borrowing for our customers, while concurrently
increasing the average loan size, extending customer tenure
and increasing lifetime value. Over the year, this strategy led to
a gradual decline in the weighted average APR charged to our
borrowers, and consequently, the total yield generated on the
portfolio, while increasing revenue and income.
2019 marked the 18th consecutive year of revenue growth for
the Company at $609 million, an increase of 20% over 2018,
lifting our compound annual growth rate since 2001 to 13.1%.
While the success in generating online traffic and new customer
growth served to accelerate the loan book, it also slowed the
rate of improvement we had planned for the credit quality of the
portfolio. While the customers we acquire online are sufficiently
profitable, their risk level exceeds that of a customer acquired
through our retail channel. Likewise, while new customers
are the lifeblood of the business, the first loan we issue a
new customer produces higher losses than every subsequent
loan. Lending to an existing customer allows us to use a more
predictive behavioural scoring model that considers their
payment history, which results in a loss rate that is more than
30% lower than that of a new borrower. As such, the net charge-
off rate of the portfolio was 13.3% in 2019, up slightly from
the 12.7% we reported in 2018. Despite the shift in the mix of
originations, the overall stability of our loss rate highlighted the
strength of our risk management capability to respond quickly
to changes in the environment.
During the year we continued to increase the average loan book
per branch, which grew from $2.9 million to $3.7 million. The
revenue produced by growing the average book per branch
is accompanied by only a marginal level of incremental cost,
resulting in significant operating leverage for the business.
Operating income was $169 million in the year, up 41%, while
the operating margin expanded to a record 27.7%, up from
23.7% in 2018.
Over the course of the year we made several important
enhancements to our balance sheet, including amendments
to our revolving credit facility and refinancing our unsecured
notes. Thanks to the continued confidence of the bank lenders
in our syndicate, we increased the size of our revolving credit
facility from $174.5 million to $310 million and extended the
maturity date from November 2020 to February 2022, giving
us significantly more liquidity. In addition, the cost of borrowing
under the facility was also reduced to the BA rate plus 300 bps
or the prime rate plus 200 bps, at our option.
Late in the year our unsecured notes became eligible for early
redemption. Although the cost to redeem the notes three years
prior to maturity was not insignificant, our notes were trading
at a sufficient premium such that we could significantly reduce
the coupon rate to more than offset the early redemption cost
over the remaining term of the notes. Most importantly, it
ensured that if we faced a more difficult economic period in the
coming years, it would extend the maturity of our notes for a
fresh five-year period, providing us with stable and longer-term
capital. In November we went to market and issued an upsized
transaction of US$550 million, 5.375% senior unsecured notes,
which mature in December 2024. The proceeds were used to
extinguish the previous notes and top up the balance sheet
with additional liquidity. Upon redeeming the notes, we incurred
an early repayment penalty, resulting in a one-time after-tax
charge of $16.0 million.
While we did not foresee a global pandemic producing a severe
economic recession, the decisions made to increase our liquidity,
extend our debt maturities and take advantage of excellent
conditions in the capital markets, were very timely. When
combined, these two balance sheet enhancements increased our
funding capacity to $240 million at year-end, providing enough
capital to fund our business until late in 2021. Furthermore, our
fully drawn weighted average cost of debt reduced from 6.8% at
the start of the year, to 5.5% at year-end, helping to further boost
our return on assets. With these major enhancements behind
us, we have now begun to lay the groundwork for the next stage
in the evolution of our balance sheet, through the establishment
of a securitized funding facility, which we hope to implement as
soon as the conditions in the market improve.
As a portfolio business with strong risk-adjusted margins and an
average remaining term on our loans of less than four years, our
business generates significant free cash flow. Cash flow from
operations before the net issuance of consumer loans (and the
purchase of lease assets) was $296 million in the year, up 28%
from $232 million in 2018. Our first preference is to invest our
free capital in growing the loan portfolio, as the organic growth
of our business produces the best return on our investment
and fuels earnings into the future. If we produce incremental
goeasy Ltd. 2019 Annual Report 18
free cash above the level that can be deployed into organic loan
growth, the excess capital can then be used to either pay down
debt and de-leverage the balance sheet, invest in new lines
of business or acquisitions, or return capital to shareholders
through dividends or share repurchases. In this event, we
will first assess our ability to access and maintain sufficient
liquidity to fund our organic growth and whether our current
level of financial leverage is appropriate, which we believe to be
optimal at approximately 70% net debt to net capitalization or
roughly 2.5 times debt to equity. Provided we are confident we
have access to the capital to fund organic loan growth, we have
chosen to return approximately 35% of our trailing earnings to
shareholders through a dividend, while investing the remaining
capital where we can generate the next highest return that will
maximize the long-term per share value of the Company. Based
on the 2019 earnings and confidence in our liquidity position,
the Board approved an increase to the annual dividend from
$1.24 per share to $1.80 per share, an increase of 45%. 2019
marked the 6th consecutive year of an increase in the dividend
to shareholders. During the year, we then took advantage of
several opportunistic times when our share price traded below
its intrinsic value, such that repurchasing our stock became
the best return on our capital. Over the year we invested $20.3
million
in share repurchases, buying back approximately
458,000 common shares at a weighted average price of $44
through our normal course issuer bid.
It is important to note that all the decisions we make with respect
to our financial leverage, distributing dividends, repurchasing
stock or investing in new lines of business, are all made on the
principle that they are sustainable through economic cycles.
Based on the strong revenue growth, improved operating
leverage and adjusting for the one-time charge associated
with the early redemption of our unsecured notes, adjusted net
income for the full year was a record $80.3 million, up 51% from
$53 million in 2018. Adjusted diluted earnings per share were a
record $5.17, up 45% from $3.56. We were also pleased to report
record adjusted return on equity of 25.3%, up from 21.8% the
prior year. Lastly, it was the 18th consecutive year of reporting a
profit and lifted our compound annual growth rate for adjusted
net income since 2001 to 30.1%.
During the year we also made significant progress against our
key initiatives, including all four pillars of our strategy.
goeasy Ltd. 2019 Annual Report 19
After fine tuning our secured loan product throughout 2018, we
began to scale our offering in a more meaningful manner in
2019. The “test and learn” philosophy I discussed in my letter
from last year had successfully exposed the learnings and
insights we needed to be comfortable accelerating growth. The
product, which allows homeowners to graduate to larger loans
at lower interest rates, more than doubled during the year,
finishing at $115 million, or approximately 10% of our portfolio.
With 20% of easyfinancial customers owning their home, we
continue to believe this product will be an important part of our
broader financial services offering and help our customers get
back to prime credit.
As we entered 2019 our efforts to refine and optimize our
business in Quebec also proved successful. Loss rates were
progressively trending toward the portfolio average and we
began to scale our presence in the province. By year-end we
had doubled our loan book to $75 million, or approximately 7%
of our total portfolio. With 22% of the Candian population in
Quebec, there remains tremendous growth in this market for
many years into the future.
Over the last several years we have been developing our
point-of-sale financing channel to provide greater access to
credit for non-prime Canadians when shopping for goods and
services. Each year in Canada we estimate there is more than
$30 billion of credit extended to consumers through financing
and “buy now, pay later” programs offered at the point-of-
sale. We have always viewed this channel as a great low-cost
source of acquisition to bring new customers into our lending
ecosystem, so we can offer them other products and services
and expand our share of wallet. Historically, our greatest
challenge in this channel had been the lack of integration
between a prime lender and ourselves. If a customer was
declined for prime credit and then forced to resubmit a new
application from scratch, it created significant friction in the
experience, resulting in abandoned sales and frustrated
customers. Furthermore, we knew the right long-term solution
was an omnichannel model to support the continuing shift to
eCommerce. So, in 2018 we went on a journey to find a prime
point-of-sale lending partner that we could team up with.
All options were explored, including partnering with major
banks, acquisitions, international incumbents and building the
platform ourselves.
After extensive market research, we found the ideal partner. In
September, we entered into a strategic commercial partnership
and made a $34.3 million equity investment in PayBright, a
Canadian fintech business focused on instant point-of-sale
consumer financing to the prime market through interest
bearing, 0% financing and “Pay-in-4” programs. Through this
arrangement, easyfinancial became the provider of non-prime
financing within their platform. PayBright has partnered with
over 6,000 domestic and international merchants, allowing
them to offer installment payment plans to their Canadian
consumers in a quick and easy digital experience, through both
eCommerce and in-store. Major partners today include brands
such as Wayfair, Samsung, Lenovo and The Source. By offering
PayBright as a payment method at checkout, retailers provide
their customers with additional spending power, which drives
increased sales through higher checkout conversion, increased
average order value, and greater customer loyalty. Through
integrating our non-prime loan product into their platform,
we now offer Canada’s leading instant point-of-sale payment
solution that serves the entire credit spectrum of consumers in
a single, seamless user experience. We have already acquired
thousands of customers through this channel, yet consider this
partnership at the very early stages.
We also made several
improvements to our customer
experience during the year, including introducing e-Transfer as
a new funding method for our borrowers, and launching a new
credit score optimizer product, the first of its kind in Canada,
which helps our customers tackle their debt in a methodical
manner. Continuing to digitize the transaction, automate
underwriting and give consumers more tools that can help
them on their journey back to prime credit, will continue to be
at the core of what we do.
Topping off the year, we were very humbled to be the proud
recipients of five new awards in recognition of our culture
and performance. During the year we were named one of
“Achievers Top 50 Most Engaged Workplaces in North America”,
named one of the “Top Employers in the Greater Toronto Area”,
named one of the “Digital Finance Institute’s Top 50 FinTech
Companies in Canada”, ranked on the inaugural “TSX30” list
based on dividend-adjusted share price appreciation over a
three-year period and placed on the “Report on Business list
of Canada’s Top Growing Companies” based on three-year
cumulative revenue growth.
OUR ENVIRONMENT
MARKET & COMPETITIVE LANDSCAPE
Of the 29 million Canadians with an active credit file,
approximately 9.4 million have credit scores less than 720
and are deemed to be non-prime according to TransUnion.
Collectively, these Canadians carry $230 billion in credit
balances (excluding any primary mortgages), which represents
our target market. Our customers resemble the average
Canadian, with similar income, education and demographics,
although they are more likely to be renters than homeowners
goeasy Ltd. 2019 Annual Report 20
and therefore carry less total debt. This market is largely
underserved by only a handful of major providers. Fairstone,
formerly CitiFinancial Canada, is our largest competitor and was
once the Canadian consumer finance arm of U.S. bank Citigroup
Inc., before being acquired by private equity and then recently sold
to DuoBank. Over the years, we have also witnessed numerous
pure-play online lenders launch, yet none of them have been
able to achieve scale and success in non-prime lending through
an online only model. Finally, two large payday loan chains have
migrated into traditional lending products, including MoneyMart,
a privately held U.S. company, which offers an installment loan
and CashMoney, the Canadian brand of U.S. public company
CURO Group, which offers a revolving line of credit product. We
believe we remain highly competitive amongst our peer group,
however, the size of the market can also support several large
companies at scale.
We also believe that the recession caused by the recent pandemic
will slightly favour the market and competitive landscape for
goeasy. As prime lenders, specifically major banks, tighten
credit criteria in response to the weaker economic environment,
this will limit the access to traditional credit for near-prime
consumers, making the role we play in filling the gap left by the
banks more important than ever.
REGULATORY LANDSCAPE
Canada continues to remain a stable regulatory environment
with a good framework for governing the non-bank consumer
lending industry. Section 347 of the Criminal Code regulates
the entire lending market, dictating the maximum effective
annual rate of interest that can be charged at 60%. This
regulation has been stable and unchanged since 1980, without
challenge by any government or major political party. We
believe that there continues to be strong evidence of support
for the existing federal structure. At the provincial level,
each province maintains consumer protection legislation
that outlines specific rules about how businesses interact
with their customers. In addition, several provinces have
implemented “high cost credit” regulations, which have been
specifically designed to ensure consumers are treated fairly
and that there is transparency in the borrowing experience.
Manitoba was the first to implement such regulations in 2016,
followed by Alberta and Quebec in 2019 and British Columbia
expected to do so in 2020. These regulations require that
lenders offering loans over a prescribed rate, obtain a license
and follow an additional set of disclosure requirements and
operating practices. Independently and through the Canadian
Lenders Association, goeasy works directly with provincial and
federal regulators. Throughout the legislative process we are
regularly consulted to provide guidance and feedback on how
regulations can be crafted to best protect consumers, without
restricting their access to credit and disrupting the efficacy
of the market. These consultations have helped us develop
productive working relationships at all levels of government.
As always, we remain in full compliance with all federal and
provincial laws and regulations.
ECONOMIC LANDSCAPE
At the time of this letter, we find ourselves in the middle of one of
the most turbulent economic periods in history. As it is difficult to
predict the exact depth of a recession, or the pace of a recovery,
we maintain a series of risk-based scenarios that stress the
business under various degrees of economic disruption. These
scenarios are informed by research conducted by TransUnion on
how non-prime consumers perform during a downturn, which
can be found in our investor presentation online, as well as our
own experience in Alberta during 2015 and 2016. When there
was a sharp decline in oil prices beginning in early 2015, Alberta
saw a doubling of the unemployment rate, to approximately 9%,
leading to a prolonged province-wide recession. At the time
we had approximately 14% of our portfolio in Alberta and the
downtown led to a moderate increase in the in-period annualized
net charge off rate, which rose by 250 basis points from 14%
in 2015 to approximately 16.5% in 2016. Since then we have
also made significant enhancements to our business, including
material improvements in credit modeling and collections. While
it is impossible to predict how each economic cycle is going
to evolve, we firmly believe that our business is structurally
designed to successfully navigate through a downturn, due to
several key factors:
Credit and Underwriting Flexibility: We employ the use of
proprietary credit scoring and underwriting models that can
be adjusted to increase, or decrease, our tolerance for credit
risk very quickly. In addition, all our direct-to-consumer loans
are reviewed by a central loan approval team, which conduct
a series of extra evaluation measures such as verification of
income. By adjusting our risk tolerance in response to changing
market conditions, the quality of originations produced during a
downtown are often higher quality and help improve the overall
risk of the loan portfolio.
Majority of easyfinancial Customers have Loan Protection
Insurance: Presented at the time of loan origination, our
optional loan protection insurance, offered by Assurant Inc.,
a global provider of risk-management solutions, covers a
borrower’s full loan payment for a period of up to 6 consecutive
months in the event of unemployment. The majority of our
customers purchase this product and payments are made
directly to us in the event of a claim.
goeasy Ltd. 2019 Annual Report 21
Lower Levels of Debt: Approximately 20% of our easyfinancial
customers own their home, as compared to the Canadian
homeownership rate of approximately 70%. As a result, the
debt to income ratio of a typical easyfinancial customer is much
lower than the average Canadian consumer, at 115% debt to
disposable annual income versus 175%, primarily due to the
absence of mortgage debt. As renters, our customers maintain
greater flexibility in changing their housing expense than a
homeowner does with a mortgage payment.
Solutions to Support Borrowers: As a non-prime lender, we
have long maintained a suite of loan amendment solutions that
offer borrowers support through a difficult financial period.
These include temporarily deferring loan payments or extending
the term of their loan to reduce their regular payment obligation.
These tools have proven effective in helping our borrowers get
back on their feet after temporary financial challenges.
Federal Financial Support for Consumers: Canada’s standard
unemployment insurance program, which pays approximately
two thirds of an average Canadian's after-tax income, acts as
a significant social safety net for consumers who lose their job.
Furthermore, at the time of this letter the Federal Government
has pledged over $145 billion in financial aid to help Canadians
cope with the global COVID-19 pandemic, including income
supports, wage subsidies and tax deferrals. These programs are
helping to further soften the impact associated with an increase
in unemployment.
Strength of the Business Model under Stress: Our business
model is designed to withstand a material increase in credit
losses. Due to the risk-adjusted margin and variable nature of
many operating expenses, our net charge-off rate would have
to more than double (from 13% to approximately 30%) before
the business would become unprofitable and impact our capital.
Furthermore, we maintain a conservative level of financial
leverage at a target of 70% net debt to net capitalization with
over $300 million of tangible capital, or roughly 27% of our
consumer loan portfolio.
Ability to Generate Cash Flow: Lastly, if we were to reduce the
volume of new loan originations, the business would generate
increased cash flow that could be used to reduce debt or service
expenses. As highlighted earlier, the cash flow provided by
operating activities before the net issuance of consumer loans
receivable and purchase of lease assets was $296 million in
2019 and we estimate the total run off value of our current
portfolio is more than $2 billion. Originations act as a significant
lever if the business needed to de-leverage and generate more
cash flow.
OUTLOOK
While the current circumstances required that we temporarily
focus our efforts on supporting existing customers to ensure
we navigate our way safely through the crisis, we know the
challenges we are facing are temporary. We are proud to have
kept our entire workforce employed and our balance sheet is
equipped so that we are well positioned to capture the many
opportunities that lie ahead as the economy reopens.
With only a small share of the $230 billion non-prime consumer
credit market, along with attractive opportunities outside of
Canada, we are in the early stages of our third wave of growth.
Our strategy to become the largest and best-performing lender
in our industry will continue to be guided by four strategic pillars
of expanding our product range, developing our channels of
distribution, increasing our geographic footprint and delivering
a best-in-class customer experience.
In 2020 we will undertake four major initiatives designed to
support our strategy and position the business for significant
expansion.
Our first major initiative for 2020 is to upgrade our core lending
platform. With a plan to develop new lending products, expand
our channels of distribution and leverage new technologies
to disrupt and innovate within our industry, our core lending
technology is a critical part of our business. Our existing platform,
which was implemented nearly a decade ago in the early stages
of our lending business, has served us well. However, in a world
that now demands a frictionless digital experience for our staff
and customers, there is a competitive edge to be gained through
a more intuitive and flexible platform. The launch of a best-in-
class, fully cloud-based SAS lending solution will give us the
platform to scale the enterprise for many years into the future.
After spending almost two years researching and selecting the
right platform, we began this important project late last year
and expect to complete the configuration and migration in 2021.
Our second major initiative will be to focus on further developing
our point-of-sale business in partnership with PayBright.
With only a small handful of PayBright’s major eCommerce
merchants live with the non-prime integration today, we will
work together to onboard new partners, further optimize the
technology platform and launch the in-store solution. With
sales volume already beginning to climb thanks to PayBright’s
presence in eCommerce, we expect customer acquisition
from this channel to build throughout 2020 and beyond. Most
importantly, customers acquired through this channel will have
the opportunity to access our other unsecured and secured
loan products, as we aim to give them the full easyfinancial
borrowing experience. PayBright, with goeasy’s full support as
goeasy Ltd. 2019 Annual Report 22
both commercial partner and shareholder, is on a mission to be
the buy now, pay-later market leader in Canada.
Our third major initiative will be to pilot a new product in the
form of a direct to consumer auto secured loan. After careful
and exhaustive research of the market, we see a significant
opportunity for this product to take several forms. First, we
estimate there is over $13 billion of non-prime auto loan
originations annually and believe there is an opportunity to
create a better car buying experience for these customers. Today,
consumers wait until they find a dealership that can get them
approved for financing and are at the mercy of the dealer who
controls the entire transaction. By pre-approving customers for
financing up-front, they will be able to shop wherever they like,
with ease and control. Secondly, many non-prime consumers
rely on purchasing vehicles through private sale, such as from a
neighbour or a friend, yet there is currently a void in the market
for financing these types of transactions. Our research suggests
that over 1 million used cars change hands privately each year,
so this is a true untapped opportunity we believe we can fill.
Lastly, as we aim to offer our existing customers larger loans
at lower interest rates on their journey back to prime, there is
an opportunity for customers to provide their existing vehicle
as security to secure a better loan offer. Like our real estate
secured loan, this product would be underwritten on credit
and affordability, but utilize security to offer a more attractive
interest rate to the customer. Consistent with our test and learn
philosophy, we are aiming to be in market with a pilot program
in late 2020 or early 2021, so that we can test and optimize the
product before beginning to scale.
Lastly, our fourth major initiative is to begin offering lending
products and services to several new segments of the market
through the launch of proprietary credit models that leverage
consumer banking data as an alternative, or supplement,
to traditional credit data. Each year there are over 300,000
newcomers to Canada and 500,000 students graduating with
post-secondary education who do not have a credit file or have
a very limited borrowing history. These new credit algorithms,
built using the latest statistical modelling techniques, will enable
us to utilize a customer’s income and expense transactions to
assess their creditworthiness and offer them the opportunity to
borrow while establishing or building their credit profile. Over
the last three years we have enabled applicants to submit their
bank account data electronically as part of their application for
an easyfinancial loan. As a result, we have collected data from
over half a million bank accounts containing over 700 million
transactions and have utilized machine learning to carefully
mine and analyze this data to build more advanced and predictive
credit scoring models. With a plan to begin testing these models
later this summer, we believe this represents a major milestone
in the use of alternative data and the evolution of our risk and
analytics practice.
As I eluded in the opening comments, our future depends on
our culture and our people. The diverse group of over 2,000
passionate and dedicated goeasy team members are the
lifeblood of our business. After traveling the country to spend
time with hundreds of our front-line staff last year, I have
never been more energized by their tireless work ethic and
commitment to our vision.
Although we are proud of our accomplishments, we will never
take them for granted. We will continue to work hard, maintain a
scrappy and competitive spirit and set big and ambitious goals.
As I have said before, we still think of ourselves as a small
entrepreneurial company in a vast, underserved market and
believe that the future remains more exciting than ever. We are
truly just getting started.
Sincerely,
Jason Mullins
President & CEO, goeasy Ltd.
goeasy Ltd. 2019 Annual Report 23
TABLE OF
CONTENTS
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................................25
Caution Regarding Forward-Looking Statements .......................................................................................................... 26
Overview of the Business ...................................................................................................................................................... 27
Corporate Strategy .................................................................................................................................................................. 29
Outlook ........................................................................................................................................................................................ 30
Analysis of Results for the Year Ended December 31, 2019 ....................................................................................... 32
Selected Annual Information ................................................................................................................................................ 40
Analysis of Results for the Three Months Ended December 31, 2019...................................................................... 41
Selected Quarterly Information ........................................................................................................................................... 48
Portfolio Analysis ..................................................................................................................................................................... 48
Key Performance Indicators and Non-IFRS Measures .................................................................................................. 55
Financial Condition .................................................................................................................................................................. 59
Liquidity and Capital Resources .......................................................................................................................................... 60
Outstanding Shares & Dividends ......................................................................................................................................... 61
Commitments, Guarantees and Contingencies ............................................................................................................... 62
Risk Factors ............................................................................................................................................................................... 63
Critical Accounting Estimates .............................................................................................................................................. 70
Adoption of New Accounting Standards ............................................................................................................................ 70
Adoption of IFRS 16 ................................................................................................................................................................. 70
Internal Controls ...................................................................................................................................................................... 73
Management’s Responsibility for Financial Reporting ...................................................................................................75
Independent Auditor’s Report ...........................................................................................................................................76
Audited Consolidated Financial Statements ....................................................................................................................78
Corporate Information ......................................................................................................................................................115
MANAGEMENT’S
DISCUSSION
AND ANALYSIS OF
FINANCIAL
CONDITION AND
RESULTS
OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2019
goeasy Ltd. 2019 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DATE: FEBRUARY 12, 2020
The following Management’s Discussion and Analysis (“MD&A”) presents an analysis of the consolidated financial condition of goeasy
Ltd. and its subsidiaries (collectively referred to as “goeasy” or the “Company”) as at December 31, 2019 compared to December 31,
2018, and the consolidated results of operations for the three-month period and year ended December 31, 2019 compared with the
corresponding periods of 2018. This MD&A should be read in conjunction with the Company’s audited consolidated financial statements
and the related notes for the year ended December 31, 2019. The financial information presented herein has been prepared in accordance
with International Financial Reporting Standards (“IFRS”), unless otherwise noted. All dollar amounts are in thousands of Canadian
dollars unless otherwise indicated.
This MD&A is the responsibility of management. The Board of Directors has approved this MD&A after receiving the recommendations
of the Company’s Audit Committee, which is comprised exclusively of independent directors, and the Company’s Disclosure Committee.
This MD&A refers to certain financial measures that are not determined in accordance with IFRS. Although these measures do not have
standardized meanings and may not be comparable to similar measures presented by other companies, these measures are defined
herein or can be determined by reference to our financial statements. The Company discusses these measures because it believes that
they facilitate the understanding of the results of its operations and financial position.
Additional information is contained in the Company’s filings with Canadian securities regulators, including the Company’s Annual
Information Form. These filings are available on SEDAR at www.sedar.com and on the Company’s website at www.goeasy.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This MD&A includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy and
expected financial performance and condition. Forward-looking statements include, but are not limited to, those with respect to the
estimated number of new locations to be opened, forecasts for growth of the consumer loans receivable portfolio, annual revenue growth
forecasts, strategic initiatives, new product offerings and new delivery channels, anticipated cost savings, planned capital expenditures,
anticipated capital requirements and the Company’s ability to secure sufficient capital, liquidity of goeasy, plans and references to
future operations and results, critical accounting estimates, expected lower charge-off rates on loans with real estate collateral and
the benefits resulting from such lower rates, the size and characteristics of the Canadian non-prime lending market, the continued
development of the type and size of competitors in the market. In certain cases, forward-looking statements that are predictive in nature,
depend upon or refer to future events or conditions, and/or can be identified by the use of words such as “expect”, “continue”, “anticipate”,
“intend”, “aim”, “plan”, “believe”, “budget”, “estimate”, “forecast”, “foresee”, “target” or negative versions thereof and similar expressions,
and/or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations and
business prospects and are inherently subject to, among other things, risks, uncertainties and assumptions about goeasy’s operations,
economic factors and the industry generally. There can be no assurance that forward-looking statements will prove to be accurate as
actual results and future events could differ materially from those expressed or implied by forward-looking statements made by goeasy.
Some important factors that could cause actual results to differ materially from those expressed in the forward-looking statements
include, but are not limited to, goeasy’s ability to enter into new lease and/or financing agreements, collect on existing lease and/
or financing agreements, open new locations on favorable terms, secure new franchised locations, offer products which appeal to
customers at a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory action, raise capital under
favorable terms, compete, manage the impact of litigation (including shareholder litigation), control costs at all levels of the organization
and maintain and enhance the system of internal controls.
goeasy cautions that the foregoing list is not exhaustive. These and other factors could cause actual results to differ materially from our
expectations expressed in the forward-looking statements, and further details and descriptions of these and other factors are disclosed
in this MD&A, including under the section entitled “Risk Factors”.
The reader is cautioned to consider these, and other factors carefully and not to place undue reliance on forward-looking statements, which
may not be appropriate for other purposes. The Company is under no obligation (and expressly disclaims any such obligation) to update or
alter the forward-looking statements whether as a result of new information, future events or otherwise, unless required by law.
goeasy Ltd. 2019 Annual Report 26
OVERVIEW OF THE BUSINESS
goeasy Ltd. is a Canadian company headquartered in Mississauga, Ontario, that provides non-prime leasing and lending services through
its easyhome and easyfinancial divisions. With a wide variety of financial products and services including unsecured and secured
instalment loans, goeasy aspires to help put Canadians on a path to a better financial future as they rebuild their credit and graduate
to prime lending. Customers can transact seamlessly with easyhome and easyfinancial through an omnichannel model that includes
online and mobile, as well as over 400 leasing and lending locations across Canada supported by over 2,000 employees from coast-
to-coast. Throughout the company’s history, it has served over 1 million Canadians and originated over $3.9 billion in loans, with one in
three customers graduating to prime credit and 60% increasing their credit score within 12 months of borrowing from the Company.
With nearly 30 years of leasing and lending experience, goeasy has developed a deep understanding of the non-prime Canadian
consumer. Of the 29.2 million Canadians with an active credit file, 9.4 million have credit scores less than 720 and are deemed to be non-
prime. Collectively, these Canadians carry $231 billion in credit balances and represent the Company’s target market. These consumers,
many of which are unable to access credit from banks and traditional financial institutions do not want to turn to payday lenders which
uniquely positions goeasy to deliver against its vision of providing everyday Canadians a path to a better tomorrow, today.
goeasy funds its business through a combination of equity and debt instruments. goeasy’s common shares are listed for trading on the
TSX under the trading symbol “GSY”, and goeasy’s convertible debentures are traded on the TSX under the trading symbol “GSY-DB”. The
Company has been able to consistently secure additional capital at increasingly lower rates in order to continue fueling the growth of its
business and has sufficient capital and borrowing capacity to meet its growth plans through the second quarter of 2021. goeasy is rated
BB- with a stable trend from S&P, and Ba3 with a stable trend from Moody’s.
goeasy is also the proud recipient of several awards in recognition of its exceptional culture and continued business growth including
Waterstone Canada’s Most Admired Corporate Cultures, Glassdoor Top CEO Award, Achievers Top 50 Most Engaged Workplaces in North
America, the Digital Finance Institute’s Canada’s Top 50 FinTech Companies, ranking on the TSX30, placing on the Report on Business
ranking of Canada’s Top Growing Companies and being included on the 2020 Greater Toronto Area (GTA) Top Employer list.
OVERVIEW OF EASYFINANCIAL
In 2006, easyfinancial, the Company’s non-prime consumer lending division began operating with the goal of bridging the gap between
traditional financial institutions and costly payday lenders. Since then, easyfinancial has significantly expanded and evolved to support
the Company’s vision of providing everyday Canadians a path to a better tomorrow, today, as they improve their credit and graduate
back to prime borrowing.
Historically, consumer demand for non-prime loans in Canada was satisfied by the consumer-lending arms of several large, international
financial institutions. Since 2009, many of the largest branch-based participants in this market (including Wells Fargo, HSBC Finance
and CitiFinancial) have either closed their operations or dramatically reduced their size over the past years due to changes in banking
regulations related to risk adjusted capital requirements. Today, traditional financial institutions are generally unwilling or unable to
offer credit solutions to consumers that are deemed to be a higher credit risk due to the consumer’s financial situation or less-than-
perfect credit history. For this reason, demand in this market is met by a variety of industry participants who offer diverse products
including auto lending, credit cards, installment loans, retail finance programs, small business lending and real estate secured lending.
Generally, industry participants have tended to focus on a single product rather than providing consumers with a broad integrated suite
of financial products and services. As a result, easyfinancial is one of a small number of coast-to-coast non-prime lenders with a history
of success.
The business model of easyfinancial is based on lending out capital in the form of unsecured and secured consumer loans to non-prime
borrowers who are generally unable to access credit from traditional sources such as major banks. The company originates loans up to
$35,000 with rates between 19.9% - 46.9% which are fixed payment and fully amortizing installment products. In addition, the company
offers a starter loan product for those customers that do not qualify for a traditional instalment loan called creditplus which is a secured
savings loan designed to help customers build a positive credit history. easyfinancial also offers a number of optional ancillary products
including a customer protection program that provides creditor insurance, a home and auto benefits product which provides roadside
assistance and a credit monitoring and optimization tool that helps customers understand the steps to take to rebuild their credit and
improve their financial outcomes.
The Company charges its customers interest on the money it lends and also receives a commission for the optional ancillary products it
offers through third party providers. The interest, additional commissions and various fees, collectively produce the total portfolio yield
the Company generates on its loan book. The Company’s total portfolio yield relative to its cost of capital and loan losses is a key driver
of profitability.
goeasy Ltd. 2019 Annual Report 27
As a lender, the Company expects to incur credit losses related to those customers who are unable to repay their loans. Given the higher
risk nature of the non-prime borrower, the credit losses are reflective of the higher rate of interest it charges. In 2019, the Company
experienced an annualized net charge-off rate of 13.3%, measured on the average outstanding loan balance at the end of each month.
The Company’s proprietary credit models allow it to set the level of risk it is willing to accept in order to optimize customer lifetime
value and maximize shareholder returns over the long-term. The Company could take less credit risk and reduce its loan losses, but it
would come at the expense of profitable volume. Likewise, the Company could accept more risk to drive greater growth and profitability,
but it would come with higher losses and have downstream impacts on the cost and ability to access capital. Ultimately, the Company’s
objective is to optimize profitability and operating margins by striking the right balance between origination velocity (the applicants it
approves) and the loss rate of the portfolio.
The Company offers its products and services through an omnichannel business model, including a retail branch network, digital
platform and indirect lending partnerships. The Company had 256 easyfinancial locations (including 20 kiosks within easyhome stores)
in 10 Canadian provinces as of December 31, 2019. In addition to its retail branch network, customers can also transact online which
remains a critical source of new customer acquisition and accounts for 50% of the Company’s application volume. The Company also
originates loans through its point-of-sale channel that includes hundreds of retail and merchant partnerships. Through its partnership
with PayBright, one of Canada’s leading provider of instant point-of-sale financing, the Company is able to offer its non-prime installment
loan product through the PayBright platform at the point-of-sale.
Although the Company leverages multiple acquisition channels to attract new customers, approximately 92% of loans are managed at
local branches. Through its many years of experience in non-prime lending, the Company believes that an omnichannel model optimizes
loan performance and profitability, while providing a high-touch and personalized customer experience. The customer loyalty developed
through these direct personal relationships extends the length of the customer relationship and improves the repayment of loans which
ultimately leads to lower charge-offs and higher lifetime value.
In addition to its unique omnichannel model, the Company also differentiates itself through its customer experience and specifically the
journey of providing customers a path to improve their credit and graduate back to prime borrowing. This is done through the Company’s
broad product range which provides customers with progressively lower interest rates, access to credit rebuilding products such as its
creditplus starter loan, free financial education and tools and services that help them better understand and manage their credit scores.
Whether a customer is looking to establish, repair, build or strengthen their credit profile by borrowing funds or using the equity in their
home to secure a larger loan at a lower rate, easyfinancial can provide a lending solution that best serves their individual needs.
Through its many years of experience and a disciplined approach to growth and managing risk, easyfinancial has demonstrated a
history of stable and consistent credit performance. Over the past 14 years, the company has served over 450,000 customers and
originated over $3.9 billion in loans. Since implementing centralized credit adjudication in 2011, the Company has successfully managed
annualized net charge-off rates within its stated targeted range (2019 target was 11.5% to 13.5%). Lending decisions are made using
proprietary custom scoring models, which combine machine learning and advanced analytical tools to optimize the balance between
loan volume and credit losses. These models have been developed and refined over time by leveraging the accumulation of extensive
customer application, demographic, borrowing, repayment and consumer banking data that determines a customer’s creditworthiness,
lending limit and interest rate. These models improve the accuracy of predicting default risk for the non-prime customer when compared
to a traditional credit score. Credit risk is further enhanced by industry-leading underwriting practices that include pre-qualification,
credit adjudication, affordability calculations, centralized loan verification, and repayment by the customer via electronic pre-authorized
debit directly from the customer’s bank account on the day they receive their regularly schedule income. The Company also requires
supporting documentation for all of its successful applicants who take out a loan. Through the Company’s proprietary custom scoring
models, coupled with the personal relationships its employees develop with customers at its branch locations, the Company believes it
has found an optimal balance between growth and prudent risk management and underwriting.
OVERVIEW OF EASYHOME
easyhome, is Canada’s largest lease-to-own company and has been in operation since 1990 offering customers brand name household
furniture, appliances and electronics through flexible lease agreements. In 2019, easyhome accounted for 23% of consolidated revenue
(2018 – 27%) and leasing revenue accounted for 88% of easyhome revenue (2018 – 94%).
Through its 163 locations which includes 35 franchise stores or through its eCommerce platform, Canadians turn to easyhome as an
alternative to purchasing or financing their goods. With no down payment or credit check required, easyhome offers a flexible solution
that helps consumers get access to the goods they need, with the flexibility to terminate their lease at any time without penalty.
In 2017, easyhome began offering unsecured lending products in almost 100 easyhome locations. This expansion allowed the Company
to further increase its distribution footprint for its financial services products by leveraging its existing real estate and employee base.
This transition has enabled easyhome stores to diversify its product offering and meet the broader financial needs of its customers.
goeasy Ltd. 2019 Annual Report 28
In 2019, easyhome began reporting customer’s lease payments to the credit reporting agencies as a way to further enhance its vision of
providing its customers with a path to a better tomorrow. With every on-time lease payment, easyhome customers can now build their
credit and ultimately use the easyhome transaction as a stair step into other financial products and services that easyfinancial offers.
CORPORATE STRATEGY
As the Company pursues its ambitious growth targets and plans of becoming a multi-billion dollar company, it has built its strategy on
4 key strategic pillars. These strategic imperatives have remained consistent and the Company will continue to focus on moving them
forward in the years to come as it furthers its vision of helping the non-prime customer on their journey to a better tomorrow.
The Company’s four strategic imperatives include focusing on developing new and creative products, expanding its channels of
distribution, geographic diversification and lastly, a focus on continuously improving the customer experience by leveraging new and
advanced technologies and prioritizing a frictionless journey of financial improvement for everyday Canadians.
PRODUCT RANGE
The Company’s objective is to build a full suite of non-prime consumer credit products which today includes unsecured and secured
lending products with progressively lower interest rates, products for those looking to build their credit such as creditplus, and a broad
suite of value-add ancillary services. Through its robust product range, the Company looks to provide its customers with a path to
improving their credit and graduating back to prime borrowing. In the future, the Company will continue to expand and grow the products
it offers with the goal of providing non-prime consumers with the same type of choices and options available to prime consumers at
their local bank. These products will be designed to fit the needs of the Company’s customers, while helping them improve their credit
and get out of the cycle of debt. As the Company brings new products to market, it will look to explore existing conventional products
as well as develop innovative products and new forms of credit that meet the needs of its customers and can provide meaningful
improvements to their financial health.
CHANNEL EXPANSION
Today, the Company operates 3 distinct channels; retail, which represents 28% of application volume and 65% of originations, online
which represents 50% of application volume and 28% of originations and indirect which represents 23% of applications and 7% of
originations. 92% of all loan originations are funded/serviced in a branch location with the remainder serviced in the Company’s national
shared services centre. As the Company looks towards the future, expanding its channels of distribution is a key strategic imperative
as it consistently looks for new ways to get in front of consumers that are in need of credit. The Company believes that broadening
its distribution is key in driving brand awareness and acquisition from customers that may have been otherwise taken out of the
market for credit by competing lenders. The Company will continue to pursue new opportunities that include broadening its retail
network, developing a more dynamic and personalized digital experience, seeking new lending partnerships and investing in point of-
sale financing. The point-of-sale market which includes over $30 billion in consumer receivables is an extremely attractive opportunity
as consumers gravitate to spreading payments over time through a buy now, pay later model. This opportunity and the lack of supply
for second look financing in Canada was key in prompting the Company’s 2019 partnership with PayBright, Canada’s leading provider of
instant point-of-sale financing to create a full credit spectrum product that now offers some of the highest approval rates in the industry.
GEOGRAPHIC EXPANSION
Canada continues to provide a substantial runway for growth for many years to come for goeasy with over 9.4 million non-prime
Canadians that face limited options for credit. The market is vast and often underserved, providing adequate room for expansion. While
the Company finished 2019 with 256 easyfinancial locations, it estimates that its retail footprint for easyfinancial will expand to support
between 300 and 325 locations across Canada in the coming years. The Company will continue to add incremental locations in select
markets as it works towards this target. In particular, the retail branch expansion will be focused on the expansion into Quebec which
represents a large market opportunity and completing the footprint in key urban markets such as Toronto and Vancouver. The Company
also believes that there is significant future opportunity to consider international markets where the easyfinancial business model can
be replicated with success.
CUSTOMER EXPERIENCE
The Company competes on a unique point of differentiation which is its customer experience and more specifically, the journey of
providing customers a path to improve their credit and graduate back to prime borrowing. The Company is proud to have helped 60%
of its customers improve their credit score while 1 in 3 customers have graduated to prime lending. The Company has always set itself
apart from the competition by seeing beyond the initial transaction with the customer and instead, focusing on building long-term
relationships that are based on trust and respect for every customer’s unique situation. The Company’s over 2,000 employees are
goeasy Ltd. 2019 Annual Report 29
focused on giving these customers a second chance as they provide them with the financial relief they need today, and help them see a
path forward towards a better financial future.
As the Company continues to evolve, ensuring its suite of products and services are designed to meet its customer’s needs across the
entire credit spectrum is critically important. Whether a customer is establishing credit as a new Canadian, or repairing damaged credit
as a result of a life event, goeasy’s laddered suite of products ensures that every customer that walks through its doors has access to
a better financial future through product graduation. In the future, the Company will seek to establish a direct relationship with a prime
lender in order to proactively round out the customer’s journey by moving them directly into a lower cost lending product – the end goal
for many of our customers.
OUTLOOK
The discussion in this section is qualified in its entirety by the cautionary language regarding forward-looking statements found in the
“Caution Regarding Forward-Looking Statements” of this MD&A.
UPDATE ON 2019 TARGETS
The Company’s 2019, 2020 and 2021 targets, assumptions and risk factors were disclosed in its December 31, 2018 MD&A. The Company
updated these targets in its June 30, 2019 MD&A. The Company’s actual performance against its targets for fiscal 2019 is as follows:
ACTUAL RESULTS
FOR 2019
UPDATED TARGETS
FOR 2019
OUTCOME
$1.1 billion
$1.1 - $1.2 billion
Target achieved
Gross consumer loans receivable
portfolio at year end
easyfinancial total revenue yield
New easyfinancial locations opened
during the year
Net charge-offs as a percentage of average
gross consumer loans receivable
easyfinancial operating margin1
Total revenue growth
50.1%
15
13.3%
40.2%
20.4%
Return on equity (actual/adjusted)2
20.2% / 25.3%
49% - 51%
Target achieved
10 - 20
Target achieved
11.5% - 13.5%
Target achieved
40% - 42%
20% - 22%
24% +
Target achieved
Target achieved
Target achieved
1 easyfinancial operating margin target for 2019 was updated as outlined in the Company’s MD&A for the quarter ended June 30, 2019 (along with an explanation for the change).
2 During the fourth quarter of 2019, the Company repaid its US$475 million aggregate principal amount of 7.875% senior unsecured notes that would have matured on November 1, 2022
(“2022 Notes”) incurring a $16.0 million after-tax impact of refinancing cost related to extinguishing the Company’s 2022 Notes. Adjusted return on equity for 2019 was 25.3% as outlined in
the Key Performance Indicators and Non-IFRS Measures section in this MD&A. The Company’s refinancing cost included an early repayment penalty on the 2022 Notes, recognition of the
remaining unamortized net deferred financing costs that includes customary financing, and legal & administrative fees, derivative settlement associated with the 2022 Notes and the net
change in cash flow hedge that was reclassified from other comprehensive income to consolidated statement of income (“Refinancing Costs”).
THREE YEAR FORECASTS
The following table outlines the Company’s forecasts for 2020, 2021 and 2022. The Company has introduced guidance for 2022 and
updated its 2020 and 2021 forecasts.
These forecasts are inherently subject to material assumptions used to develop such forward-looking statements and risks factors as
identified below.
The Company continues to pursue a long-term strategy of expanding its product range and increasing the use of risk-based pricing
offers, which increase the average loan size and extend the life of its customer relationships. As such, the total yield earned on its
consumer loan portfolio will gradually decline, while net charge-off rates moderate and operating margins expand.
goeasy Ltd. 2019 Annual Report 30
Gross consumer loans receivable
portfolio at year end
$1.3 - $1.4 billion
$1.5 - $1.7 billion
$1.8 - $2.0 billion
easyfinancial total revenue yield
46.5% - 48.5%
43.0% - 45.0%
42.0% - 44.0%
FORECASTS FOR 2020
FORECASTS FOR 2021
FORECASTS FOR 2022
New easyfinancial locations opened
during the year
Net charge-offs as a percentage of average
gross consumer loans receivable
easyfinancial operating margin
Total revenue growth
Return on equity
Net debt to net capitalization
KEY ASSUMPTIONS
20-25
20-25
15-20
11.5% - 13.5%
11.0% - 13.0%
11.0% - 13.0%
42% - 44%
14% - 16%
26% +
66% - 68%
43% - 45%
12% - 14%
25% +
64% - 66%
43% - 45%
10% - 12%
23% +
62% - 64%
In formulating the guidance provided above, the Company makes a series of assumptions, which include, but are not limited to:
goeasy Locations
• The new store opening plan occurs as per the Company’s stated targets.
• Virtually all new locations will be stand-alone branches.
• Continued investment in new branches, new growth opportunities and increased marketing will continue to drive customer
originations.
• Stable financial performance from the Company’s easyhome business.
Portfolio Growth
• The Company successfully completes the growth initiatives outlined in its strategic plan including the increased penetration of its
risk adjusted and secured lending products.
• The growth of the loan book occurs as indicated.
• Continued accelerated growth of the consumer loans receivable portfolio, driven by new delivery channels, building the Quebec
branch network and other additional branch openings, and the continued strong growth of the Company’s existing lending products.
• Stable revenue generated by the Company’s easyhome business.
Liquidity & Funding
• The Company continues to be able to access growth capital for its easyfinancial business at a reasonable cost.
Revenue Yield
• easyfinancial total revenue yield includes the impact of the sale of ancillary products.
• The Company expects the yield to moderate over this three-year period due to the increased penetration of its risk adjusted and
secured lending products, and the increased growth of the loan book in Quebec (Quebec loans are at a lower rate of interest).
• The effective yield earned on the sale of ancillary products reduces as the average loan size increases.
• Yield and loss rates of risk adjusted, and secured lending products are as estimated in the Company’s budget and strategic plan.
• Revenue growth moderated by a higher proportion of lower yield loans.
Credit Performance
• Net charge-off rates for the existing products remain at current levels while net charge-off rates for the risk adjusted and secured
lending products are lower.
• The mixture of customers acquired through each of the Company’s channels of acquisition, and the mixture of new and existing
borrowers.
KEY RISK FACTORS
These forecasts above are inherently subject to risks as identified in the following, as well as those risks, which are referred to in the
section entitled “Risk Factors” as described in this MD&A.
Market Conditions
• Retail business conditions are assumed to be within normal parameters with respect to consumer demand, competition and
margins.
goeasy Ltd. 2019 Annual Report 31
Real Estate
• The Company’s ability to secure new real estate and experienced personnel.
Portfolio Growth
• The Company is not able to complete its growth initiatives, or the impact of such initiatives is reduced.
• The loan book fails to grow in line with expectations and as indicated.
• The Company’s ability to achieve operating efficiencies as the business grows.
Access to Capital & Funding
• Continued access to reasonably priced capital.
Regulatory Environment
• Changes to regulations governing the products offered by the Company.
Credit Performance
• Net charge-off rates for existing products increase or the net charge-off rates for the risk adjusted or secured lending products
are higher than expected.
• Increased levels of unemployment or economic instability.
• The Company is able to manage charge-off rates within its desired parameters.
ANALYSIS OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 2019
FINANCIAL HIGHLIGHTS AND ACCOMPLISHMENTS
• During 2019 the Company continued strengthening its balance sheet by raising additional funds, at progressively lower rates,
and extending facility maturity dates. These actions serve to not only diversify and strengthen the Company’s balance sheet and
liquidity position but also facilitate its long-term growth plan and contemplated strategic business initiatives.
o During 2019, the Company entered into amendments to its revolving credit facility. The amendments increased the maximum
principal amount available to be borrowed from $174.5 million in 2018 to $310 million and extended the maturity date from
November 1, 2020, to February 12, 2022. As part of these amendments the cost of borrowing under the revolving credit facility
was also reduced. Previously, interest on advances was payable at either the Canadian Bankers’ Acceptance rate (“BA”) plus 450
bps or the lender’s prime rate (“Prime”) plus 350 bps, at the option of the Company. Subsequent to these amendments, interest
on advances is payable at either the BA plus 300 bps or Prime plus 200 bps, at the option of the Company.
o On November 27, 2019, the Company issued US$550 million of 5.375% senior unsecured notes payable (“2024 Notes”) with
interest payable semi-annually on June 1 and December 1 of each year and commencing on June 1, 2020. The 2024 Notes
mature on December 1, 2024. Concurrent with the issuance of the 2024 Notes, the Company entered into derivative financial
instruments (the “cross-currency swaps”) as cash flow hedges to fix the foreign currency exchange rate for the proceeds from
the offering and for all required payments of principal and interest under the 2024 Notes at a fixed exchange rate of US$1.000 =
CAD$1.3242, thereby fully hedging the foreign currency risk associated with the US$550 million 2024 Notes at a Canadian dollar
interest rate of 5.65%. The cross-currency swaps fully hedge the obligation under the 2024 Notes to $728.3 million.
o At the end of the year, the Company had total unrestricted cash on hand and borrowing capacity under its revolving credit
facility of $240 million and the ability to exercise the accordion feature under this facility to add an additional $75 million in
borrowing capacity. Ultimately, the current cash on hand and current borrowing limits, excluding future enhancements or
diversification of funding sources, provide adequate growth capital for the Company to execute its growth plan and meet its
stated targets through the second quarter of 2021.
• In September 2019, the Company entered into a strategic partnership and purchased a minority equity interest in PayBright for an
aggregate price of $34.3 million. PayBright is a non-listed Canadian lending company and payments platform focused on providing
consumers with pay-later solutions at their favourite retailers, both online and in-store.
• 2019 was the eighteenth consecutive year of growing revenues and delivering profits. Since 2001, total revenue and adjusted net
income have seen a compounded annual growth rate of 13.1% and 30.1%, respectively. The Company again delivered record levels
of revenue, net income, earnings per share and adjusted return on equity in 2019.
• In consideration of the improved earnings achieved in 2019 compared to the prior year and the Company’s confidence of its
continued growth and access to capital going forward, the Board of Directors approved a 45% increase to the annual dividend from
$1.24 per share to $1.80 per share in 2020.
• goeasy continued to reach record levels of revenue during 2019. Revenue increased to $609.4 million from the $506.2 million
reported in 2018, an increase of $103.2 million or 20.4%. The increase in revenue was primarily driven by the growth of the
Company’s easyfinancial business.
goeasy Ltd. 2019 Annual Report 32
• The gross consumer loans receivable portfolio increased from $833.8 million as at December 31, 2018, to $1.1 billion as at
December 31, 2019, an increase of $276.9 million or 33.2%. Gross loan originations in the current year were $1.1 billion, an
increase of 18.7% compared to the prior year. The growth was fueled by: i) the continued significant net customer growth; ii)
increased origination of unsecured loans and the increased penetration of risk adjusted rate and real estate secured loans to
the Company’s best credit quality borrowers; iii) maturation of the Company’s retail branch network and expansion in Quebec;
iv) lending in the Company’s easyhome stores; and v) ongoing enhancements to the Company’s digital properties and increased
advertising spend.
• Net charge-offs in the year as a percentage of the average gross consumer loans receivable were at 13.3%, higher than 2018
at 12.7% but within the Company’s targeted range for 2019 of 11.5% to 13.5%. The increase in the charge-off rate was due to
higher new customer originations and loan book growth that was fueled by strong performance in the digital channel. While
new customer growth is healthy for the long-term profitability of the business, new customers produce greater loan losses than
lending to an existing customer. Furthermore, while borrowers acquired online tend to have weaker credit performance, such
customers generate attractive operating margins. The Company has continued to implement and optimize a series of credit model
enhancements to improve the long-term credit quality of the portfolio.
• easyfinancial’s operating income was $189.1 million in 2019 compared with $141.9 million in 2018, an increase of $47.2 million or
33.3%. The benefits of the larger loan book and related revenue increases of $101.9 million were partially offset by: i) the higher
provisions for future charge-offs driven by the strong loan book volume growth; ii) the $2.8 million increase in advertising spend;
and iii) and incremental expenditures to enhance the product offering and expand the easyfinancial footprint. Operating margin
was 40.2% in the year compared with 38.5% reported in 2018.
• The Company’s mature easyhome business also experienced increased levels of operating income and operating margin due to
the growth of consumer lending.
• Operating income for the year was $168.8 million, up $49.1 million or 41.0% when compared with 2018. The Company’s operating
margin for the year was 27.7%, compared to 23.7% in 2018. The growth in operating margin was driven by the larger proportion
of earnings being generated by the higher margin easyfinancial business.
• Net income for 2019 was $64.3 million or $4.17 per share on a diluted basis. When factoring in the $16.0 million after-tax impact
of the Refinancing Costs of extinguishing the Company’s 2022 Notes, adjusted net income for 2019 was $80.3 million or $5.17
per share on a diluted basis. On this normalized basis, net income and diluted earnings per share increased by 51.2% and 45.2%,
respectively.
• Return on equity was 20.2% as compared to 21.8% reported in 2018. When factoring in the $16.0 million after-tax impact of the
Refinancing Costs of extinguishing the Company’s 2022 Notes incurred in the fourth quarter of 2019, the adjusted return on equity
was 25.3% in 2019 as compared to 21.8% reported in 2018. The improvement was related primarily to adjusted net income growth
and the higher level of financial leverage.
goeasy Ltd. 2019 Annual Report 33
SUMMARY OF FINANCIAL RESULTS AND KEY PERFORMANCE INDICATORS
($ in 000’s except earnings per share and percentages)
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization
EBITDA1
EBITDA margin1
Depreciation and amortization expense
Operating income
Operating margin1
Interest expense and amortization of deferred financing
charges and interest expense on lease liabilities
Refinancing costs2
Effective income tax rate
Net income
Diluted earnings per share
Return on equity
Adjusted (Normalized) Financial Results²
Adjusted net income
Adjusted diluted earnings per share
Adjusted return on equity
Key Performance Indicators1
Same store revenue growth (overall)
Same store revenue growth (easyhome)
Segment Financials
easyfinancial revenue
easyfinancial operating margin
easyhome revenue
easyhome operating margin
Portfolio Indicators
Gross consumer loans receivable
Growth in consumer loans receivable
Gross loan originations
Total yield on consumer loans (including ancillary products)
Net charge-offs as a percentage of average gross consumer loans
receivable
Potential monthly lease revenue
YEAR ENDED
DECEMBER 31,
2019
DECEMBER 31,
2018
VARIANCE
$ / BPS
VARIANCE
% CHANGE
609,383
376,226
195,755
32.1%
64,364
168,793
27.7%
57,558
21,723
28.1%
64,349
4.17
20.2%
80,315
5.17
25.3%
19.5%
4.3%
470,208
40.2%
139,175
17.8%
1,110,633
276,854
1,095,375
50.1%
13.3%
8,643
506,191
334,471
131,632
26.0%
52,003
119,717
23.7%
45,800
-
28.1%
53,124
3.56
21.8%
53,124
3.56
21.8%
25.7%
6.4%
368,325
38.5%
137,866
15.6%
833,779
307,233
922,550
54.2%
12.7%
9,141
103,192
41,755
64,123
610 bps
12,361
49,076
400 bps
11,758
21,723
-
11,225
0.61
(160 bps)
27,191
1.61
350 bps
(620 bps)
(210 bps)
101,883
170 bps
1,309
220 bps
276,854
(30,379)
172,825
(410 bps)
60 bps
(498)
20.4%
12.5%
48.7%
23.5%
23.8%
41.0%
16.9%
25.7%
100.0%
-
21.1%
17.1%
(7.3%)
51.2%
45.2%
16.1%
(24.1%)
(32.8%)
27.7%
4.4%
0.9%
14.1%
33.2%
(9.9%)
18.7%
(7.6%)
4.7%
(5.4%)
1 See description in sections “Portfolio Analysis” and “Key Performance Indicators and Non-IFRS Measures”.
2 During the fourth quarter of 2019, the Company repaid its 2022 Notes incurring a $16.0 million after-tax impact of the Refinancing Costs of extinguishing the
Company’s 2022 Notes.
goeasy Ltd. 2019 Annual Report 34
STORE LOCATIONS SUMMARY
easyfinancial
Kiosks (in store)
Stand-alone locations
National loan office
Total easyfinancial locations
easyhome
Corporately owned stores
Consolidated franchise locations
Total consolidated stores
Total franchise stores
Total easyhome stores
LOCATIONS AS AT
DECEMBER 31, 2018
LOCATIONS OPENED
DURING PERIOD
LOCATIONS
CLOSED DURING
PERIOD
CONVERSIONS
LOCATIONS AS AT
DECEMBER 31, 2019
33
207
1
241
133
1
134
31
165
-
15
-
15
-
-
-
-
-
-
-
-
-
(1)
(1)
(2)
-
(2)
(13)
13
-
-
(4)
-
(4)
4
-
20
235
1
256
128
-
128
35
163
SUMMARY OF FINANCIAL RESULTS BY OPERATING SEGMENT
($ IN 000’S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
YEAR ENDED DECEMBER 31, 2019
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
334,124
-
126,806
9,278
470,208
11,873
113,236
8,704
5,362
139,175
-
-
-
-
-
345,997
113,236
135,510
14,640
609,383
Total operating expenses before depreciation and amortization
267,356
67,253
41,617
376,226
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Refinancing cost
Income before income taxes
Income taxes
Net income
Diluted earnings per share
7,194
6,521
13,715
189,137
39,140
7,943
47,083
24,839
2,831
735
3,566
(45,183)
49,165
15,199
64,364
168,793
55,094
2,464
21,723
79,281
89,512
25,163
64,349
4.17
goeasy Ltd. 2019 Annual Report 35
($ IN 000’S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
YEAR ENDED DECEMBER 31, 2018
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
250,622
-
110,423
7,280
368,325
5,375
119,745
6,577
6,169
137,866
-
-
-
-
-
255,997
119,745
117,000
13,449
506,191
Total operating expenses before depreciation and amortization
218,138
74,215
42,118
334,471
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Operating income (loss)
Finance costs
Interest expense and amortization of deferred financing charges
Income before income taxes
Income taxes
Net income
Diluted earnings per share
PORTFOLIO PERFORMANCE
8,333
141,854
42,104
21,547
1,566
(43,684)
52,003
119,717
45,800
73,917
20,793
53,124
3.56
Consumer Loans Receivable Portfolio
Loan originations in 2019 were $1.1 billion, up 18.7% compared with the origination volume in 2018. The loan book grew by $276.9
million in the year against growth of $307.2 million in 2018. The gross consumer loans receivable portfolio increased from $833.8
million as at December 31, 2018 to $1.1 billion as at December 31, 2019, an increase of $276.9 million or 33.2%. The growth was
fueled by: i) the continued significant net customer growth; ii) increased origination of unsecured loans and the increased penetration
of risk adjusted rate and real estate secured loans to the Company’s best credit quality borrowers; iii) maturation of the Company’s
retail branch network and expansion in Quebec; iv) lending in the Company’s easyhome stores; and v) ongoing enhancements to the
Company’s digital properties and increased advertising spend.
The annualized total yield (including ancillary products) realized by the Company on its average consumer loans receivable portfolio was
50.1% in the year, down 410 bps from 2018. The decrease in the yield was due to several factors including: i) the increased penetration
of risk adjusted interest rate and real estate secured loans to more creditworthy customers which have lower rates of interest; ii)
increased lending activity in Quebec where loans have a lower interest rate; iii) a higher proportion of larger dollar loans which have
reduced pricing on certain ancillary products; and iv) a modest reduction in penetration rates on ancillary products (particularly on real
estate secured and risk adjusted rate loans).
Bad debt expense increased to $156.7 million for the year ended December 31, 2019 from $119.0 million in 2018, an increase of $37.8
million or 31.7%. The following table details the components of bad debt expense:
($ IN 000’S)
DECEMBER 31, 2019
DECEMBER 31, 2018
YEAR ENDED
Provision required due to net charge-offs
Impact of loan book growth
Impact of change in provision rate during the year
Net change in allowance for credit losses
Bad debt expense
129,376
26,554
812
27,366
156,742
88,351
29,082
1,547
30,629
118,980
goeasy Ltd. 2019 Annual Report 36
Bad debt expense increased by $37.8 million due to three factors:
(i) Net charge-offs increased from $88.4 million in 2018 to $129.4 million in 2019, up by $41.0 million. Net charge-offs in 2019
as a percentage of the average gross consumer loans receivable on an annualized basis were 13.3% compared with 2018 at
12.7% and within the Company’s targeted range for 2019 of 11.5% to 13.5%. The increase in the charge-off rate was due to
higher new customer originations and loan book growth that was fueled by strong performance in the digital channel. While
new customer growth is healthy for the long-term profitability of the business, new customers produce greater loan losses than
lending to an existing customer. Furthermore, while borrowers acquired online tend to have weaker credit performance, such
customers generate attractive operating margins. The Company has continued to implement and optimize a series of credit
model enhancements to improve the long-term credit quality of the portfolio.
(ii) The loan book growth in the year was $276.9 million which resulted in a growth-related provision of $26.6 million. The loan book
growth in 2018 was higher at $307.2 million which resulted in a growth-related provision of $29.1 million. The reduced loan
book growth in the year reduced bad debt expense by $2.5 million when compared to 2018.
(iii) During the year, the provision rate increased by 8 bps which resulted in a $0.8 million increase in bad debt expense. The provision
rate increased from 9.56% as at January 1, 2019 to 9.64% as at December 31, 2019. In the prior year, the increase in the provision
rate from January 1, 2018 to December 31, 2018 was 26 bps which increased bad debt expense by $1.5 million in 2018.
easyhome Leasing Portfolio
The leasing portfolio as measured by potential monthly lease revenue as at December 31, 2019 was $8.6 million, down from the $9.1
million reported as at December 31, 2018. Throughout the year, the Company completed two transactions to acquire eight rent-to-own
stores and the associated merchandise lease portfolios, which total approximately $0.4 million of potential monthly lease revenue.
The Company subsequently closed and merged these locations and their portfolios into existing nearby easyhome locations. Overall,
the number of lease agreements declined from 97,459 as at December 31, 2018 to 91,206 as at December 31, 2019, a drop of 6.4%.
Approximately 50% of the decline in agreement count over the past 12 months was related to the net sale of stores with the balance
of the decline related to reduced agreement count at the remaining easyhome stores. The decline in agreements was offset by a 1.0%
increase in average leasing rates due in part to the higher Canadian dollar cost of certain leased assets purchased in US dollars,
changes in product mix, the acquisition of certain lease portfolios (highlighted above) and selected pricing adjustments. While the lease
portfolio has declined, this impact on revenue has been more than offset by the growth of consumer lending within the easyhome stores.
Revenue
Revenue for the year ended December 31, 2019 was $609.4 million compared to $506.2 million in the same period of 2018, an increase
of $103.2 million or 20.4%. Overall, same store sales growth for the year was 19.5%. Revenue growth was driven by the growth of
consumer lending.
easyfinancial – Revenue in 2019 was $470.2 million, an increase of $101.9 million or 27.7% when compared with 2018. The increase in
revenue was driven by the growth of the gross consumer loans receivable portfolio and offset by the reduction in yield (as previously
described). The components of the increased revenue include:
•
Interest revenue increased by $83.5 million or 33.3% driven by the 33.2% loan book growth but offset by lower interest yields
(as described above).
• Commissions earned on the sale of ancillary products and services increased by $16.4 million or 14.8% driven by the growth
of the loan book. The rate of growth of commissions earned was less than the rate of growth of interest revenue and the loan
book due to a higher proportion of larger dollar loans which have reduced pricing on certain ancillary products, and slightly
lower penetration of these products (particularly on risk adjusted rate and secured loans).
• Charges and fees increased by $2.0 million driven by the increase in customer count.
easyhome – Revenue in 2019 was $139.2 million, an increase of $1.3 million or 0.9% when compared with 2018. The introduction
of lending to the easyhome stores in mid-2017 drove this increase. Lending revenue within the easyhome stores increased by $9.1
million as at December 31, 2019 when compared to 2018. These revenue increases were partially offset by lower revenue generated
by the traditional leasing business. Traditional leasing revenue declined by $7.8 million for the year ended December 31, 2019 when
compared to 2018 due to the reduced size of the lease portfolio (as described above). The components of easyhome revenue include:
•
Interest revenue increased by $6.5 million due to the growth of the consumer loans receivable related to the easyhome business.
• Lease revenue declined by $6.5 million due to the reduction of the lease portfolio (as described above).
• Commissions earned on the sale of ancillary products increased by $2.1 million. The increase was due to the sale of ancillary
products related to consumer lending at easyhome.
• Charges and fees declined by $0.8 million due to lower fees charges by the traditional leasing business.
goeasy Ltd. 2019 Annual Report 37
Impact of Adopting IFRS 16
IFRS 16 was adopted effective January 1, 2019. 2018 was not restated but was reported under the previous accounting standard.
The net effect of adopting IFRS 16 on the statements of income in 2019 is to decrease operating expenses before depreciation and
amortization while increasing depreciation and amortization and financing costs with an insignificant impact on net income. By extension
this will result in EBITDA increasing as the depreciation of the right-of-use assets and interest on the lease liability is excluded from this
measure. Similarly, operating income will also increase (albeit to a lesser extent) as the interest on the lease liability is excluded from
this measure. During the year 2019, the adoption of IFRS 16 decreased net income by only $13 thousand.
Total Operating Expenses before Depreciation and Amortization
Total operating expenses before depreciation and amortization were $376.2 million for the year ended December 31, 2019, an increase of
$41.8 million or 12.5% from 2018. Adopting IFRS 16 in 2019, served to reduce operating expenses before depreciation and amortization
by $17.7 million (largely shifting this expense to depreciation and amortization and financing costs). The increase in operating expenses
was driven primarily by the higher costs associated with the expanding easyfinancial business offset partially by lower costs from the
easyhome business and at lower corporate costs. Total operating expenses before depreciation and amortization represented 61.7% of
revenue for the year 2019 compared with 66.1% reported in 2018.
easyfinancial – Total operating expenses before depreciation and amortization were $267.4 million in 2019, an increase of $49.2 million
or 22.6% from 2018. Key drivers include:
• Bad debt expense increased by $36.0 million in the year when compared to 2018 for the reasons described above;
• The transition to IFRS 16 in the year served to reduce total operating expenses before depreciation and amortization by $7.5
million (much of this expense is shifted to depreciation and amortization);
• A $7.6 million increase in advertising and marketing spend to drive brand awareness and support the growth in originations;
and
• Other operating expenses increased by $13.2 million in the year driven by higher compensation and other costs to operate and
manage the growing loan book and branch network. Overall branch count increased from 238 as at December 31, 2018 to 256
as at December 31, 2019.
easyhome – Total operating expenses before depreciation and amortization were $67.3 million in 2019, which was $7.0 million or 9.4%
lower than the same period of 2018. Key drivers include:
• The transition to IFRS 16 in the year served to reduce total operating expenses before depreciation and amortization by $9.2
million;
• Bad debt expense increased by $1.8 million due to the growth of consumer lending at easyhome;
• Advertising and marketing spend increased by $0.1 million to support easyhome lending and leasing activities; and
• Other operating expenses in amalgam decreased by $0.3 million. The reduction was due to the lower store count partially offset
by higher costs related to consumer lending. The consolidated easyhome store count declined from 134 as at December 31,
2018 to 128 as at December 31, 2019.
Corporate – Total operating expenses before depreciation and amortization for the year 2019 were $41.6 million compared to $42.1
million in 2018, a decrease of $0.5 million or 1.2%. The transition to IFRS 16 at the beginning of 2019 served to reduce total operating
expenses before depreciation and amortization by $1.0 million in the year of 2019. Total operating expenses before depreciation and
amortization for the year 2019 excluding the impact of IFRS 16 increased by $0.5 million primarily due lower total compensation costs
and larger gains on the conversion of easyhome stores to franchise locations in the year. Corporate expenses before depreciation and
amortization represented 6.8% of revenue in 2019 compared to 8.3% of revenue in 2018.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2019 was $64.4 million, an increase of $12.4 million from 2018. Included
in depreciation and amortization is $15.2 million of depreciation of right-of-use assets related to the adoption of IFRS 16. Otherwise
depreciation and amortization decreased by $2.8 million due to lower depreciation and amortization at both the easyfinancial and
easyhome segments offset primarily by higher depreciation and amortization at corporate. Overall, depreciation and amortization
represented 10.6% of revenue in 2019, an increase from the 10.3% reported in 2018 (the increased rate is due primarily to the adoption
of IFRS 16).
easyfinancial – Total depreciation and amortization was $13.7 million in the year, this included $6.5 million of right-of-use asset
depreciation related to the adoption of IFRS 16. Depreciation of property and equipment and intangibles in the year was $7.2 million,
$1.1 million lower than the $8.3 million reported in 2018.
goeasy Ltd. 2019 Annual Report 38
easyhome – Total depreciation and amortization expense was $47.1 million in the year. This included $7.9 million of right-of-use asset
depreciation related to the adoption of IFRS 16. Depreciation and amortization of lease assets, property and equipment and intangibles
was $39.1 million in the year compared with $42.1 million in 2018. This $3.0 million decline was due primarily to the lower level of
lease revenue and lease assets. easyhome’s depreciation and amortization of lease assets, property and equipment and intangibles
expressed as a percentage of easyhome revenue for the year was 28.1%, down from the 30.5% reported in 2018. The rate reduction
was due to a smaller lease asset base against a revenue base with an increasing proportion being generated from consumer lending.
Corporate – Depreciation and amortization was $3.6 million in the year. This included $0.7 million of right-of-use asset depreciation
related to the adoption of IFRS 16. Depreciation and amortization of property and equipment and intangibles excluding depreciation on
right-of-use asset in the year was $2.8 million compared with $1.6 million in 2018. The increase was driven primarily by the full year
impact of the 2018 renovation of the Company’s head office.
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for the year ended December 31, 2019 was $168.8 million, up $49.1 million or 41.0% when compared with 2018.
The operating income of both the easyfinancial and easyhome business units increased in the year compared with 2018. In addition,
corporate costs declined in the year. The adoption of IFRS 16 served to increase operating income by $2.5 million in the year.
easyfinancial – Operating income was $189.1 million for the year compared with $141.9 million in 2018, an increase of $47.3 million
or 33.3%. The benefits of the larger loan book and related revenue increases of $101.9 million were partially offset by: i) a $7.6 million
increase in advertising spend; ii) a $36.0 million increase in bad debt expense; and iii) incremental expenditures to manage the growing
customer base, enhance the product offering and expand the easyfinancial footprint. Operating margin in the year was 40.2% compared
with 38.5% reported in 2018.
easyhome – Operating income was $24.8 million for the year of 2019 compared with $21.5 million for the comparable period in 2018,
an increase of $3.3 million or 15.3%. The increase was related to the growth of consumer lending in easyhome which resulted in higher
operating income in the current year to date period of $4.7 million when compared with the comparable period of 2018. This increase
was partially offset by the reduction of the lease portfolio discussed above, and higher costs related to consumer lending. Operating
margin for the year of 2019 was 17.8%, an increase from the 15.6% reported in the same period of 2018.
Finance Costs
Finance costs for the year ended December 31, 2019 were $79.3 million. This included $2.5 million of interest expense on lease liability
related to the adoption of IFRS 16 and $21.7 million of non-recurring Refinancing Costs. Interest expense and amortization of deferred
financing charges in the year were $55.1 million, up $9.3 million from 2018. This increase was driven by higher average borrowing levels
partially offset by the reduced cost of borrowing. Total debt as at December 31, 2019 was $859.1 million against debt of $691.1 million
as at December 31, 2018.
Income Tax Expense
The effective income tax rate for the year ended December 31, 2019 was 28.1% which was consistent with 2018.
Net Income and EPS
Net income for the year was $64.3 million or $4.17 per share on a diluted basis up 21.1% and 17.1%, respectively, against the $53.1
million and $3.56 per share on a diluted basis when compared to 2018. When factoring in the $16.0 million after-tax impact of the
Refinancing Costs of extinguishing the Company’s 2022 Notes, adjusted net income for 2019 was $80.3 million or $5.17 per share on a
diluted basis. On this normalized basis, net income and diluted earnings per share increased by 51.2% and 45.2%, respectively.
goeasy Ltd. 2019 Annual Report 39
SELECTED ANNUAL INFORMATION
($ IN 000’S EXCEPT PERCENTAGES AND PER SHARE AMOUNTS)
2019
2018
20172
20162
20152
Gross Consumer Loans Receivable
1,110,633
833,779
526,546
370,517
289,426
Revenue
Net income
Adjusted net income1
Return on equity
Adjusted return on equity1
Net income as a percentage of revenue
Adjusted net income as a percentage of revenue1
Dividends declared on common shares
Cash dividends declared per common share
Earnings per share
Basic
Diluted
Adjusted diluted1
1 Adjusted for certain non-recurring or unusual transactions.
2 Prepared under IAS 39 rather than IFRS 9.
609,383
64,349
80,315
20.2%
25.3%
10.6%
13.2%
17.9
1.24
4.40
4.17
5.17
506,191
401,728
347,505
304,273
53,124
53,124
21.8%
21.8%
10.5%
10.5%
12.5
0.90
3.78
3.56
3.56
36,132
42,158
17.0%
19.8%
9.0%
10.5%
9.7
0.72
2.67
2.56
2.97
31,049
33,155
16.8%
17.9%
8.9%
9.5%
6.7
0.49
2.29
2.23
2.38
23,728
23,728
14.4%
14.4%
7.8%
7.8%
5.4
0.40
1.75
1.69
1.69
Key financial measures for each of the last five years are summarized in the table above and include the gross consumer loans
receivable portfolio, revenue, net income, earnings per share and return on equity. Strong consumer demand has allowed the Company
to grow its consumer loans receivable portfolio which in turn drove the rising level of revenue. The larger revenue base, offset partially
by higher operating expenses, increased the Company’s net income and earnings per share while the increased scale of the business
resulted in net income as a percentage of revenue also increasing over the presented time horizon. Lastly return on equity has increased
due to the increased earnings generated by the business and the higher level of financial leverage. Please refer to previous years’
MD&As for detailed analysis.
ASSETS AND LIABILITIES
($ IN 000’S)
Total assets
Consumer loans receivable, net
Cash
Other
Total liabilities
Notes payable
Revolving credit facility
Convertible debentures
Derivative financial liabilities
Term loan
Other
AS AT
DECEMBER 31,
2019
AS AT
DECEMBER 31,
2018
AS AT
DECEMBER 31,
2017
AS AT
DECEMBER 31,
2016
AS AT
DECEMBER 31,
2015
1,040,552
46,341
231,729
782,864
100,188
172,624
1,318,622
1,055,676
513,425
109,370
126,820
749,615
354,499
24,928
123,635
503,062
270,961
11,389
136,152
418,502
702,414
115,000
41,712
16,435
-
110,640
986,201
650,481
401,193
-
40,581
-
-
63,085
754,147
-
47,985
11,138
-
61,055
521,371
-
-
-
-
-
-
-
-
263,294
43,737
307,031
211,720
30,723
242,443
goeasy Ltd. 2019 Annual Report 40
Total assets have increased due primarily to the growth of the Company’s consumer loans receivable portfolio. Cash decreased in 2019
mainly due to the cash used in the purchase of a minority equity investment in PayBright. Other assets increased significantly in 2019
due primarily to the adoption of IFRS 16 which resulted in a $46.1 million right-of-use asset being recognized.
The Company finances the growth of its consumer loans receivable portfolio through a combination of debt, equity and retained earnings.
In 2017, the Company issued $53 million in convertible debentures and repaid the previous credit facility by issuing US$325 million
in 2022 Notes and securing a $110 million revolving line of credit from a syndicate of banks. In 2018, the Company issued a second
US$150 million tranche of 2022 Notes and increased the borrowing limit under its revolving line of credit to $174.5 million. In 2019, the
Company issued US$550 million of 2024 Notes and repaid the 2022 Notes and increased the borrowing limit under its revolving line of
credit to $310 million. All of the Company’s credit facilities are as described in the notes to the Company’s financial statements for the
year ended December 31, 2019.
At the end of 2019, the Company’s ratio of net debt (net of surplus cash on hand) to net capitalization was 71%; a level that is conservative
against several of the Company’s peers and relatively on target to the Company’s desired position of less than, or equal to, 70%.
ANALYSIS OF RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2019
FOURTH QUARTER HIGHLIGHTS
• goeasy reported record revenue during the fourth quarter of 2019. Revenue for the quarter increased to $165.5 million from the
$138.2 million reported in the same quarter of 2018, an increase of $27.4 million or 19.8%. The increase was primarily driven
by the growth of consumer lending.
• The gross consumer loans receivable portfolio increased from $833.8 million as at December 31, 2018 to $1.1 billion as at
December 31, 2019, an increase of $276.9 million or 33.2%. The growth was fueled by: i) the continued significant net customer
growth; ii) increased origination of unsecured loans and the increased penetration of risk adjusted rate and real estate secured
loans to the Company’s best credit quality borrowers; iii) maturation of the Company’s retail branch network and expansion in
Quebec; iv) lending in the Company’s easyhome stores; and v) ongoing enhancements to the Company’s digital properties and
increased advertising spend.
• Net charge-offs in the quarter as a percentage of the average gross consumer loans receivable on an annualized basis were at
13.3%, higher than the fourth quarter of 2018 at 13.1% but within the Company’s targeted range for 2019 of 11.5% to 13.5%. The
increase in the charge-off rate was due to higher new customer originations and loan book growth that was fueled by strong
performance in the digital channel. While new customer growth is healthy for the long-term profitability of the business, new
customers produce greater loan losses than lending to an existing customer. Furthermore, while borrowers acquired online
tend to have weaker credit performance, such customers generate attractive operating margins; The Company has continued to
implement and optimize a series of credit model enhancements to improve the long-term credit quality of the portfolio.
• easyfinancial’s operating income was $53.3 million for the fourth quarter of 2019 compared with $41.3 million for the
comparable period in 2018, an increase of $12.0 million or 29.2%. The benefits of the larger loan book and related revenue
increases of $26.7 million were partially offset by: i) a $1.5 million increase in advertising spend; ii) a $8.6 million increase in
bad debt expense; and iii) incremental expenditures to manage the growing customer base, enhance the product offering and
expand the easyfinancial footprint. easyfinancial’s operating margin in the quarter increased to 41.0% when compared to 40.0%
reported in the same quarter of 2018.
• easyhome’s operating income was $6.5 million for the fourth quarter of 2019, an increase of $1.3 million or 26.1% when
compared with the same quarter of 2018. The increase is due to the reduced operating expenses and the growth of consumer
lending in easyhome in the quarter. easyhome’s operating margin for the fourth quarter of 2019 was 18.3%, an increase from
the 14.8% reported in the same quarter of 2018.
• Total Company operating income for the fourth quarter of 2019 reached a record level of $46.5 million, up $11.4 million or 32.4%
when compared with the same quarter of 2018. The Company’s operating margin for the quarter was 28.1% up from the 25.4%
reported in the fourth quarter of 2018. The growth in operating margin was driven by the larger proportion of earnings being
generated by the higher margin easyfinancial business.
• The Company net income for the fourth quarter of 2019 of $6.7 million or $0.46 per share on a diluted basis, which was down 57.9%
and 54.9% respectively, against the $15.9 million and $1.02 per share on a diluted basis reported in the same quarter of 2018.
When factoring in the $16.0 million after-tax impact of the Refinancing Costs of extinguishing the Company’s 2022 Notes incurred
in the fourth quarter of 2019, adjusted net income for the fourth quarter of 2019 was $22.6 million or $1.45 per share on a diluted
basis. On this normalized basis, net income and diluted earnings per share increased by 42.6% and 42.2%, respectively.
• Return on equity in the fourth quarter was 8.0% as compared with 27% reported in the same quarter of 2018. When factoring
in the $16.0 million after-tax impact of the Refinancing Costs of extinguishing the Company’s 2022 Notes incurred in the fourth
quarter of 2019, the adjusted return on equity, increased to 27.0% from 23.0% reported in the same quarter of 2018. The
improvement was related primarily to adjusted net income growth and the higher level of financial leverage.
goeasy Ltd. 2019 Annual Report 41
SUMMARY OF FINANCIAL RESULTS AND KEY PERFORMANCE INDICATORS
($ in 000’s except earnings per share and percentages)
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization
EBITDA1
EBITDA margin1
Depreciation and amortization expense
Operating income
Operating margin1
Interest expense and amortization of deferred financing
charges and interest expense on lease liabilities
Refinancing costs2
Effective income tax rate
Net income
Diluted earnings per share
Return on equity
Adjusted (Normalized) Financial Results²
Adjusted net income
Adjusted diluted earnings per share
Adjusted return on equity
Key Performance Indicators1
Same store revenue growth (overall)
Same store revenue growth (easyhome)
Segment Financials
easyfinancial revenue
easyfinancial operating margin
easyhome revenue
easyhome operating margin
Portfolio Indicators
Gross consumer loans receivable
Growth in consumer loans receivable
Gross loan originations
Total yield on consumer loans (including ancillary products)
Net charge-offs as a percentage of average gross consumer loans
receivable
Potential monthly lease revenue
THREE MONTHS ENDED
DECEMBER 31,
2019
DECEMBER 31,
2018
VARIANCE
$ / BPS
VARIANCE
% CHANGE
165,536
102,790
53,395
32.3%
16,263
46,483
28.1%
15,400
21,723
28.6%
6,683
0.46
8.0%
22,649
1.45
27.0%
19.7%
6.2%
138,160
90,369
37,847
27.4%
12,685
35,106
25.4%
12,811
-
28.7%
15,887
1.02
23.0%
15,887
1.02
23.0%
28.5%
7.1%
130,005
103,286
41.0%
35,531
18.3%
1,110,633
75,037
313,514
49.8%
13.3%
8,643
40.0%
34,874
14.8%
833,779
84,198
264,996
52.7%
13.1%
9,141
27,376
12,421
15,548
490 bps
3,578
11,377
270 bps
2,589
21,723
(10 bps)
(9,204)
(0.56)
(1,500 bps)
6,762
0.43
400 bps
(880 bps)
(90 bps)
26,719
100 bps
657
350 bps
276,854
(9,161)
48,518
(290 bps)
20 bps
(498)
19.8%
13.7%
41.1%
17.9%
28.2%
32.4%
10.6%
20.2%
100.0%
(0.3%)
(57.9%)
(54.9%)
(65.2%)
42.6%
42.2%
17.4%
(30.9%)
(12.7%)
25.9%
2.5%
1.9%
23.6%
33.2%
(10.9%)
18.3%
(5.5%)
1.5%
(5.4%)
1 See description in sections “Portfolio Analysis” and “Key Performance Indicators and Non-IFRS Measures”.
2 During the fourth quarter of 2019, the Company repaid its 2022 Notes incurring a $16.0 million after-tax impact of the Refinancing Costs of extinguishing the
Company’s 2022 Notes.
goeasy Ltd. 2019 Annual Report 42
STORE LOCATIONS SUMMARY
easyfinancial
Kiosks (in store)
Stand-alone locations
National loan office
Total easyfinancial locations
easyhome
Corporately owned stores
Consolidated franchise locations
Total consolidated stores
Total franchise stores
Total easyhome stores
LOCATIONS AS AT
SEPTEMBER 30,
2019
LOCATIONS OPENED
DURING PERIOD
LOCATIONS
CLOSED DURING
PERIOD
CONVERSIONS
LOCATIONS AS AT
DECEMBER 31, 2019
27
222
1
250
128
-
128
35
163
-
6
-
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(7)
7
-
-
-
-
-
-
-
20
235
1
256
128
-
128
35
163
SUMMARY OF FINANCIAL RESULTS BY OPERATING SEGMENT
($ IN 000’S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
THREE MONTHS ENDED DECEMBER 31, 2019
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
92,803
-
34,777
2,425
130,005
3,600
28,268
2,392
1,271
35,531
-
-
-
-
-
96,403
28,268
37,169
3,696
165,536
Total operating expenses before depreciation and amortization
73,062
17,309
12,419
102,790
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Depreciation of right-of-use assets
Operating income (loss)
Finance costs
Interest expense and amortization of deferred financing charges
Interest expense on lease liabilities
Refinancing cost
Income before income taxes
Income taxes
Net income
Diluted earnings per share
1,805
1,793
3,598
53,345
9,757
1,965
11,722
6,500
768
175
943
(13,362)
12,330
3,933
16,263
46,483
14,744
656
21,723
37,123
9,360
2,677
6,683
0.46
goeasy Ltd. 2019 Annual Report 43
($ IN 000’S EXCEPT EARNINGS PER SHARE)
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
THREE MONTHS ENDED DECEMBER 31, 2018
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
71,814
-
29,594
1,878
103,286
2,020
29,437
1,892
1,525
34,874
-
-
-
-
-
73,834
29,437
31,486
3,403
138,160
Total operating expenses before depreciation and amortization
60,032
19,482
10,855
90,369
Depreciation and amortization
Depreciation and amortization of lease assets, property and
equipment and intangible assets
Operating income (loss)
Finance costs
Interest expense and amortization of deferred financing charges
1,965
41,289
10,238
5,154
482
(11,337)
Income before income taxes
Income taxes
Net income
Diluted earnings per share
PORTFOLIO PERFORMANCE
12,685
35,106
12,811
22,295
6,408
15,887
1.02
Consumer Loans Receivable Portfolio
Loan originations in the quarter were $313.5 million, up 18.3% compared with the origination volume in the same quarter of 2018. The
loan book grew by $75.0 million in the quarter compared to growth of $84.2 million in the same quarter of 2018. The gross consumer
loans receivable portfolio increased from $833.8 million as at December 31, 2018 to $1.1 billion as at December 31, 2019, an increase
of $276.9 million or 33.2%. The drivers of this growth are as described in the preceding section: Analysis of Results for the Year Ended
December 31, 2019.
The annualized total yield (including ancillary products) realized by the Company on its average consumer loans receivable portfolio was
49.8% in the fourth quarter of 2019, down 290 bps from the same quarter of 2018. The decrease in the yield was due to the factors as
described in the preceding section: Analysis of Results for the Year Ended December 31, 2019.
Bad debt expense increased to $43.3 million for the quarter from $34.2 million during the same quarter of 2018, an increase of $9.1
million or 26.5%. The following table details the components of bad debt expense.
($ IN 000’S)
DECEMBER 31, 2019
DECEMBER 31, 2018
THREE MONTHS ENDED
Provision required due to net charge-offs
Impact of loan book growth
Impact of change in provision rate during the period
Net change in allowance for credit losses
Bad debt expense
Bad debt expense increased by $9.1 million due to three factors:
36,020
7,237
-
7,237
43,257
26,471
8,182
(467)
7,715
34,186
(i) Net charge-offs increased from $26.5 million in the fourth quarter of 2018 to $36.0 million in the current quarter, up by $9.5
million. Net charge-offs in the quarter as a percentage of the average gross consumer loans receivable on an annualized basis
were at 13.3%, higher than the fourth quarter of 2018 at 13.1% but within the Company’s targeted range for 2019 of 11.5% to
13.5%. The increase in the charge-off rate was due to: the drivers as described in the preceding section: Analysis of Results for
the Year Ended December 31, 2019.
(ii) The lower loan book growth in the current quarter decreased bad debt expense provision by $1.0 million when compared to the
same period of 2018. The loan book growth in the current quarter was $75.0 million which resulted in a growth-related provision
of $7.2 million as compared to $8.2 million reported in the fourth quarter of 2018.
goeasy Ltd. 2019 Annual Report 44
(iii) During the quarter, the provision rate remained unchanged at 9.64%. During the fourth quarter of 2018, the provision rate
decreased from 9.61% to 9.56% which resulted in a $0.5 million decrease in bad debt expense.
easyhome Leasing Portfolio
The leasing portfolio as measured by potential monthly lease revenue as at December 31, 2019 was $8.6 million, down from the $9.1
million reported as at December 31, 2018 (as described in the preceding section: Analysis of Results for the Year Ended December 31,
2019). While the lease portfolio has declined, the impact on revenue has been partially offset by the growth of consumer lending within
the easyhome stores.
Revenue
Revenue for the three-month period ended December 31, 2019 was $165.5 million compared to $138.2 million in the same quarter of
2018, an increase of $27.4 million or 19.8%. Overall, same store sales growth for the quarter was 19.7%. Revenue growth was driven by
the growth of consumer lending.
easyfinancial – Revenue for the three-month period ended December 31, 2019 was $130.0 million, an increase of $26.7 million when
compared with the same quarter of 2018. The increase in revenue was driven by the growth of the gross consumer loans receivable
portfolio and offset by the reduction in yield (as previously described). The components of the increased revenue include:
•
Interest revenue increased by $21.0 million or 29.2% driven by the 33.2% loan book growth but offset by lower interest yields
(as described above);
• Commissions earned on the sale of ancillary products and services increased by $5.2 million or 17.5% driven by the growth of
the loan book. The rate of growth of commissions earned was less than the rate of growth of interest revenue and the loan book
due to a higher proportion of larger dollar loans which have reduced pricing on certain ancillary products, and slightly lower
penetration of these products (particularly on risk adjusted rate and secured loans); and
• Charges and fees increased by $0.5 million driven primarily by the increase in customer count.
easyhome – Revenue for the three-month period ended December 31, 2019 was $35.5 million, an increase of $0.7 million when
compared with the same quarter of 2018. Lending revenue within the easyhome stores increased by $2.2 million in the current quarter
when compared to the fourth quarter of 2018. However, this revenue increase was partially offset by lower revenue generated by the
traditional leasing business. Traditional leasing revenue declined by $1.5 million in the current quarter compared to the same period of
2018 due to the reduced size of the lease portfolio (as described above). The components of easyhome revenue include:
•
Interest revenue increased by $1.6 million due to the growth of the consumer loans receivable related to the easyhome business;
• Lease revenue declined by $1.2 million due to the reduction of the lease portfolio (as described above);
• Commissions earned on the sale of ancillary products increased by $0.5 million. The increase was due to the sale of ancillary
products related to consumer lending at easyhome; and
• Charges and fees declined by $0.3 million due to lower fees charges by the traditional leasing business.
Impact of Adopting IFRS 16
IFRS 16 was adopted effective January 1, 2019. 2018 was not restated but was reported under the previous accounting standard.
The net effect of adopting IFRS 16 on the statements of income in 2019 is to decrease operating expenses before depreciation and
amortization while increasing depreciation and amortization and financing costs with an insignificant impact on net income. By extension
this will result in EBITDA increasing as the depreciation of the right-of-use assets and interest on the lease liability is excluded from this
measure. Similarly, operating income will also increase (albeit to a lesser extent) as the interest on the lease liability is excluded from
this measure. During the fourth quarter of 2019 the adoption of IFRS 16 decreased net income by $2 thousand.
Total Operating Expenses before Depreciation and Amortization
Total operating expenses before depreciation and amortization were $102.8 million for the three-month period ended December 31,
2019, an increase of $12.4 million or 13.7% from the comparable period in 2018. Adopting IFRS 16 in 2019, served to reduce operating
expenses before depreciation and amortization by $4.6 million (largely shifting this expense to depreciation and amortization and
financing costs). The increase in operating expenses was driven primarily by higher costs associated with the expanding easyfinancial
business and higher corporate costs offset partially by lower costs in the easyhome business. Total operating expenses before
depreciation and amortization represented 62.1% of revenue for the fourth quarter of 2019 compared with 65.4% reported in the same
quarter of 2018.
goeasy Ltd. 2019 Annual Report 45
easyfinancial – Total operating expenses before depreciation and amortization were $73.1 million for the fourth quarter of 2019, an
increase of $13.0 million or 21.7% from the same quarter of 2018. Key drivers include:
• Bad debt expense increased by $8.6 million in the current quarter when compared to the same quarter in 2018 (for the reasons
described above);
• The transition to IFRS 16 in the current quarter served to reduce total operating expenses before depreciation and amortization
by $2.1 million (much of this expense is shifted to depreciation and amortization);
• A $1.5 million increase in advertising and marketing spend to drive brand awareness and support the growth in originations;
and
• Other operating expenses increased by $5.0 million in the quarter driven by higher wages and incentive compensation and
other costs to operate and manage the growing loan book and branch network. Overall branch count increased from 241 as at
December 31, 2018 to 256 as at December 31, 2019.
easyhome – Total operating expenses before depreciation and amortization were $17.3 million for the fourth quarter of 2019, which was
$2.2 million or 11.2% lower than the same quarter of 2018. Key drivers include:
• The transition to IFRS 16 in the current quarter served to reduce total operating expenses before depreciation and amortization
by $2.3 million
• Other operating expenses in amalgam increased by $0.1 million as the reduction due to lower store count was more than offset
by higher costs related to consumer lending.
Corporate – Total operating expenses before depreciation and amortization for the fourth quarter of 2019 were $12.4 million compared
to $10.9 million for the comparable period in 2018, an increase of $1.5 million. The transition to IFRS 16 in the current quarter served
to reduce total operating expenses before depreciation and amortization by $0.2 million. Total operating expenses before depreciation
and amortization for the year 2019 excluding the impact of IFRS 16 increased by $1.7 million primarily due to higher salaries (additional
management personnel) and stock-based compensation than in the same period of 2018. Corporate expenses before depreciation and
amortization represented 7.5% of revenue in the fourth quarter of 2019 compared to 7.9% of revenue in the fourth quarter of 2018.
Depreciation and Amortization
Depreciation and amortization for the three-month period ended December 31, 2019 was $16.3 million, an increase of $3.6 million from
the same quarter of 2018. Included in depreciation and amortization is $3.9 million of depreciation of right-of-use assets related to the
adoption of IFRS 16. Otherwise depreciation and amortization decreased by $0.3 million due to lower depreciation and amortization
at both the easyfinancial and easyhome segments partially offset by higher depreciation and amortization at corporate. Overall,
depreciation and amortization represented 9.8% of revenue for the three months ended December 31, 2019, which is higher than the
comparable period of 2018.
easyfinancial – Total depreciation and amortization was $3.6 million in the fourth quarter of 2019. This included $1.8 million of right-of-
use asset depreciation related to the adoption of IFRS 16. Depreciation of property and equipment and intangibles in the fourth quarter
of 2019 was $1.8 million, $0.2 million lower than the $2.0 million reported in the comparable period of 2018.
easyhome – Total depreciation and amortization expense was $11.7 million in the fourth quarter of 2019. This included $2.0 million of
right-of-use asset depreciation related to the adoption of IFRS 16. Excluding this, depreciation and amortization of lease assets, property
and equipment and intangibles was $9.8 million in the current quarter, $0.4 million lower than the $10.2 million in the fourth quarter of
2018. This decline was due primarily to the lower level of lease revenue and lease assets. easyhome’s depreciation and amortization
of lease assets, property and equipment and intangibles expressed as a percentage of easyhome revenue for the current quarter was
27.5%, down from the 29.4% reported in the fourth quarter of 2018. The rate reduction was due to a smaller lease asset base against a
revenue base with an increasing proportion generated from consumer lending.
Corporate – Depreciation and amortization was $0.9 million in the fourth quarter of 2019. This included $0.2 million of right-of-use asset
depreciation. Depreciation and amortization of property and equipment and intangibles excluding depreciation on right-of-use asset
during the current quarter was $0.7 million compared with $0.5 million in the fourth quarter of 2018.
goeasy Ltd. 2019 Annual Report 46
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for the three-month period ended December 31, 2019 was $46.5 million, up $11.4 million or 32.4% when compared
with the same quarter of 2018. The Company’s operating margin for the quarter was 28.1% up from the 25.4% reported in the fourth
quarter of 2018. The growth in operating margin was driven by the larger proportion of earnings being generated by the higher margin
easyfinancial business and lower corporate expenses. The adoption of IFRS 16 served to decrease operating income by $0.7 million in
the current quarter.
easyfinancial – Operating income was $53.3 million for the fourth quarter of 2019 compared with $41.3 million for the comparable
period in 2018, an increase of $12.1 million or 29.2%. The benefits of the larger loan book and related revenue increase of $26.7
million was partially offset by: i) the $1.5 million increase in advertising spend; ii) the $8.6 million increase in bad debt expense; and iii)
incremental expenditures to manage the growing customer base, enhance the product offering and expand the easyfinancial footprint.
Operating margin in the quarter was 41.0% compared with 40.0% reported in the same quarter of 2018.
easyhome – Operating income was $6.5 million for the fourth quarter of 2019, an increase of $1.3 million or 26.1% when compared
with the same quarter of 2018. The increase is mainly due the growth of the consumer lending business, which more than offset the
reduced size of the lease portfolio and resulted in higher revenues in the quarter of $0.7 million. Total expenses in amalgam decreased
by $0.6 million primarily due to lower depreciation and amortization expense associated with lower lease assets. Operating margin for
the fourth quarter of 2019 was 18.3%, a decrease from the 14.8% reported in the same quarter of 2018.
Finance Costs
Finance costs for the three-month period ended December 31, 2019 were $37.1 million. This included $0.7 million of interest expense on
lease liability related to the adoption of IFRS 16 and $21.7 million in non-recurring Refinancing Costs. Interest expense and amortization
of deferred financing charges in the current quarter were $14.7 million, up $1.9 million from the fourth quarter of 2018. This increase
was driven by higher average borrowing levels partially offset by the reduced cost of borrowing. Total debt as at December 31, 2019 was
$859.1 million against debt of $691.1 million as at December 31, 2018.
Income Tax Expense
The effective income tax rate for the fourth quarter of 2019 was 28.6% which was slightly lower than the 28.7% reported in the same
quarter of 2018.
Net Income and EPS
Net income for the fourth quarter of 2019 was $6.7 million or $0.46 per share on a diluted basis down 57.9% and 54.9% against the
$15.9 million and $1.02 per share on a diluted basis reported in the fourth quarter of 2018. When factoring in the $16.0 million after-tax
impact of the Refinancing Costs of extinguishing the Company’s 2022 Notes, adjusted net income for the fourth quarter of 2019 was
$22.6 million or $1.45 per share on a diluted basis. On this normalized basis, net income and diluted earnings per share increased by
42.6% and 42.2%, respectively.
goeasy Ltd. 2019 Annual Report 47
SELECTED QUARTERLY INFORMATION
($ IN MILLIONS EXCEPT
PERCENTAGES AND PER SHARE
AMOUNTS)
Gross Consumer Loans
Receivable
Revenue
Net income
Adjusted net income3
Return on equity
Adjusted return on equity3
Net income as a
percentage of revenue
Adjusted net income as a
percentage of revenue3
Earnings per share1
Basic
Diluted
Adjusted diluted3
DECEMBER
2019
SEPTEMBER
2019
JUNE
2019
MARCH
2019
DECEMBER
2018
SEPTEMBER
2018
JUNE
2018
MARCH
2018
DECEMBER
20172
1,110.6
1,035.6
959.7
879.4
165.5
156.1
147.9
139.9
6.7
22.6
8.0%
27.0%
19.8
19.8
19.6
19.6
18.3
18.3
24.1%
24.1%
25.2%
25.2%
24.4%
24.4%
833.8
138.2
15.9
15.9
23.0%
23.0%
749.6
686.6
601.7
129.9
123.3
114.8
14.3
14.3
11.8
11.8
11.1
11.1
23.8% 20.9%
19.8%
23.8% 20.9%
19.8%
526.5
107.2
5.4
11.4
9.5%
20.1%
4.0%
12.7%
13.2%
13.1%
11.5%
11.0%
9.6%
9.7%
5.0%
13.7%
12.7%
13.2%
13.1%
11.5%
11.0%
9.6%
9.7%
10.5%
0.46
0.46
1.45
1.35
1.28
1.28
1.34
1.26
1.26
1.25
1.18
1.18
1.07
1.02
1.02
1.03
0.97
0.97
0.86
0.82
0.82
0.81
0.77
0.77
0.39
0.38
0.79
1 Quarterly earnings per share are not additive and may not equal the annual earnings per share reported. This is due to the effect of stock issued or repurchased
during the year on the basic weighted average number of common shares outstanding together with the effects of rounding.
2 Prepared under IAS 39 rather than IFRS 9.
3 Adjusted for certain non-recurring or unusual transactions.
Key financial measures for each of the last nine quarters are summarized in the table above and include the gross consumer loans
receivable portfolio, revenue, net income, return on equity, and net income as a percentage of revenue over this timeframe. Revenue
growth over this time frame was primarily related to the growth of the gross consumer loans receivable portfolio. The larger revenue
base, offset partially by higher operating expenses, increased the Company’s net income and earnings per share while the increased
scale of the business resulted in net income as a percentage of revenue also increasing over the presented time horizon. Lastly, return
on equity has increased due to the increased earnings generated by the business and the higher level of financial leverage.
PORTFOLIO ANALYSIS
The Company generates its revenue from a portfolio of consumer loans receivable and lease agreements that are originated with its
customers. To a large extent, the business results for a period are determined by the performance of these portfolios, and the make-up
of the portfolios at the end of a period are an important indicator of future business results.
The Company measures the performance of its portfolios during a period and their make-up at the end of a period using a number of
key performance indicators as described in more detail below. Several of these key performance indicators are not measurements in
accordance with IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS.
The discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although these
measures do not have standardized meanings and may not be comparable to similar measures presented by other companies, these
measures are defined herein or can be determined by reference to the Company’s financial statements. The Company discusses these
measures because it believes that they facilitate the understanding of the results of its operations and financial position.
CONSUMER LOANS RECEIVABLE PORTFOLIO
Loan Originations and Net Principal Written
Gross loan originations is the value of all consumer loans receivable advanced to the Company’s customers during the period where new
credit underwritings have been performed. Included in gross loan originations are loans to new customers and new loans to existing
customers, a portion of which is applied to eliminate their prior borrowings. When the Company extends additional credit to an existing
customer, a full credit underwriting is performed using up-to-date information. Additionally, the loan repayment history of that customer
throughout their relationship with the Company is considered in the credit decision. As a result, the quality of the credit decision is improved
and has historically resulted in better performance. No additional credit is extended to a customer whose loan is delinquent.
goeasy Ltd. 2019 Annual Report 48
Net principal written details the Company’s gross loan originations during a period, excluding that portion of the originations that has
been used to eliminate the prior borrowings.
The gross loan originations and net principal written during the period were as follows:
($ IN 000’S)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Loan originations to new customers
130,292
116,577
491,171
411,671
Loan originations to existing customers
Less: Proceeds applied to repay existing loans
Net advance to existing customers
Net principal written
Gross Consumer Loans Receivable
183,222
(101,771)
81,451
211,743
148,419
(78,454)
69,965
186,542
604,204
(326,075)
278,129
769,300
510,879
(259,513)
251,366
663,037
The measure that the Company uses to describe the size of its easyfinancial portfolio is gross consumer loans receivable. Gross
consumer loans receivable reflects the period-end balance of the portfolio before provisioning for potential future charge-offs. Growth in
gross consumer loans receivable is driven by several factors including an increased number of customers and an increased loan value
per customer. The changes in the gross consumer loans receivable portfolio during the periods were as follows:
($ IN 000’S)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Opening gross consumer loans receivable
1,035,596
749,581
833,779
Gross loan originations
Gross principal payments and
other adjustments
Gross charge-offs before recoveries
Net growth in gross consumer loans receivable
during the period
Ending gross consumer loans receivable
313,514
264,996
1,095,375
(199,153)
(39,324)
75,037
1,110,633
(151,214)
(29,584)
84,198
833,779
(676,995)
(141,526)
276,854
1,110,633
The scheduled principal repayment of the gross consumer loans receivable portfolio is as follows:
526,546
922,550
(517,155)
(98,162)
307,233
833,779
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
0 – 6 months
6 – 12 months
12 – 24 months
24 – 36 months
36 – 48 months
48 – 60 months
60 months+
182,896
130,043
275,038
259,598
154,908
44,918
63,232
16.5%
11.7%
24.8%
23.4%
13.9%
4.0%
5.7%
Gross consumer loans receivable
1,110,633
100.0%
139,631
104,619
221,626
204,227
106,346
29,002
28,328
833,779
16.7%
12.5%
26.6%
24.5%
12.8%
3.5%
3.4%
100.0%
goeasy Ltd. 2019 Annual Report 49
A breakdown of the gross consumer loans receivable portfolio categorized by the contractual time to maturity is as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
0 – 1 year
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 years +
42,623
139,414
296,891
366,359
156,439
108,907
3.8%
12.6%
26.7%
33.0%
14.1%
9.8%
Gross consumer loans receivable
1,110,633
100.0%
34,355
108,262
260,205
270,621
108,932
51,404
833,779
4.1%
13.0%
31.2%
32.5%
13.1%
6.1%
100.0%
Loans are originated and serviced by both the easyfinancial and easyhome business units. A breakdown of the gross consumer loans
receivable portfolio between these segments is as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Gross consumer loans receivable, easyfinancial
Gross consumer loans receivable, easyhome
Gross consumer loans receivable
1,072,530
38,103
1,110,633
96.6%
3.4%
100.0%
811,950
21,829
833,779
97.4%
2.6%
100.0%
Financial Revenue and Net Financial Income
Financial revenue is generated by both the easyfinancial and easyhome segments. Financial revenue includes interest and various other
ancillary fees generated by the Company’s gross consumer loans receivable portfolio. Net financial income details the profitability of the
Company’s gross consumer loans receivable portfolio before any costs to originate or administer. Net financial income is calculated by
deducting interest expense and amortization of deferred financing charges and bad debt expense from financial revenue. Net financial
income is impacted by the size of the gross consumer loans receivable portfolio, the portfolio yield, the amount and cost of the Company’s
debt, the Company’s leverage ratio and the bad debt expense experienced in the period.
($ IN 000’S)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Financial revenue, easyfinancial
Financial revenue, easyhome
Financial revenue
Less: Interest expense and amortization of
deferred financing charges
Less: Bad debt expense
Net financial income
130,006
5,096
135,102
(14,744)
(43,257)
77,101
103,286
2,889
106,175
(12,811)
(34,186)
470,208
16,893
487,101
(55,094)
(156,742)
368,325
7,775
376,100
(45,800)
(118,980)
59,178
275,265
211,320
goeasy Ltd. 2019 Annual Report 50
Total Yield on Consumer Loans
Total yield on consumer loans is calculated as the financial revenue generated (including revenue generated on the sale of ancillary
products) on the Company’s consumer loans receivable portfolio divided by the average of the month-end loan balances for the indicated
period. Total yield on consumer loans is a measure of the revenue produced by the Company’s consumer loans receivable portfolio. For
interim periods, the rate is annualized.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Finance revenue
Average gross consumer loans receivable
Total yield as a percentage of average gross
consumer loans receivable (annualized)
135,102
1,084,284
106,175
806,489
49.8%
52.7%
487,101
972,625
50.1%
376,100
693,757
54.2%
Net Charge-Offs
In addition to loan originations, the consumer loans receivable portfolio during a period is impacted by charge-offs. Unsecured customer
loan balances that are delinquent greater than 90 days and secured customer loan balances that are delinquent greater than 180 days
are charged-off. In addition, customer loan balances are charged-off upon notification that the customer is bankrupt following a detailed
review of the filing. Subsequent collections of previously charged-off accounts are netted with gross charge-offs during a period to
arrive at net charge-offs.
Average gross consumer loans receivable has been calculated based on the average of the month-end loan balances for the indicated
period. This metric is a measure of the collection performance of the easyfinancial consumer loans receivable portfolio. For interim
periods, the rate is annualized.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Net charge-offs
Average gross consumer loans receivable
Net charge-offs as a percentage of average
gross consumer loans receivable (annualized)
36,020
1,084,284
13.3%
26,471
806,489
13.1%
129,376
972,625
13.3%
88,351
693,757
12.7%
Allowance for Credit Losses
The allowance for expected credit losses is a provision that is reported on the Company’s balance sheet that is netted against the
gross consumer loans receivable to arrive at the net consumer loans receivable. The allowance for expected credit losses provides for
credit losses that are expected to transpire in future periods. Customer loans for which we have received a notification of bankruptcy,
unsecured customer loan balances that are delinquent greater than 90 days and secured customer loan balances that are delinquent
greater than 180 days are charged-off against the allowance for loan losses.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Allowance for credit losses, beginning of period
Net charge-offs written off against the
allowance
Bad debt expense
Allowance for credit losses, end of period
Allowance for credit losses as a percentage of
the ending gross consumer loans receivable
99,870
(36,020)
43,257
107,107
9.64%
72,026
(26,471)
34,186
79,741
9.56%
79,741
49,112
(129,376)
156,742
107,107
(88,351)
118,980
79,741
9.64%
9.56%
goeasy Ltd. 2019 Annual Report 51
IFRS 9 requires that forward-looking indicators (“FLIs”) be considered when determining the allowance for credit losses. The analysis
performed by the Company determined that a forecasted increase in the rate of unemployment, rate of inflation, a decrease in the
expected future price of oil from the current rates or a decrease in the rate of gross domestic product (“GDP”) growth has historically
tended to increase the charge-offs experienced by the Company. Conversely a forecasted decrease in the rate of unemployment, rate
of inflation, an increase in the expected future price of oil from the current rates or an increase in the GDP growth rate has historically
tended to decrease the charge-offs experienced by the Company. For purposes of determining its allowance for loan losses at each
statement of financial position date, the Company has decided to utilize the forecasts of these FLIs from five large Canadian banks. The
impact on the allowance for credit losses as a percentage of ending gross consumer loans receivable should each of these FLIs increase
(or decrease) by 10%, as at December 31, 2019, is as follows:
Rate of unemployment
Rate of inflation
Oil prices
GDP growth rate
Bad Debt Expense (Provision for Credit Losses)
CHANGE IN FLIs
IMPACT ON ALLOWANCE FOR CREDIT
LOSSES AS A PERCENTAGE OF THE
ENDING GROSS CONSUMER LOANS
RECEIVABLE
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 2 bps
+/- 6 bps
-/+ 12 bps
-/+ 2 bps
The Company’s bad debt expense is the amount that its allowance for future credit losses must be increased, after considering net-
charge-offs, such that the balance of the allowance for credit losses at each statement of financial position date is appropriate under
IFRS. Operationally, this will require a larger provision to be taken when new consumer loans receivables are originated or purchased.
An analysis of the Company’s bad debt expense for the periods is as follows:
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Net charge-offs
Average gross consumer loans receivable
Bad debt expense
Financial revenue
Bad debt expense as a percentage
of Financial Revenue
Aging of the Consumer Loans Receivable Portfolio
36,020
7,237
43,257
135,102
32.0%
26,471
7,715
34,186
106,175
32.2%
129,376
27,366
156,742
487,101
32.2%
88,351
30,629
118,980
376,100
31.6%
An aging analysis of the consumer loans receivable portfolio at the end of the periods was as follows:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Current
Days past due
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 180 days
Gross consumer loans receivable
1,045,955
94.1%
789,834
94.7%
40,508
7,692
7,579
8,578
321
64,678
1,110,633
3.7%
0.7%
0.7%
0.8%
0.0%
5.9%
100.0%
25,442
5,931
5,930
6,559
83
43,945
833,779
3.1%
0.7%
0.7%
0.8%
0.0%
5.3%
100.0%
goeasy Ltd. 2019 Annual Report 52
A large portion of the Company’s consumer loans receivable portfolio operates on a bi-weekly rather than monthly repayment cycle.
As such, the aging analysis between different fiscal periods may not be comparable depending upon the day of the week on which the
fiscal period ends. An alternate aging analysis prepared as of the last Saturday of the fiscal periods often presents a more relevant
comparison.
An aging analysis of the consumer loans receivable portfolio as of the last Saturday of the periods was as follows:
SATURDAY, DEC. 28, 2019
SATURDAY, DEC. 29, 2018
% OF TOTAL
% OF TOTAL
Current
Days past due
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 180 days
Gross consumer loans receivable
Consumer Loans Receivable Portfolio by Geography
94.9%
3.1%
0.6%
0.6%
0.8%
0.0%
5.1%
100.0%
94.8%
3.2%
0.6%
0.6%
0.8%
0.0%
5.2%
100.0%
At the end of the periods, the Company’s consumer loans receivable portfolio was allocated among the following geographic regions:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Territories
41,009
61,288
9,553
50,850
75,539
481,543
46,127
59,452
153,141
119,863
12,268
3.7%
5.5%
0.9%
4.6%
6.8%
43.4%
4.1%
5.3%
13.8%
10.8%
1.1%
Gross consumer loans receivable
1,110,633
100.0%
Consumer Loans Receivable Portfolio by Loan Type
34,883
51,231
8,721
41,579
38,330
365,598
36,600
43,842
109,864
93,420
9,711
833,779
4.2%
6.1%
1.0%
5.0%
4.6%
43.8%
4.4%
5.3%
13.2%
11.2%
1.2%
100.0%
At the end of the periods, the Company’s consumer loans receivable portfolio was allocated among the following loan types:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Unsecured Instalment Loans
Secured Instalment Loans
Gross consumer loans receivable
995,122
115,511
1,110,633
89.6%
10.4%
100.0%
780,850
52,929
833,779
93.7%
6.3%
100.0%
goeasy Ltd. 2019 Annual Report 53
LEASING PORTFOLIO ANALYSIS
Potential Monthly Leasing Revenue
The Company measures its leasing portfolio and the performance of its easyhome business through potential monthly lease revenue.
Potential monthly lease revenue reflects the lease revenue that the Company’s portfolio of leased merchandise would generate in a
month providing it collected all lease payments contractually due in that period but excludes revenue generated by certain ancillary
products. Potential monthly leasing revenue is an important indicator of the future revenue generating potential of the Company’s lease
portfolio. Potential monthly leasing revenue is calculated as the number of lease agreements outstanding multiplied by the average
required monthly lease payment per agreement. Growth in potential monthly lease revenue is driven by several factors including an
increased number of customers, an increased number of leased assets per customer as well as an increase in the average price of the
leased items.
The change in the potential monthly lease revenue during the periods was as follows:
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Opening potential monthly lease revenue
8,432
8,906
Change due to store opening or acquisitions
during the period
Decrease due to store closures or sales during
the period
Increase/(decrease) due to ongoing operations
Net change
88
(7)
130
211
-
(27)
262
235
Ending potential monthly lease revenue
8,643
9,141
Potential monthly lease revenue is calculated as follows:
9,141
351
(397)
(452)
(498)
8,643
DECEMBER 31,2019
DECEMBER 31, 2018
Total number of lease agreements
Multiplied by the average required monthly lease
payment per agreement
Potential monthly lease revenue ($ in 000’s)
Leasing Portfolio by Product Category
91,206
94.77
8,643
9,481
131
(300)
(171)
(340)
9,141
97,459
93.79
9,141
At the end of the periods, the Company’s leasing portfolio as measured by potential monthly lease revenue was allocated among the
following product categories:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Furniture
Electronics
Appliances
Computers
Potential monthly lease revenue
3,917
2,762
1,050
914
8,643
45.3%
32.0%
12.1%
10.6%
100.0%
4,144
2,914
1,051
1,032
9,141
45.3%
31.9%
11.5%
11.3%
100.0%
goeasy Ltd. 2019 Annual Report 54
Leasing Portfolio by Geography
At the end of the periods, the Company’s leasing portfolio as measured by potential monthly lease revenue was allocated among the
following geographic regions:
($ IN 000’S EXCEPT PERCENTAGES)
$
% OF TOTAL
$
% OF TOTAL
DECEMBER 31, 2019
DECEMBER 31, 2018
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
USA
Potential monthly lease revenue
Leasing Charge-Offs
716
890
149
729
576
2,769
246
378
1,307
883
-
8,643
8.3%
10.3%
1.7%
8.4%
6.7%
32.0%
2.9%
4.4%
15.1%
10.2%
-
100.0%
737
797
146
676
579
3,167
252
400
1,353
934
100
9,141
8.1%
8.7%
1.6%
7.4%
6.3%
34.6%
2.8%
4.4%
14.8%
10.2%
1.1%
100.0%
When easyhome enters into a leasing transaction with a customer, a sale is not recorded as the Company retains ownership of the
related asset under the lease. Instead, the Company recognizes its leasing revenue over the term of the lease as payments are received
from the customer. Periodically, the lease agreement is terminated by the customer or by the Company prior to the anticipated end
date of the lease and the assets are returned by the customer to the Company. In some instances, the Company is unable to regain
possession of the assets which are then charged-off. Net charge-offs (charge-offs less subsequent recoveries of previously charged-off
assets) are included in the depreciation of lease assets expense for financial reporting purposes. easyhome leasing revenue is defined
as the total revenue generated by the Company’s easyhome business less the financial revenue generated by easyhome.
($ IN 000’S EXCEPT PERCENTAGES)
Net charge-offs
Leasing revenue
Net charge-offs as a percentage
of leasing revenue
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31,
2019
DECEMBER 31,
2018
DECEMBER 31,
2019
DECEMBER 31,
2018
933
30,435
3.1%
1,097
31,985
3.4%
2,705
91,847
2.9%
4,230
130,091
3.3%
KEY PERFORMANCE INDICATORS AND NON-IFRS MEASURES
In addition to the reported financial results under IFRS and the metrics described in the Portfolio Analysis section of this MD&A, the
Company also measures the success of its strategy using a number of key performance indicators as described in more detail below.
Several of these key performance indicators are not measurements in accordance with IFRS and should not be considered as an
alternative to net income or any other measure of performance under IFRS.
The discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although these
measures do not have standardized meanings and may not be comparable to similar measures presented by other companies, these
measures are defined herein or can be determined by reference to the Company’s financial statements. The Company discusses these
measures because it believes that they facilitate the understanding of the results of its operations and financial position.
goeasy Ltd. 2019 Annual Report 55
Several non-IFRS measures that are used throughout this discussion are defined as follows:
SAME STORE REVENUE GROWTH
Same store revenue growth measures the revenue growth for all stores that have been open for a minimum of 15 months. To calculate
same store revenue growth for a period, the revenue for that period is compared to the same period in the prior year. Same store
revenue growth is influenced by both the Company’s product offerings as well as the number of stores which have been open for a
12-month to 36-month time frame, as these stores tend to be in the strongest period of growth at this time.
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
Same store revenue growth (overall)
Same store revenue growth (easyhome)
19.7%
6.2%
28.5%
7.1%
19.5%
4.3%
25.7%
6.4%
OPERATING EXPENSES BEFORE DEPRECIATION AND AMORTIZATION
The Company defines operating expenses before depreciation and amortization as total operating expenses excluding depreciation
and amortization expenses for the period. The Company believes that operating expenses before depreciation and amortization is an
important measure of the efficiency of its operations.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 20191 DECEMBER 31, 2018 DECEMBER 31, 20191 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Operating expenses before depreciation
and amortization
Divided by revenue
Operating expenses before depreciation and
amortization as % of revenue
102,790
165,536
62.1%
90,369
138,160
65.4%
376,226
609,383
61.7%
334,471
506,191
66.1%
1 As described in the Adoption of IFRS 16 section in this MD&A, the Company adopted IFRS 16, Leases effective January 1, 2019. The adoption of IFRS 16 had
an insignificant impact on net income in the three-month period and year ended December 31, 2019, however it did serve to reduce operating expenses before
depreciation and amortization as well as operating expenses before depreciation and amortization expressed as a percentage of revenue.
OPERATING MARGIN
The Company defines operating margin as operating income divided by revenue for the Company as a whole and for its operating
segments: easyhome and easyfinancial. The Company believes operating margin is an important measure of the profitability of its
operations, which in turn assists it in assessing the Company’s ability to generate cash to pay interest on its debt and to pay dividends.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 20191 DECEMBER 31, 2018 DECEMBER 31, 20191 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
easyfinancial
Operating income
Divided by revenue
easyfinancial operating margin
easyhome
Operating income
Divided by revenue
easyhome operating margin
Total
Operating income
Divided by revenue
Total operating margin
53,345
130,005
41.0%
6,500
35,531
18.3%
46,483
165,536
28.1%
41,289
103,286
40.0%
5,154
34,874
14.8%
35,106
138,160
25.4%
189,137
470,208
40.2%
24,839
139,175
17.8%
168,793
609,383
27.7%
141,854
368,325
38.5%
21,547
137,866
15.6%
119,717
506,191
23.7%
1 As described in the Adoption of IFRS 16 section in this MD&A, the Company adopted IFRS 16, Leases effective January 1, 2019. The adoption of IFRS 16 had an
insignificant impact on net income in both the three-month period and year ended December 31, 2019, however it did serve to increase operating income and
operating margin.
goeasy Ltd. 2019 Annual Report 56
ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
At various times, net income and diluted earnings per share may be affected by unusual items that have occurred in the period and
impact the comparability of these measures with other periods. Items are considered unusual if they are outside of normal business
activities, significant in amount and scope and are not expected to occur on a recurring basis. The Company defines i) adjusted net income
as net income excluding such unusual and non-recurring items and ii) adjusted diluted earnings per share as diluted earnings per share
excluding such items. The Company believes that adjusted net income and adjusted earnings per share are important measures of the
profitability of operations adjusted for the effects of unusual items.
Items used to net income and earnings per share for the three-month period and year ended December 31, 2019 and 2018 include those
indicated in the chart below:
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Net income as stated
After tax impact of Refinancing Costs1
Adjusted net income
After tax impact of convertible debentures
Fully diluted adjusted net income
Weighted average number of
diluted shares outstanding
Diluted earnings per share as stated
Per share impact of normalized items
Adjusted diluted earnings per share
6,683
15,966
22,649
677
23,326
16,108
0.46
0.99
1.45
15,887
-
15,887
698
16,585
16,270
1.02
-
1.02
64,349
15,966
80,315
2,698
83,013
16,062
4.17
1.00
5.17
53,124
-
53,124
2,690
55,814
15,671
3.56
-
3.56
1 During the fourth quarter of 2019, the Company repaid its 2022 Notes incurring a $16.0 million after-tax impact of the Refinancing Costs of extinguishing the
Company’s 2022 Notes.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”) AND EBITDA MARGIN
The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization, excluding depreciation of leased assets.
The Company uses EBITDA, among other measures, to assess the operating performance of its ongoing businesses. EBITDA margin is
calculated as EBITDA divided by revenue.
($ IN 000’S EXCEPT PERCENTAGES)
DECEMBER 31, 20191 DECEMBER 31, 2018 DECEMBER 31, 20191 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Net income
Finance costs
Income tax expense
Depreciation and amortization, excluding
depreciation of lease assets
EBITDA
Divided by revenue
EBITDA margin
6,683
37,123
2,677
6,912
53,395
165,536
32.3%
15,887
12,811
6,408
2,741
37,847
138,160
27.4%
64,349
79,281
25,163
26,962
195,755
609,383
32.1%
53,124
45,800
20,793
11,915
131,632
506,191
26.0%
1 As described in the Adoption of IFRS 16 section in this MD&A, the Company adopted IFRS 16, Leases effective January 1, 2019. The adoption of IFRS 16 had an
insignificant impact on net income in both the three-month period and year ended December 31, 2019, however it did serve to increase EBITDA and EBITDA margin.
goeasy Ltd. 2019 Annual Report 57
RETURN ON ASSETS
The Company defines return on assets as annualized net income in the period divided by average total assets for the period. The
Company believes return on assets is an important measure of how total assets are utilized in the business.
THREE MONTHS ENDED
($ IN 000’S EXCEPT PERIODS AND PERCENTAGES)
DECEMBER 31, 2019
DECEMBER 31, 2019
(ADJUSTED)
DECEMBER 31, 2018
DECEMBER 31, 2018
(ADJUSTED)
Net income as stated
After tax impact of Refinancing Costs
Adjusted net income
Multiplied by number of periods in year
6,683
-
6,683
X 4
6,683
15,966
22,649
X 4
15,887
-
15,887
X 4
15,887
-
15,887
X 4
Divided by average total assets for the period
1,279,634
1,279,634
1,020,424
1,020,424
Return on assets
2.1%
7.1%
6.2%
6.2%
YEAR ENDED
($ IN 000’S EXCEPT PERIODS AND PERCENTAGES)
DECEMBER 31, 2019
DECEMBER 31, 2019
(ADJUSTED)
DECEMBER 31, 2018
DECEMBER 31, 2018
(ADJUSTED)
Net income as stated
After tax impact of Refinancing Costs
Adjusted net income
64,349
-
64,349
64,349
15,966
80,315
Divided by average total assets for the year
1,175,803
1,175,803
Return on assets
5.5%
6.8%
53,124
-
53,124
867,651
6.1%
53,124
-
53,124
867,651
6.1%
RETURN ON EQUITY
The Company defines return on equity as annualized net income in the period divided by average shareholders’ equity for the period.
The Company believes return on equity is an important measure of how shareholders’ invested capital is utilized in the business.
($ IN 000’S EXCEPT PERIODS AND PERCENTAGES)
DECEMBER 31, 2019
DECEMBER 31, 2019
(ADJUSTED)
DECEMBER 31, 2018
DECEMBER 31, 2018
(ADJUSTED)
THREE MONTHS ENDED
Net income as stated
After tax impact of Refinancing Costs
Adjusted net income
Multiplied by number of periods in year
Divided by average shareholders'
equity for the period
Return on equity
6,683
-
6,683
X 4
334,980
8.0%
6,683
15,966
22,649
X 4
334,980
27.0%
YEAR ENDED
15,887
-
15,887
X 4
276,424
23.0%
15,887
-
15,887
X 4
276,424
23.0%
($ IN 000’S EXCEPT PERIODS AND PERCENTAGES)
DECEMBER 31, 2019
DECEMBER 31, 2019
(ADJUSTED)
DECEMBER 31, 2018
DECEMBER 31, 2018
(ADJUSTED)
Net income as stated
After tax impact of Refinancing Costs
Adjusted net income
Divided by average shareholders'
equity for the year
Return on equity
64,349
-
64,349
317,816
20.2%
64,349
15,966
80,315
317,816
25.3%
53,124
-
53,124
243,992
21.8%
53,124
-
53,124
243,992
21.8%
goeasy Ltd. 2019 Annual Report 58
FINANCIAL CONDITION
The following table provides a summary of certain information with respect to the Company’s capitalization and financial position as
at December 31, 2019 and 2018.
($ IN 000’S, EXCEPT FOR RATIOS)
DECEMBER 31, 2019
DECEMBER 31, 2018
Consumer loans receivable, net
1,040,552
Cash
Investment
Lease assets
Right-of-use assets
Property and equipment
Goodwill
Derivative financial assets
Intangible assets
Other assets
Total assets
External debt1
Lease liabilities
Derivative financial liabilities
Other liabilities
Total liabilities
Shareholders’ equity
Total capitalization (external debt plus total
shareholders’ equity)
External debt to shareholders’ equity
Net debt to net capitalization2
External debt to EBITDA
46,341
34,300
48,696
46,147
23,007
21,310
-
17,749
40,520
1,318,622
859,126
52,573
16,435
58,067
986,201
332,421
1,191,547
2.58
0.71
4.39
782,864
100,188
-
51,618
-
21,283
21,310
35,094
14,589
28,730
1,055,676
691,062
-
-
63,085
754,147
301,529
992,591
2.29
0.66
5.25
1 External debt includes convertible debentures, loan from revolving credit facility, and notes payable
2 Net debt is calculated as external debt less cash. Net debt to net capitalization is net debt divided by the sum of net debt and shareholders’ equity.
Total assets were $1.3 billion as at December 31, 2019, an increase of $262.9 million or 24.9% compared to December 31, 2018. The
increase was related primarily to: i) the $257.7 million increase in the net consumer loans receivable portfolio; ii) the adoption of
IFRS 16 which resulted in a $46.1 million right-of-use asset being recognized as at December 31, 2019; and iii) the minority equity
investment in PayBright for an aggregate price of $34.3 million partially offset by $53.8 million decrease in cash.
The $262.9 million growth in total assets was primarily financed by: i) a $168.1 million increase in external debt (principally the
advances from revolving credit facility in 2019 amounting to $115 million and the issuance of US$550 million 2024 Notes offset partially
by the refinancing of the US$475 million 2022 Notes); ii) the $30.9 million increase in total shareholder’s equity, which was driven by
earnings generated by the Company (offset partially by share buybacks under the Company’s normal course issuer bid and dividends
paid); and iii) the adoption of IFRS 16 which resulted in a $52.6 million lease liability being recognized as at December 31, 2019. While
the Company has continued to pay a dividend to its shareholders, a large portion of the Company’s earnings over the prior 12 months
have been retained to fund the growth of easyfinancial.
goeasy funds its business through a combination of equity and debt instruments. goeasy’s common shares are listed for trading on the
TSX under the trading symbol “GSY” and goeasy’s convertible debentures are traded on the TSX under the trading symbol “GSY-DB”.
goeasy is rated BB- with a stable trend from S&P and Ba3 with a stable trend from Moody’s.
goeasy Ltd. 2019 Annual Report 59
At December 31, 2019, the Company’s external debt consisted of US$550 million of 2024 Notes, $44 million of Convertible Debentures
(with net carrying values of $702.4 million and $41.7 million, respectively) and $115 million drawn against the Company’s revolving
credit facility. The borrowing limit under the revolving credit facility was $310 million, leaving $195 million in additional available
borrowing capacity as at December 31, 2019.
Borrowings under the 2024 Notes bore a US$ coupon rate of 5.375%. Through a cross-currency swap agreement arranged concurrently
with the offering of the US$550 million 2024 Notes in November 2019, the Company fixed the foreign exchange rate for the proceeds
from the offering and for all required payments of principal and interest under these 2024 Notes, effectively hedging the obligation at
$728.3 million with a Canadian dollar interest rate of 5.65%. These 2024 Notes are due on December 1, 2024.
Borrowings under the Convertible Debenture bear interest at 5.75%. The Convertible Debentures mature on July 31, 2022, and are
convertible at the holder’s option into common shares of the Company at a conversion price of $44.00 per share. During 2019, $7.0
thousand (2018 - $8.9 million) of convertible debentures had converted into 158 (2018 - 203,000) common shares.
Borrowings under the Company’s revolving credit facility bear interest at either the BA rate plus 300 bps or Prime plus 200 bps at
the option of the Company. The $115 million drawn against this revolving credit facility bear interest at the BA rate plus 300 bps. The
revolving credit facility matures on February 12, 2022.
The average blended interest rate for the Company’s debt as at December 31, 2019, was 5.6% down from 7.2% as at December 31, 2018.
During 2019, the Company entered into amendments to its revolving credit facility. The amendments increased the maximum principal
amount available to be borrowed from $174.5 million in 2018 to $310 million and extended the maturity date from November 1, 2020, to
February 12, 2022. As part of these amendments the cost of borrowing under the revolving credit facility was also reduced. Previously,
interest on advances was payable at either the BA rate plus 450 bps or Prime rate plus 350 bps, at the option of the Company.
Subsequent to these amendments, interest on advances is payable at either the BA plus 300 bps or Prime plus 200 bps, at the option
of the Company.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF CASH FLOW COMPONENTS
($ IN 000’S)
DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018
THREE MONTHS ENDED
YEAR ENDED
Cash provided by operating activities before
issuance of consumer loans receivable and
purchase of lease assets
Net issuance of consumer loans receivable
Purchase of lease assets
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Net increase (decrease) in cash for the period
71,063
62,176
296,175
232,196
(112,342)
(12,055)
(53,334)
(4,439)
74,391
16,618
(113,589)
(11,961)
(63,374)
(4,097)
26,209
(41,262)
(415,069)
(36,975)
(155,869)
(45,128)
147,150
(53,847)
(405,827)
(37,913)
(211,544)
(15,616)
217,978
(9,182)
The Company provides loans to non-prime borrowers. The Company obtains capital which is treated as cash flows from financing
activities and then advances funds to borrowers as loans which are treated as cash used in operating activities. When borrowers make
loan payments this generates cash flow from operating activities and income over time. As such when the Company is growing its
portfolio of consumer loans it will tend to use cash in operating activities.
CASH FLOW ANALYSIS FOR THE THREE MONTHS ENDED DECEMBER 31, 2019
Cash used in operating activities for the three-month period ended December 31, 2019 was $53.3 million compared with $63.4 million
in the same period of 2018. Included in cash used in operating activities for the three-month period ended December 31, 2019 were:
i) a net investment of $112.3 million to increase the consumer loans receivable portfolio; and ii) the purchase of lease assets of $12.1
million. If the net issuance of consumer loans receivable and the purchase of lease assets were treated as cash flows from investing
activities, the cash flows generated by operating activities would have been $71.1 million for the three months ended December 31,
2019, up $8.9 million from the same period of 2018. The increase was driven by higher non-cash expenses such as bad debt expense,
depreciation and Refinancing Costs relating to 2022 Notes offset partially by lower earnings.
goeasy Ltd. 2019 Annual Report 60
During the fourth quarter of 2019, the Company generated $74.4 million in cash flow from financing activities. During the quarter, the
Company issued US$550 million 2024 Notes and repaid the US$475 million 2022 Notes, which generated net proceeds of $79.8 million.
In the same quarter, the Company received the net proceeds of $3.0 million from advances against the revolving credit facility. These
inflows were partially offset by $4.4 million in dividend payments and the $4.1 million payment of lease liabilities.
During the fourth quarter of 2018, the Company generated $26.2 million in cash flow from financing activities. During this quarter the
company issued 920,000 common shares, which generated net proceeds of $44.3 million. This inflow was partially offset by the $15.0
million repurchase of shares under the Company’s Normal Course Issuer Bid and $3.1 million payment of dividends.
CASH FLOW ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2019
Cash used in operating activities for the year ended December 31, 2019, was $155.9 million as compared to $211.5 million in the same
period of 2018. Included in cash used in operating activities for the year ended December 31, 2019, were: i) a net investment of $415.1
million to increase the consumer loans receivable portfolio; and ii) the purchase of $37.0 million of lease assets. If the net issuance
of consumer loans receivable and the purchase of lease assets were treated as cash flows from investing activities, the cash flows
generated by operating activities would have been $296.2 million for the year ended December 31, 2019, up $64.0 million from 2018.
The increase was due to higher earnings and higher non-cash expenses such as bad debt expense, depreciation and Refinancing Costs
relating to the 2022 Notes offset partially by lower level of working capital.
During the year, the Company used $45.1 million in investing activities compared to $15.6 million in prior year. The increase was
primarily due to the investment of $34.3 million in PayBright and higher proceeds on sale of assets.
During the year, the Company generated $147.2 million in cash flow from financing activities. During the year, the Company issued
US$550 million 2024 Notes and repaid the US$475 million 2022 Notes, which generated net proceeds of $79.8 million. In 2019, the
Company received the net proceeds of $115 million from advances against the revolving credit facility. These inflows were partially
offset by the $20.3 million repurchase of shares under the Company’s Normal Course Issuer Bid, $16.7 million in dividend payments
and the $15.7 million payment of lease liabilities.
In 2018, the Company generated $218.0 million in cash flow from financing activities primarily due to the Company’s issuance of
US$150 million 2022 Notes and $44.3 million in equity.
OUTSTANDING SHARES AND DIVIDENDS
As at February 12, 2020, there were 14,354,462 common shares, 270,054 DSUs, 471,503 options, 392,966 RSUs, and no warrants
outstanding.
NORMAL COURSE ISSUER BID
On December 18, 2019, the Company announced the acceptance by the TSX of the Company’s Notice of Intention to Make a Normal
Course Issuer Bid (“NCIB”) to commence December 20, 2019 (the “2019 NCIB”). Pursuant to the 2019 NCIB, the Company proposes to
purchase, from time to time, if considered advisable, up to an aggregate of 1,038,269 Common Shares being approximately 10% of
goeasy’s public float as of December 9, 2019. As at December 9, 2019, goeasy had 14,346,709 Common Shares issued and outstanding,
and the average daily trading volume for the six months prior to November 30, 2019, was 36,081. Under the 2019 NCIB, daily purchases
will be limited to 9,020 Common Shares, representing 25% of the average daily trading volume, other than block purchase exemptions.
The purchases were permitted to commence on December 20, 2019, and will terminate on December 19, 2020, or on such earlier date
as the Company may complete its purchases pursuant to the 2019 NCIB. The 2019 NCIB will be conducted through the facilities of the
TSX or alternative trading systems, if eligible, and will conform to their regulations. Purchases under the 2019 NCIB will be made
by means of open market transaction or other such means as a security regulatory authority may permit, including pre-arranged
crosses, exempt offers and private agreements under an issuer bid exemption order issued by a securities regulatory authority. The
price that goeasy will pay for any Common Shares will be the market price of such shares at the time of acquisition, unless otherwise
permitted under applicable rules. As at December 31, 2019, the Company had not cancelled any of its common shares pursuant to
2019 NCIB.
Previously, on November 8, 2018, the Company announced the acceptance by the TSX of the Company’s Notice of Intention to Make a
NCIB to commence November 13, 2018, (the “2018 NCIB”). Pursuant to the 2018 NCIB, the Company proposed to purchase, from time to
time, if considered advisable, up to an aggregate of 555,000 Common Shares, which represented approximately 5% of the Company’s
Public Float. As at October 30, 2018, the Company had 14,803,919 Common Shares issued and outstanding. Under the 2018 NCIB, daily
purchases were limited to 9,052 Common Shares, other than block purchase exemptions. Under the 2018 NCIB, the Company was
permitted to commence share repurchases on November 13, 2018, and the 2018 NCIB terminated on November 12, 2019. On February
25, 2019, the Company announced the acceptance by the TSX of the Company’s amendment to the 2018 NCIB to increase the aggregate
goeasy Ltd. 2019 Annual Report 61
number of Common Shares that may be purchased to 887,000 Common Shares, which represented approximately 8% of the Company’s
Public Float as at October 30, 2018. On September 10, 2019, the Company announced the acceptance by the TSX of the Company’s second
amendment to the 2018 NCIB to increase the aggregate number of Common Shares that may be purchased to 1,108,000 Common Shares,
which represented approximately 10% of the Common Shares issued and outstanding as at October 30, 2018. The purchases made by
goeasy pursuant to the 2018 NCIB were effected through the facilities of the TSX, as well as alternative trading systems, and in accordance
with the rules of the TSX. The price that the Company paid for any Common Shares was the market price of such shares at the time of
acquisition. The Company did not purchase any Common Shares other than by open-market purchases. Under the 2018 NCIB, the Company
completed the purchase for cancellation through the facilities of the TSX of 856,712 Common Shares at a weighted average price of $41.19
per Common Share for a total cost of $35.3 million.
During the year ended December 31, 2019, the Company repurchased and cancelled 458,260 (2018 – 398,452) of its Common Shares
on the open market at an average price of $44.31 (2018 – $37.61) per share pursuant to 2018 NCIB for a total cost of $20.3 million (2018
– $15.0 million).
DIVIDENDS
During the quarter ended December 31, 2019, the Company paid a $0.31 per share quarterly dividend on outstanding common shares.
On February 20, 2019, the Company increased the dividend rate by 37.8% from $0.225 to $0.31. For the quarter ended December 31,
2019, the Company paid a $0.31 per share quarterly dividend on outstanding common shares. This dividend was paid on January 10,
2020. The Company reviews its dividend distribution policy on a regular basis, evaluating its financial position, profitability, cash flow
and other factors the Board of Directors considers relevant. However, no dividends can be declared in the event there is a default of
the loan facility, or where such payment would lead to a default.
The following table sets forth the quarterly dividends paid by the Company in the fourth quarter of the years indicated:
2019
2018
2017
2016
2015
2014
2013
Dividend per share
Percentage increase
$0.310
37.8%
$ 0.225
25.0%
$ 0.18
44.0%
$ 0.125
$ 0.100
$ 0.085
$ 0.085
25.0%
17.6%
0.0%
0.0%
COMMITMENTS, GUARANTEES AND CONTINGENCIES
COMMITMENTS
The Company is committed to software maintenance, development and licensing service agreements, and operating leases for
premises and vehicles. The undiscounted potential future lease payments for operating leases for premises and vehicles and the
estimated operating costs related to technology commitments required for the next five years and thereafter are as follows:
($ IN 000’S)
Premises
Vehicles
Technology commitments
Total contractual obligations
CONTINGENCIES
WITHIN 1 YEAR
AFTER 1 YEAR BUT NOT
MORE THAN 5 YEARS
MORE THAN 5 YEARS
16,863
965
9,893
27,721
35,254
2,043
11,221
48,518
6,309
124
-
6,433
The Company is involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not
expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the Company’s policies.
The Company maintains insurance policies that may provide coverage against certain claims.
goeasy Ltd. 2019 Annual Report 62
RISK FACTORS
OVERVIEW
The Company’s activities are exposed to a variety of commercial, operational, financial and regulatory risks. The Company’s overall
risk management program focuses on the unpredictability of financial and economic markets and seeks to minimize potential adverse
effects on the Company’s financial performance. The Board has overall responsibility for the establishment and oversight of the
Company’s risk management framework. The Corporate Governance, Nominating and Risk Committee of the Board reviews the
Company’s risk management policies on an annual basis.
STRATEGIC RISK
Strategic risk is the risk from changes in the business environment, fundamental changes in demand for the Company’s products or
services, improper implementation of decisions, execution of the Company’s strategy or inadequate responsiveness to changes in the
business environment, including changes in the competitive or regulatory landscape.
The Company’s growth strategy is focused on easyfinancial. The Company’s ability to increase its customer and revenue base is
contingent, in part, on its ability to secure additional locations for easyfinancial, to grow its consumer loans receivable portfolio,
to access customers through new delivery channels, to successfully develop and launch new products to meet evolving customer
demands, to secure growth financing at a reasonable cost, to maintain profitability levels within the mature easyhome business and
to execute with efficiency and effectiveness.
The impact of poor execution by management or an inadequate response to changes in the business environment could have a
material adverse effect on the Company’s financial condition, liquidity and results of operations.
MARKET RISK
Macroeconomic Conditions
Certain changes in macroeconomic conditions, many of which are beyond the Company’s control, can have a negative impact on
its customers and its performance. The Company’s primary customer segment is the non-prime consumer. These cash and credit
constrained customers are affected by adverse macroeconomic conditions such as higher unemployment rates or costs of living,
which can lower collection rates and result in higher charge-off rates and adversely affect the Company’s performance, financial
condition and liquidity. The Company can neither predict the impact current economic conditions will have on its future results, nor
predict when the economic environment will change.
There can be no assurance that economic conditions will remain favorable for the Company’s business or that demand for loans or
default rates by customers will remain at current levels. Reduced demand for loans would negatively impact the Company’s growth
and revenues, while increased default rates by customers may inhibit the Company’s access to capital, hinder the growth of the loan
portfolio attributable to its products and negatively impact its profitability. Either such result could have a material adverse effect on
the Company’s business, prospects, results of operations, financial condition or cash flows.
Interest Rate Risk
The Company’s future success depends in part on its ability to access capital markets and obtain financing on reasonable terms. This
is dependent on a number of factors, many of which the Company cannot control, including interest rates. Amounts due under the
Company’s credit facilities may bear interest at a variable rate. The Company may not hedge its interest rate risks and future changes
in interest rates may affect the amount of interest expense the Company pays. Any increases in interest rates, or in the Company’s
inability to access the debt or equity markets on reasonable terms, could have an adverse impact on its financial condition, results of
operations and growth prospects.
Foreign Currency Risk
The 2024 Notes are US$ denominated. In connection with the offering of the 2024 Notes, the Company entered into the cross-currency
swap to fix the foreign exchange rate for the obligations of the 2024 Notes and for all required payments of principal and interest.
The Company sources some of its merchandise out of the U.S. and, as such, its Canadian operations have some U.S. denominated cash
and payable balances. As a result, the Company has both foreign exchange transaction and translation risk. Although the Company
has U.S. dollar denominated purchases, it has historically been able to price its lease transactions to compensate for the impact of
goeasy Ltd. 2019 Annual Report 63
foreign currency fluctuations on its purchases. However, in periods of rapid change in the Canadian to U.S. dollar exchange rate, the
Company may not be able to pass on such changes in the cost of purchased products to its customers, which may negatively impact
its financial performance.
Competition
The Company estimates the size of the Canadian market for non-prime consumer lending, excluding mortgages, is approximately $231
billion. This demand is currently being met by a wide variety of industry participants that offer diverse products, including auto lending,
credit cards, installment loans, retail finance programs, small business lending and real estate secured lending. Generally, industry
participants have tended to focus on a single product offering rather than providing consumers with multiple alternatives. As a result,
the suppliers to the marketplace are quite diverse.
Competition in the non-prime consumer lending market is based primarily on access, flexibility and cost (interest rates). Consumers
are generally able to transition between the different types of lending products that are available in the marketplace to satisfy their
need for these different characteristics. The Company expects the competition for non-prime consumer lending in Canada will continue
to shift for the foreseeable future. While traditional financial institutions are likely to decrease their risk tolerance and move farther
away from non-prime lending, regional financial institutions such as credit unions, payday lenders, marketplace lenders and online
lenders are expected to continue their expansion into the non-prime market.
The Company also faces direct competition in the Canadian market from other merchandise leasing companies. Other factors that may
adversely affect the performance of the leasing business are increased sales of used furniture and electronics at online and at retail
stores that offer a non-prime point-of-sale purchase financing option. Additional competitors, both domestic and international, may
emerge since barriers to entry are relatively low.
The Company may be unable to compete effectively with new and existing competitors, which could adversely affect its revenues and
results of operations. In addition, investments required to adjust to changing market conditions may adversely affect the Company’s
business and financial performance.
CREDIT RISK
Credit risk is the risk of loss that arises when a customer or third party fails to pay an amount owing to the Company.
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans receivable
and lease assets with customers under merchandise lease agreements. The Company leases products and makes consumer loans to
thousands of customers pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk
with any particular individual, company or other entity, although the Company is subject to a higher level of credit risk due to the credit
constrained nature of many of its customers and in circumstances where its policies and procedures are not complied with.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is impacted by both the
Company’s credit policies and the lending practices which are overseen by the Company’s Credit Committee comprised of members
of senior management. Credit quality of the customer is assessed using proprietary credit scorecards and individual credit limits
are defined in accordance with this assessment. The Company evaluates the concentration of risk with respect to customer loans
receivable as low, as its customers are located in several jurisdictions and operate independently. The Company develops underwriting
models based on the historical performance of groups of customer loans, which guide its lending decisions. To the extent that such
historical data used to develop its underwriting models is not representative or predictive of current loan book performance, the
Company could suffer increased loan losses.
The Company maintains an allowance for credit losses as prescribed by IFRS 9 and as described fully in the notes to the Company’s
financial statements for the period ending December 31, 2019. The process for establishing an allowance for loan losses is critical to
the Company’s results of operations and financial conditions and is based on historical data, the underlying health and quality of the
consumer loan portfolio at a point in time, and forward-looking indicators. To the extent that such inputs used to develop its allowance
for credit losses are not representative or predictive of current loan book performance, the Company could suffer increased loan
losses above and beyond those provided for on its financial statements.
The Company cannot guarantee that delinquency and loss levels will correspond with the historical levels experienced, and there is a risk
that delinquency and loss rates could increase significantly and have a material adverse effect on the financial results of the Company.
goeasy Ltd. 2019 Annual Report 64
The credit risk related to assets on lease with customers results from the possibility of customer default with respect to agreed-
upon payments or in their not returning the leased asset. For amounts receivable from third parties, the risk relates to the possibility
of default on amounts owing to the Company. The Company deals with credible companies, performs ongoing credit evaluations of
debtors and creates an allowance on its financial statements for such uncollectible amounts.
The Company has established a Credit Committee and created processes and procedures to identify, measure, monitor and mitigate
significant credit risks. However, to the extent that such risks go unidentified or are not adequately or expeditiously addressed by
senior management, the Company and its financial performance could be adversely affected.
LIQUIDITY AND FUNDING RISK
Liquidity Risk
The Company has been funded through various sources, including the issuance of the Debentures, revolving Credit Facility, the 2024
Notes, and public market equity offerings. The availability of additional financing will depend on a variety of factors, including the
availability of credit to the financial services industry and the Company’s financial performance and credit ratings.
The Company has publicly stated that it intends to significantly expand its consumer lending business. To achieve this goal, the
Company may require additional funds which can be obtained through various sources, including debt or equity financing. There
can be no assurance, however, that additional funding will be available when needed or will be available on terms favorable to the
Company. The inability to access adequate sources of financing, or to do so on favorable terms, may adversely affect the Company’s
capital structure and ability to fund operational requirements and satisfy financial obligations. If additional funds are raised by issuing
equity securities, shareholders may incur dilution.
Liquidity risk is the risk that the Company’s financial condition is adversely affected by an inability to meet funding obligations and
support the Company’s business growth. The Company manages its capital to maintain its ability to continue as a going concern and
to provide adequate returns to shareholders by way of share appreciation and dividends. The Company’s capital structure consists of
external debt and shareholders’ equity, which comprises issued capital, contributed surplus and retained earnings.
All of the Company’s debt facilities must be renewed on a periodic basis. These facilities contain restrictions on the Company’s ability
to, among other things, pay dividends, sell or transfer assets, incur additional debt, repay other debt, make certain investments
or acquisitions, repurchase or redeem shares and engage in alternate business activities. The facilities also contain a number of
covenants that require the Company to maintain certain specified financial ratios. Failure to meet any of these covenants could result
in an event of default under these facilities which could, in turn, allow the lenders to declare all amounts outstanding to be immediately
due and payable. In such a case, the financial condition, liquidity and results of the Company’s operations could materially suffer.
The Company has been successful in renewing and expanding its credit facilities in the past to meet the needs of its growing
easyfinancial business. If the Company is unable to renew these facilities on acceptable terms when they become due, there could be
a material adverse effect on the Company’s financial condition, liquidity and results of operations.
Debt Service
The Company’s ability to make scheduled payments on, or refinance its debt obligations, depends on its financial condition and
operating performance, which are subject to a number of factors beyond its control. The Company may be unable to maintain a level
of cash flows from operating activities sufficient to permit it to repay the principal and interest on its indebtedness.
If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity
problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations,
reduce its growth plans, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be
able to obtain such alternative measures on commercially reasonable terms, or at all and, even if successful, those alternative actions
may not allow it to meet its scheduled debt service obligations. The Company’s credit agreements restrict its ability to dispose of
assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay
other indebtedness when it becomes due. The Company may not be able to consummate any such dispositions or to obtain proceeds
in an amount sufficient to meet any debt service obligations then due.
The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially
reasonable terms or at all would materially and adversely affect its business, results of operations and financial condition. Failure
to meet its debt obligations could result in default under its lending agreements. In the event of such default, the holders of such
goeasy Ltd. 2019 Annual Report 65
indebtedness could elect to declare all of the funds borrowed thereunder to be immediately due and payable, together with accrued
and unpaid interest, and the Company could, among other remedies that may be available, be forced into bankruptcy, insolvency or
liquidation. If the Company’s operating performance declines, it may need to seek waivers from the holders of such indebtedness
to avoid being in default under the instruments governing such indebtedness. If the Company breaches its covenants under its
indebtedness, it may not be able to obtain a waiver from the holders of such indebtedness on terms acceptable to the Company or at
all. If this occurs, the Company would be in default under such indebtedness, and the holders of such indebtedness could exercise their
rights as described above and the Company could, among other remedies that may be available, be forced into bankruptcy, insolvency
or liquidation. A default under the agreements governing certain of the Company’s existing or future indebtedness and the remedies
sought by the holders of such indebtedness could make the Company unable to pay principal or interest on the debt.
Debt Covenants
The agreements governing the Company’s credit facilities contain restrictive covenants that may limit its discretion with respect to
certain business matters. These covenants may place significant restrictions on, among other things, the Company’s ability to create
liens or other encumbrances, to pay distributions or make certain other payments, investments, loans and guarantees, and to sell or
otherwise dispose of assets. In addition, the agreements governing the Company’s credit facilities may contain financial covenants that
require it to meet certain financial ratios and financial condition tests.
If the Company fails to maintain the requisite financial ratios under the agreement governing its credit facilities, it will be unable
to draw any amounts under the revolving credit facility until such default is waived or cured as required. In addition, such a failure
could constitute an event of default under the Company’s lending agreements entitling the lenders to accelerate the outstanding
indebtedness thereunder unless such event of default is cured as required by the agreement. The Company’s ability to comply with
these covenants in future periods will depend on its ongoing financial and operating performance, which in turn will be subject to
economic conditions and to financial, market and competitive factors, many of which are beyond its control.
The restrictions in the agreements governing the Company’s credit facilities may prevent the Company from taking actions that it
believes would be in the best interest of its business and may make it difficult for it to execute its business strategy successfully or
effectively compete with companies that are not similarly restricted. The Company may also incur future debt obligations that might
subject it to additional restrictive covenants that could affect its financial and operational flexibility.
The Company’s ability to comply with the covenants and restrictions contained in the agreement governing the Company’s credit
facilities may be affected by economic, financial and industry conditions beyond its control. The breach of any of these covenants or
restrictions could result in a default under the agreements that would permit the applicable lenders to declare all amounts outstanding
thereunder to be due and payable (including terminating any outstanding hedging arrangements), together with accrued and unpaid
interest, or cause cross-defaults under the Company’s other debts. If the Company is unable to repay its secured debt, lenders could
proceed against the collateral securing the debt. This could have serious consequences to the Company’s financial condition and
results of operations and could cause it to become bankrupt or insolvent.
Credit Ratings
The Company received credit ratings in connection with the issuance of its 2024 Notes. Any credit ratings applied to the 2024 Notes
are an assessment of the Company’s ability to pay its obligations. The Company is under no obligation to maintain any credit rating
with credit rating agencies and there is no assurance that any credit rating assigned to the 2024 Notes will remain in effect for any
given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering, withdrawal
or failure to maintain any credit ratings applied to the 2024 Notes may have an adverse effect on the market price or value and the
liquidity of the 2024 Notes and, in addition, any such action could make it more difficult or more expensive for the Company to obtain
additional debt financing in the future.
OPERATIONAL RISK
Operational risk, which is inherent in all business activities, is the potential for loss as a result of external events, human behaviour
(including error and fraud, non-compliance with mandated policies and procedures or other inappropriate behaviour) or inadequacy,
or the failure of processes, procedures or controls. The impact may include financial loss, loss of reputation, loss of competitive
position or regulatory and civil penalties. While operational risk cannot be eliminated, the Company takes reasonable steps to mitigate
this risk by putting in place a system of oversight, policies, procedures and internal controls.
goeasy Ltd. 2019 Annual Report 66
Dependence on Key Personnel
One of the significant limiting factors in the Company’s performance and expansion plans will be the hiring and retention of the best
people for the job. Over the past few years, the Company has strengthened its hiring competencies and training programs.
In particular, the Company is dependent upon the abilities, experiences and efforts of its senior management team and other key
employees. The loss of these individuals without adequate replacement could have a material adverse impact on its business and
operations.
As a consequence of its growth strategy and relatively high employee turnover at the store and branch level, the Company requires a
growing number of qualified managers and other store or branch personnel to successfully operate its expanding branch and store
network. There is competition for such personnel, and there can be no assurances that the Company will be successful in attracting
and retaining the personnel it may require. If the Company is unable to attract and retain qualified personnel or its costs to do so
increase dramatically, its operations would be materially adversely affected.
Outsource Risk
The Company outsources certain business functions to third-party service providers, which increases its operational complexity and
decreases its control. The Company relies on these service providers to provide a high level of service and support, which subjects
it to risks associated with inadequate or untimely service. In addition, if these outsourcing arrangements were not renewed or were
terminated or the services provided to the Company were otherwise disrupted, the Company would have to obtain these services from
an alternative provider. The Company may be unable to replace, or be delayed in replacing, these sources and there is a risk that it
would be unable to enter into a similar agreement with an alternate provider on terms that it considers favorable or in a timely manner.
In the future, the Company may outsource additional business functions. If any of these or other risks relating to outsourcing were
realized, the Company’s financial position, liquidity and results of operations could be adversely affected.
Fraud Risk
Employee error and employee and customer misconduct could subject the Company to financial losses or regulatory sanctions
and seriously harm the Company’s reputation. Misconduct by its employees could include hiding unauthorized activities, improper
or unauthorized activities on behalf of customers or improper use of confidential information. It is not always possible to prevent
employee error and misconduct, and the precautions the Company takes to prevent and detect this activity may not be effective in all
cases. Employee error could also subject the Company to financial claims for negligence.
If the Company’s internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured, exceeds applicable
insurance limits or if insurance coverage is denied or not available, it could have a material adverse effect on the Company’s business,
financial condition and results of operations.
Technology Risk
The Company is dependent upon the successful and uninterrupted functioning of its computer, internet and data processing systems.
The failure of these systems could interrupt operations or materially impact the Company’s ability to enter into new lease or lending
transactions and service or collect customer accounts. Although the Company has extensive information technology security and
disaster recovery plans, such a failure, if sustained, could have a material adverse effect on the Company’s financial condition, liquidity
and results of operations.
Breach of Information Security
The Company’s operations rely heavily on the secure processing, storage and transmission of confidential and sensitive customer
and other information through its information technology network. Other risks include the Company’s use of third-party vendors
with access to its network that may increase the risk of a cyber security breach. Third-party breaches or inadequate levels of cyber
security expertise and safeguards may expose the Company, directly or indirectly, to security breaches.
A breach, unauthorized access, computer virus, or other form of malicious attack on the Company’s information security may result
in the compromise of confidential and/or sensitive customer or employee information, destruction or corruption of data, reputational
harm affecting customer and investor confidence, and a disruption in the management of customer relationships or the inability
to originate, process and service the Company’s leasing or lending portfolios which could have a material adverse effect on the
Company’s financial condition, liquidity and results of operations.
To mitigate the risk of an information security breach, the Company regularly assesses such risks, has a disaster recovery plan in
place and has implemented reasonable controls over unauthorized access. The store network and corporate administrative offices,
including centralized operations, takes reasonable measures to protect the security of its information systems (including against
cyber-attacks). The Chief Information Officer of the Company oversees information security. However, such a cyber-attack or data
breach could have a material adverse effect on the Company and its financial condition, liquidity and results of operations.
goeasy Ltd. 2019 Annual Report 67
Privacy, Information Security, and Data Protection Regulations
The Company is subject to various privacy and information security laws and takes reasonable measures to ensure compliance with
all requirements. Legislators and regulators are increasingly adopting new privacy and information security laws which may increase
the Company’s cost of compliance. While the Company has taken reasonable steps to protect its data and that of its customers, a
breach in the Company’s information security may adversely affect the Company’s reputation and also result in fines or penalties from
governmental bodies or regulators.
Risk Management Processes and Procedures
The Company has established a Risk Oversight Committee and created processes and procedures to identify, measure, monitor and
mitigate significant risks to the organization. However, to the extent such risks go unidentified or are not adequately or expeditiously
addressed by management, the Company could be adversely affected.
COMPLIANCE RISK
Internal Controls Over Financial Reporting
The effective design of internal controls over financial reporting is essential for the Company to prevent and detect fraud or material
errors that may have occurred. The Company is also obligated to comply with the Form 52-109F2 Certification of interim filings
and 52-109F1 Certification of annual filings of the Ontario Securities Commission, which requires the Company’s CEO and CFO to
submit a quarterly and annual certificate of compliance. The Company and its management have taken reasonable steps to ensure
that adequate internal controls over financial reporting are in place. However, there is a risk that a fraud or material error may go
undetected and that such material fraud or error could adversely affect the Company.
Government Regulation and Compliance
The Company takes reasonable measures to ensure compliance with governing statutes, regulations and regulatory policies. A
failure to comply with such statutes, regulations or regulatory policies could result in sanctions, fines or other settlements that could
adversely affect both its earnings and reputation. Changes to laws, statutes, regulations or regulatory policies could also change
the economics of the Company’s merchandise leasing and consumer lending businesses including the salability or pricing of certain
ancillary products which could have a material adverse effect on the Company.
Section 347 of the Criminal Code prohibits the charging of an effective annual rate of interest that exceeds sixty percent for an
agreement or arrangement for credit advanced. The Company believes that easyfinancial is subject to section 347 of the Criminal
Code and closely monitors any legislative activity in this area. The application of additional capital requirements or a reduction in
the maximum cost of borrowing could have a material adverse effect on the Company’s financial condition, liquidity and results of
operations.
While management of the Company is of the view that its merchandise leasing business does not involve the provision of credit, it
could be determined that aspects of easyhome’s merchandise leasing business are subject to the Criminal Code. The Company has
implemented measures to ensure that the aggregate of all charges and expenses under its merchandise lease agreement do not
exceed the maximum interest rate allowed by law. Where aspects of easyhome’s business are subject to the Criminal Code, and
the Company has not complied with the requirements thereof, the Company could be subject to either or both (1) civil actions for
nullification of contracts, rebate of some or all payments made by customers, and damages and (2) criminal prosecution for violation
of the Criminal Code, any of which outcomes could have a material adverse effect on the Company.
Numerous consumer protection laws and related regulations impose substantial requirements upon lenders involved in consumer
finance, including leasing and lending. Also, federal and provincial laws impose restrictions on consumer transactions and require
contract disclosures relating to the cost of borrowing and other matters. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions.
easyfinancial is subject to minimal regulatory capital requirements in connection with its operations in Saskatchewan. Otherwise, the
Company operates in an unregulated environment with regard to capital requirements.
Accounting Standards
From time to time the Company may be subject to changes in accounting standards issued by accounting standard-setting bodies,
which may affect the Company’s financial statements and reduce its reported profitability.
goeasy Ltd. 2019 Annual Report 68
LEGAL AND REPUTATIONAL RISK
Reputation
The Company’s reputation is very important to attracting new customers to its platform, securing repeat lending to existing customers,
hiring the best employees and obtaining financing to facilitate the growth of its business. While the Company believes that it has a good
reputation and that it provides customers with a superior experience, there can be no assurance that the Company will continue to
maintain a good relationship with customers or avoid negative publicity.
In recent years, consumer advocacy groups and some media reports have advocated governmental action to prohibit or place
severe restrictions on non-bank consumer loans. Such consumer advocacy groups and media reports generally focus on the annual
percentage rate for this type of consumer loan, which is compared unfavorably to the interest typically charged by banks to consumers
with top-tier credit histories. The finance charges the Company assesses can attract media publicity about the industry and be
perceived as controversial. Customer’s acceptance of the interest rates the Company charges on its consumer loans receivable could
impact the future rate of the growth. Additionally, if the negative characterization of these types of loans is accepted by legislators and
regulators, the Company could become subject to more restrictive laws and regulations applicable to consumer loan products that
could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition or cash flows.
The Company’s ability to attract and retain customers is highly dependent upon the external perceptions of its level of service,
trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding
these matters — even if related to seemingly isolated incidents, or even if related to practices not specific to short-term loans,
such as debt collection — could erode trust and confidence and damage the Company’s reputation among existing and potential
customers, which would make it difficult to attract new customers and retain existing customers, significantly decrease the demand
for the Company’s products, result in increased regulatory scrutiny, and have a material adverse effect on the Company’s business,
prospects, results of operations, financial condition, ability to raise growth capital or cash flows.
The Company’s former U.S. franchisees and certain other persons operate a lease-to-own business within the U.S. Although the
Company does not own these businesses, their use of the easyhome name could adversely affect the Company if these third parties
receive negative publicity or if external perceptions of these third parties’ levels of service, trustworthiness or business practices are
negative.
Litigation
From time to time and in the normal course of business, the Company may be involved in material litigation or may be subject to
regulatory actions. There can be no assurance that any litigation or regulatory action in which the Company may become involved in
the future will not have a material adverse effect on the Company’s business, financial condition or results of operations. Lawsuits
or regulatory actions could cause the Company to incur substantial expenditures, generate adverse publicity and could significantly
impair the Company’s business, force it to cease doing business in one or more jurisdictions or cause it to cease offering one or more
products.
The Company is also likely to be subject to further litigation and communications with regulators in the future. An adverse ruling or a
settlement of any current or future litigation or regulatory actions against the Company or another lender could cause the Company to
have to refund fees and/or interest collected, forego collections of the principal amount of loans, pay multiple damages, pay monetary
penalties and/or modify or terminate its operations in particular jurisdictions. Defense of any lawsuit or regulatory action, even if
successful, could require substantial time and attention of the Company’s management and could require the expenditure of significant
amounts for legal fees and other related costs.
Possible Volatility of Stock Price
The market price of the Common Shares, similar to that of many other Canadian (and indeed worldwide) companies, has been subject
to significant fluctuation in response to numerous factors, including significant shifts in the availability of global credit, swings in
macro-economic performance due to volatile shifts in oil prices and unexpected natural disasters, concerns about the global economy
and potential recession, economic shocks such as the 2015 decline in oil prices and the related impact on the Canadian economy, as
well as variations in the annual or quarterly financial results of the Company, timing of announcements of acquisitions or material
transactions by the Company or its competitors, other conditions in the economy in general or in the industry in particular, changes
in applicable laws and regulations and other factors. Moreover, from time to time, the stock markets experience significant price and
volume volatility that may affect the market price of the Common Shares for reasons unrelated to the Company’s performance. No
prediction can be made as to the effect, if any, that future sales of Common Shares or the availability of shares for future sale (including
shares issuable upon the exercise of stock options) will have on the market price of the Common Shares prevailing from time to time.
Sales of substantial numbers of such shares or the perception that such sales could occur may adversely affect the prevailing price of
the Common Shares. Significant changes in the stock price could jeopardize the Company’s ability to raise growth capital through an
equity offering without significant dilution to existing shareholders.
goeasy Ltd. 2019 Annual Report 69
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during
the year. Actual amounts could differ from these estimates.
Significant changes in assumptions, including those with respect to future business plans and cash flows, could change the recorded
amounts by a material amount.
The Company’s critical Accounting Estimates are as described in the December 31, 2019 notes to the consolidated financial statements.
ADOPTION OF NEW ACCOUNTING STANDARDS
On January 1, 2019, the Company adopted IFRS 16, the impact of which has been described below and in the notes to the Company’s
consolidated financial statements for the year ended December 31, 2019.
ADOPTION OF IFRS 16
IFRS 16 supersedes IAS 17, Leases (“IAS 17”), IFRIC 4, Determining whether an Arrangement contains a Lease, SIC-15, Operating
Leases-Incentives and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases
under a single on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating
or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Company is the
lessor such as the Company’s easyhome merchandise leasing business.
The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1,
2019. Under this method, comparative figures for 2018 were not restated and the cumulative effect of initially applying the standard
was recognized as an adjustment to the opening balance of retained earnings as at January 1, 2019.
The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously
identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition
exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase
option (‘short-term leases’).
IMPACT OF ADOPTION OF IFRS 16
The following table summarizes the transition adjustment required to adopt IFRS 16 as at January 1, 2019.
($ IN 000’S)
Right-of-use asset
Deferred tax asset
Lease liabilities
Deferred lease inducements
Retained earnings
CARRYING
AMOUNT UNDER PREVIOUS
ACCOUNTING STANDARDS
AS AT DECEMBER 31, 2018
TRANSITION ADJUSTMENT
IFRS 16 CARRYING
AMOUNT AS AT JANUARY
1, 2019
-
9,445
-
1,234
143,710
41,763
1,244
47,523
(1,234)
(3,282)
41,763
10,689
47,523
-
140,428
The Company has lease contracts for various premises and vehicles. Before the adoption of IFRS 16, the Company classified each of its
leases (as lessee) at the inception date as an operating lease under IAS 17. In such operating leases, the leased property was not capitalized,
and the lease payments were recognized as rent expense in the statement of income on a straight-line basis over the lease term.
goeasy Ltd. 2019 Annual Report 70
Upon the adoption of IFRS 16, the Company reviewed all operating leases under IAS 17, except for short-term leases (generally defined as
those with a term of less than 12 months). The IFRS 16 standard provides specific exemptions for such short-term leases and hence the
accounting for those leases did not change. The Company also applied the available practical expedients whereby the Company:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
In accordance with IFRS 16, the Company recognized right-of-use assets and lease liabilities for those leases previously classified as
operating leases, except for short-term leases.
The right-of-use assets for leases recognized as at the January 1, 2019 date of adoption is the net carrying amount for the leases assuming
that the standard had always been applied. The net carrying amount of the right-of-use assets are measured at the amount of lease liabilities
at the date of the lease inception and recognized as if the standard had always been applied, less any accumulated depreciation (from the lease
inception to the January 1, 2019 date of adoption) and less any lease incentives received. As such the deferred lease inducements previously
reported on the statements of financial position are effectively netted against the right-of-use assets. The lease liabilities were recognized based
on the present value of the remaining lease payments as at January 1, 2019, discounted using the incremental borrowing rate on leases at the
date of initial application. As mentioned above, the difference between the right-of-use asset and lease liabilities recognized at the date of initial
application was recognized as an adjustment to the opening balance of retained earnings as at January 1, 2019.
The lease liability is derived by discounting the lease payments to which the Company is committed (but excluding variable lease payments
such as property tax and common area maintenance charges on property leases and short-term leases as allowed under IFRS 16), at the
average incremental borrowing rate of the leases.
ACCOUNTING POLICIES UNDER IFRS 16
Set out below are the new accounting policies of the Company upon adoption of IFRS 16, which have been applied from the date of initial
application:
Right-of-use assets
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized at the inception of the lease, initial
direct costs incurred, and lease payments made at or before the lease commencement date less any lease incentives received. Unless
the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets
are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to
impairment.
Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives
receivable, plus variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments
of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments
(such as common area maintenance costs or property taxes) that do not depend on an index or a rate are recognized as expense in the period
on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate on leases at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
Short-term leases
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12
months or less from the commencement date and do not contain a purchase option). Lease payments on short-term leases are recognized
as expense on a straight-line basis over the lease term.
Significant judgment in determining the lease term of contracts with renewal options
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not
to be exercised.
goeasy Ltd. 2019 Annual Report 71
The Company has the option, under some of its leases to lease the premises for additional terms of one to ten years. The Company applies
judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create
an economic incentive for it to exercise the renewal. After the commencement date, the Company re-assesses the lease term if there is a
significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew
(i.e., a change in business strategy).
IMPACT ON THE STATEMENTS OF INCOME
The net effect of adopting IFRS 16 on the statements of income is to decrease operating expenses before depreciation and amortization
while increasing depreciation and amortization and financing costs with an insignificant impact on net income. By extension this will result
in earnings before interest, income tax, depreciation and amortization (EBITDA) increasing as the depreciation of the right-of-use assets
and interest on the lease liability is excluded from this measure. Operating income will also increase as the interest on the lease liability is
excluded from this measure. The adoption of IFRS 16 has no impact on the cash flows of the Company. For the three-month period and year
ended December 31, 2019, the adoption of IFRS 16 decreased net income by $2 thousand and $13 thousand, respectively as set out below.
The following table presents a comparison of the financial results for the three-month period and year ended December 31, 2019 estimated
under the previous accounting standard (IAS 17) against the financial results for the comparable periods in 2018 as reported.
THREE MONTHS ENDED
($ IN 000’S EXCEPT EARNINGS PER SHARE AND
PERCENTAGES)
DECEMBER 31, 2019
(AS REPORTED)
IFRS 16
ADJUSTMENTS
Summary Financial Results
Revenue
Operating expenses before depreciation and
amortization
Depreciation and amortization expense
Operating income
Finance costs
Income before income taxes
Income tax expense
Net income
Adjusted net income
Diluted earnings per share
Adjusted earnings per share
EBITDA2
EBITDA margin2
Operating margin2
Return on equity2
Adjusted return on equity2
165,536
102,790
16,263
46,483
37,123
9,360
2,677
6,683
22,649
0.46
1.45
53,395
32.3%
28.1%
8.0%
27.0%
DECEMBER 31, 2019
(ESTIMATED
UNDER PREVIOUS
ACCOUNTING
STANDARD1)
DECEMBER 31, 2018
(AS REPORTED)
-
165,536
138,160
4,585
(3,931)
(654)
(656)
2
-
2
2
-
-
(4,585)
(2.8%)
(0.4%)
-
-
107,375
12,332
45,829
36,467
9,362
2,677
6,685
22,651
0.46
1.45
48,810
29.5%
27.7%
8.0%
27.0%
90,369
12,685
35,106
12,811
22,295
6,408
15,887
15,887
1.02
1.02
37,847
27.4%
25.4%
23.0%
23.0%
goeasy Ltd. 2019 Annual Report 72
($ IN 000’S EXCEPT EARNINGS PER SHARE AND
PERCENTAGES)
DECEMBER 31, 2019
(AS REPORTED)
IFRS 16
ADJUSTMENTS
Summary Financial Results
Revenue
Operating expenses before depreciation and
amortization
Depreciation and amortization expense
Operating income
Finance costs
Income before income taxes
Income tax expense
Net income
Adjusted net income
Diluted earnings per share
Adjusted earnings per share
EBITDA2
EBITDA margin2
Operating margin2
Return on equity2
Adjusted return on equity2
YEAR ENDED
DECEMBER 31, 2019
(ESTIMATED
UNDER PREVIOUS
ACCOUNTING
STANDARD1)
DECEMBER 31, 2018
(AS REPORTED)
-
609,383
506,191
17,650
(15,199)
(2,451)
(2,464)
13
-
13
13
-
-
393,876
49,165
166,342
76,817
89,525
25,163
64,362
80,328
4.17
5.17
334,471
52,003
119,717
45,800
73,917
20,793
53,124
53,124
3.56
3.56
609,383
376,226
64,364
168,793
79,281
89,512
25,163
64,349
80,315
4.17
5.17
195,755
(17,650)
178,105
131,632
32.1%
27.7%
20.2%
25.3%
(2.9%)
(0.4%)
-
-
29.2%
27.3%
20.2%
25.3%
26.0%
23.7%
21.8%
21.8%
1 This represents a non-IFRS measure and reflects the financial results for the year ended December 31, 2019 estimated under the previous accounting standard.
2 See description in sections “Portfolio Analysis” and “Key Performance Indicators and Non-IFRS Measures”.
INTERNAL CONTROLS
DISCLOSURE CONTROLS AND PROCEDURES (“DC&P”)
DC&P are designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed with or
submitted to various securities regulators is recorded, processed, summarized and reported within the time periods specified in applicable
Canadian securities laws and include controls and procedures designed to ensure that information required to be disclosed in the Company’s
filings or other reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), so that timely decisions can be made regarding required disclosure.
The Company’s management, under supervision of, and with the participation of, the CEO and CFO, have designed and evaluated the Company’s
DC&P, as required in Canada by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings”. Based on
this evaluation, the CEO and CFO have concluded that the design of the system of the Company’s disclosure controls and procedures were
effective as at December 31, 2019.
INTERNAL CONTROLS OVER FINANCIAL REPORTING (“ICFR”)
ICFR is a process designed by, or under the supervision of, senior management, and effected by the Board of Directors, management
and other personnel, to provide reasonable assurances regarding the reliability of financial reporting and preparation of the Company’s
consolidated financial statements in accordance with IFRS.
The Company’s internal control over financial reporting framework includes those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable details, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial
statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
goeasy Ltd. 2019 Annual Report 73
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the Company’s consolidated financial statements.
Management is responsible for establishing and maintaining ICFR and designs such controls to attempt to ensure that the required
objectives of these internal controls have been met. Management uses the Internal Control – Integrated Framework (2013) to evaluate
the effectiveness of internal control over financial reporting, which is a recognized and suitable framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).
In designing and evaluating such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed
and operated, can provide only reasonable assurance and may not prevent or detect all misstatements as a result of, among other things,
error or fraud. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and/or procedures may deteriorate.
CHANGES TO ICFR DURING 2019
No changes were made in our internal control over financial reporting during the year ended December 31, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting. On January 1, 2019, the Company adopted IFRS 16
and have updated and modified certain processes and internal controls over financial reporting as a result of this new accounting standard.
EVALUATION OF ICFR AT DECEMBER 31, 2019
As at December 31, 2019, under the direction and supervision of the CEO and CFO, the Company has evaluated the effectiveness of the
Company’s ICFR. The evaluation included a review of key controls, testing and evaluation of such test results. Based on this evaluation, the
CEO and CFO have concluded that the design and operation of the Company’s internal controls over financial reporting were effective as at
December 31, 2019.
goeasy Ltd. 2019 Annual Report 74
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and the information in this Annual Report are the responsibility of management
and have been approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with International Financial Reporting
Standards [“IFRS”] and include some amounts based on management’s best estimates and judgments. When alternative accounting
methods exist, management has chosen those it considers most appropriate in the circumstances. Management has prepared the
financial information presented elsewhere in the annual report and has ensured that it is consistent with the financial statements.
goeasy Ltd. maintains a system of internal controls to provide reasonable assurance that transactions are properly authorized, financial
records are accurate and reliable, and the Company’s assets are properly accounted for and adequately safeguarded. These controls
include quality standards in the hiring and training of employees, written policies and procedures related to employee conduct, risk
management, external communication and disclosure of material information, and review and oversight of the Company’s policies,
procedures and practices. Management has assessed the effectiveness of this system of internal controls and determined that, as at
December 31, 2019, the Company’s internal control over financial reporting is effective.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately
responsible for reviewing and approving the financial statements. The Board of Directors carries out its responsibility for the financial
statements through its Audit Committee. The Audit Committee is composed entirely of independent directors. The Audit Committee is
responsible for the quality and integrity of the Company’s financial information, the effectiveness of the Company’s risk management,
internal controls and regulatory compliance practices, reviewing and approving applicable financial information and documents prior to
public disclosure and for selecting the Company’s external auditors. The Audit Committee meets periodically with management and the
external auditors to review the financial statements and the annual report and to discuss audit, financial and internal control matters.
The Company’s external auditors have full and free access to the Audit Committee.
The financial statements have been subject to an audit by the Company’s external auditors, Ernst & Young LLP, in accordance with
Canadian generally accepted auditing standards on behalf of the shareholders.
Jason Mullins
President & Chief Executive Officer
Hal Khouri
Executive Vice-President & Chief Financial Officer
goeasy Ltd. 2019 Annual Report 75
INDEPENDENT AUDITOR’S REPORT
To the shareholders of goeasy Ltd.
OPINION
We have audited the consolidated financial statements of goeasy Ltd. and its subsidiaries (the Company), which comprise the consolidated
statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of income, consolidated statements
of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for
the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows
for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises:
• Management’s Discussion & Analysis.
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. 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.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on
this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those
charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
goeasy Ltd. 2019 Annual Report 76
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are 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 Canadian generally accepted 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 these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is David Tedesco.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 12, 2020
goeasy Ltd. 2019 Annual Report 77
AUDITED
CONSOLIDATED
FINANCIAL
STATEMENTS
goeasy Ltd. 2019 Annual Report
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(expressed in thousands of Canadian dollars)
AS AT
DECEMBER 31, 2019
AS AT
DECEMBER 31, 2018
ASSETS
Cash (note 4)
Amounts receivable (note 5)
Prepaid expenses
Consumer loans receivable, net (note 6)
Investment (note 7)
Lease assets (note 8)
Property and equipment, net (note 9)
Deferred tax assets (note 18)
Derivative financial assets (note 13)
Intangible assets, net (note 10)
Right-of-use assets (note 3)
Goodwill (note 10)
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Revolving credit facility (note 11)
Accounts payable and accrued liabilities
Income taxes payable
Dividends payable (note 14)
Deferred lease inducements (note 3)
Unearned revenue
Derivative financial liabilities (note 13)
Lease liabilities (note 3)
Convertible debentures (note 12)
Notes payable (note 13)
Total Liabilities
Shareholders' equity
Share capital (note 14)
Contributed surplus (note 15)
Accumulated other comprehensive income (loss)
Retained earnings
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
46,341
18,482
7,077
1,040,552
34,300
48,696
23,007
14,961
-
17,749
46,147
21,310
1,318,622
115,000
41,350
4,187
4,448
-
8,082
16,435
52,573
41,712
702,414
986,201
141,956
20,296
(915)
171,084
332,421
1,318,622
100,188
15,450
3,835
782,864
-
51,618
21,283
9,445
35,094
14,589
-
21,310
1,055,676
-
45,103
7,499
3,247
1,234
6,002
-
-
40,581
650,481
754,147
138,090
16,105
3,624
143,710
301,529
1,055,676
David Ingram
Director
Donald K. Johnson
Director
goeasy Ltd. 2019 Annual Report 79
CONSOLIDATED STATEMENTS OF INCOME
(expressed in thousands of Canadian dollars except earnings per share)
YEAR END
DECEMBER 31, 2019
DECEMBER 31, 2018
REVENUE
Interest income
Lease revenue
Commissions earned
Charges and fees
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION
Salaries and benefits
Stock-based compensation (note 15)
Advertising and promotion
Bad debts
Occupancy
Technology costs
Other expenses (note 16)
DEPRECIATION AND AMORTIZATION
Depreciation of lease assets
Depreciation of right-of-use assets (note 3)
Depreciation of property and equipment
Amortization of intangible assets
Total operating expenses
Operating income
Finance costs
Interest expense and amortization of deferred financing charges (note 17)
Interest expense on lease liabilities (note 3)
Refinancing cost relating to notes payable (note 13)
Income before income taxes
Income tax expense (recovery) (note 18)
Current
Deferred
Net income
Basic earnings per share (note 19)
Diluted earnings per share (note 19)
See accompanying notes to the consolidated financial statements.
345,997
113,236
135,510
14,640
609,383
120,414
8,686
26,699
156,742
20,573
12,293
30,819
376,226
37,402
15,199
6,281
5,482
64,364
440,590
168,793
55,094
2,464
21,723
79,281
89,512
27,763
(2,600)
25,163
64,349
4.40
4.17
255,997
119,745
117,000
13,449
506,191
114,522
6,836
19,145
118,980
34,665
11,118
29,205
334,471
40,088
-
5,719
6,196
52,003
386,474
119,717
45,800
-
-
45,800
73,917
24,354
(3,561)
20,793
53,124
3.78
3.56
goeasy Ltd. 2019 Annual Report 80
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(expressed in thousands of Canadian dollars)
Net income
Other comprehensive income (loss) to be reclassified to the consolidated statement
of income in subsequent periods
Change in foreign currency translation reserve
Change in fair value of cash flow hedge, net of taxes
Reclassification of cash flow hedge to the consolidated statement of income, net of taxes
Transfer of realized translation losses on disposal of a special purpose entity
Comprehensive income
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(expressed in thousands of Canadian dollars)
YEAR END
DECEMBER 31, 2019
DECEMBER 31, 2018
64,349
53,124
12
3,014
(7,648)
83
(4,539)
59,810
(20)
3,503
-
-
3,483
56,607
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
TOTAL
CAPITAL
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TOTAL
SHAREHOLDERS'
EQUITY
Balance, December 31, 2018
138,090
16,105
154,195
143,710
International Financial Reporting Standards
16 adjustment (note 3)
Adjusted Balance, January 1, 2019
Common shares issued
Conversion of convertible debentures
Stock-based compensation (note 15)
-
138,090
8,334
6
-
-
-
(3,282)
16,105
154,195
140,428
(4,495)
3,839
-
6
8,686
8,686
-
-
-
Shares purchased for cancellation (note 14)
(4,474)
Comprehensive income
Dividends (note 14)
-
-
-
-
-
Balance, December 31, 2019
141,956
20,296
162,252
(4,474)
(15,839)
-
-
64,349
(17,854)
171,084
Balance, December 31, 2017
85,874
15,305
101,179
126,924
International Financial Reporting
Standards 9 adjustment
Adjusted Balance, January 1, 2018
Common shares issued
Conversion of convertible debentures
Stock-based compensation (note 15)
Shares withheld related to net share
settlement
-
85,874
48,112
7,924
-
-
Shares purchased for cancellation (note 14)
(3,820)
Comprehensive income
Dividends (note 14)
-
-
-
15,305
(2,972)
-
6,836
(3,064)
-
-
-
-
101,179
45,140
7,924
6,836
(3,064)
(3,820)
-
-
Balance, December 31, 2018
138,090
16,105
154,195
(12,659)
114,265
-
-
-
-
(11,175)
53,124
(12,504)
143,710
See accompanying notes to the consolidated financial statements.
3,624
-
3,624
-
-
-
-
(4,539)
-
(915)
141
-
141
-
-
-
-
-
3,483
-
3,624
301,529
(3,282)
298,247
3,839
6
8,686
(20,313)
59,810
(17,854)
332,421
228,244
(12,659)
215,585
45,140
7,924
6,836
(3,064)
(14,995)
56,607
(12,504)
301,529
goeasy Ltd. 2019 Annual Report 81
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net income
Add (deduct) items not affecting cash
Bad debts expense
Depreciation of lease assets
Refinancing cost relating to notes payable
Depreciation of right-of-use assets
Stock-based compensation (note 15)
Depreciation of property and equipment
Amortization of intangible assets
Amortization of deferred financing charges
Amortization of premium on notes payable
Deferred income tax recovery (note 18)
Gain on sale or disposal of assets
Net change in other operating assets and liabilities (note 20)
Net issuance of consumer loans receivable
Purchase of lease assets
Cash used in operating activities
INVESTING ACTIVITIES
Proceeds on sale of assets
Purchase of property and equipment
Purchase of intangible assets
Purchase of investment
Cash used in investing activities
FINANCING ACTIVITIES
Advances from revolving credit facility
Issuance of notes payable (note 13)
Issuance of common shares
Lease incentive received (note 3)
Payment of lease liabilities (note 3)
Payment of common share dividends (note 14)
Purchase of common shares for cancellation (note 14)
Payment of advances from revolving credit facility
Shares withheld related to net share settlement
Cash provided by financing activities
Net decrease in cash during the year
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements
YEAR END
DECEMBER 31, 2019
DECEMBER 31, 2018
64,349
53,124
156,742
37,402
21,723
15,199
8,686
6,281
5,482
3,506
(1,879)
(2,600)
(2,591)
312,300
(16,125)
(415,069)
(36,975)
(155,869)
6,032
(8,218)
(8,642)
(34,300)
(45,128)
167,000
79,810
3,839
1,208
(15,741)
(16,653)
(20,313)
(52,000)
-
147,150
(53,847)
100,188
46,341
118,980
40,088
-
-
6,836
5,719
6,196
4,540
(1,005)
(3,561)
(568)
230,349
1,847
(405,827)
(37,913)
(211,544)
1,231
(11,225)
(5,622)
-
(15,616)
69,378
203,202
45,140
-
-
(11,683)
(14,995)
(70,000)
(3,064)
217,978
(9,182)
109,370
100,188
goeasy Ltd. 2019 Annual Report 82
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
(Expressed in thousands of Canadian dollars
except where otherwise indicated)
December 31, 2019 and 2018
goeasy Ltd. 2019 Annual Report
1. CORPORATE INFORMATION
goeasy Ltd. (the “Parent Company”) was incorporated under the laws of the Province of Alberta, Canada by Certificate and Articles of
Incorporation dated December 14, 1990 and was continued as a corporation in the Province of Ontario pursuant to Articles of Continuance
dated July 22, 1993. The Parent Company has common shares listed on the Toronto Stock Exchange (the “TSX”) under the symbol “GSY”
and its head office is located in Mississauga, Ontario, Canada.
The Parent Company and all of the companies that it controls (collectively referred to as “goeasy” or the “Company”) are a leading full-
service provider of goods and alternative financial services that provides everyday Canadians with a path for a better tomorrow, today.
The principal operating activities of the Company include: i) providing loans and other financial services to consumers; and ii) leasing
household products to consumers.
The Company operates in two reportable segments: easyfinancial and easyhome. As at December 31, 2019, the Company operated
256 easyfinancial locations (including 20 kiosks within easyhome stores) and 163 easyhome stores (including 35 franchises and one
consolidated franchise location). As at December 31, 2018, the Company operated 241 easyfinancial locations (including 33 kiosks within
easyhome stores) and 165 easyhome stores (including 31 franchises and one consolidated franchise location).
The consolidated financial statements were authorized for issue by the Board of Directors on February 12, 2020.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of the Company for the year ended December 31, 2019 have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The policies
applied in these consolidated financial statements were based on IFRS issued and outstanding as at December 31, 2019.
Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the Parent Company and all of the companies that it controls.
goeasy Ltd. controls an entity: i) when it has the power to direct the activities of the entity that have the most significant impact on the
entity’s risks and/or returns; ii) where it is exposed to significant risks and/or returns arising from the entity; and iii) where it is able to
use its power to affect the risks and/or returns to which it is exposed. This includes all wholly-owned subsidiaries and a special purpose
entity (“SPE”) where goeasy Ltd. has control but does not have ownership of a majority of voting rights. In 2019, the Parent Company
disposed the SPE.
As at December 31, 2019, the Parent Company’s principal subsidiaries were:
• RTO Asset Management Inc.
• easyfinancial Services Inc.
• easyhome U.S. Ltd.
All intra-group transactions and balances were eliminated on consolidation.
PRESENTATION CURRENCY
The consolidated financial statements are presented in Canadian dollars (“CAD”), which is the Parent Company’s functional currency.
The functional currency is the currency of the primary economic environment in which a reporting entity operates and is normally the
currency in which the entity generates and expends cash. All financial information presented in CAD has been rounded to the nearest
thousand, unless noted otherwise.
FOREIGN CURRENCY TRANSLATION
The Parent Company’s presentation and functional currency is CAD. Each entity in the Company determines its own functional currency
and items included in the financial statements of each entity are measured using that functional currency. The functional currency of
the Company’s United States (U.S.) subsidiary, easyhome U.S. Ltd. and its SPE, is the U.S. dollar (“USD”). The functional currency of all
other entities that are consolidated is CAD.
Foreign currency transactions are initially recorded at the rate prevailing at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated into the functional currency at the spot rate on the reporting date. Non monetary items that
are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
The assets and liabilities of foreign operations are translated into CAD at the rate of exchange prevailing at the reporting date and items
in comprehensive income are translated at the average exchange rates prevailing for the year. The exchange differences arising on the
translation are recognized in other comprehensive income (loss). On disposal or divestiture of a foreign operation, the component of
accumulated other comprehensive income (loss) relating to that particular foreign operation is reclassified to net income.
goeasy Ltd. 2019 Annual Report 84
REVENUE RECOGNITION
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding promotional discounts,
rebates and sales taxes. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting
as principal or agent. The Company has concluded that it is acting as principal in all of its revenue arrangements except for the sale of
certain ancillary products where it acts as agent and therefore recognizes such revenue on a net basis.
i) Interest Income
Interest income from consumer loans receivable is recognized when earned using the effective interest rate method.
ii) Lease Revenue
Merchandise is leased to customers pursuant to agreements that provide for periodic lease payments collected in advance. The lease
agreements can be terminated by the customer at the end of the periodic lease period without any further obligation or cost to the
customer.
Lease revenue consists of lease payments, product damage liability waivers and processing and other fees. Revenue from lease
agreements is recognized when earned. Lease revenue also consists of revenue from the ultimate sale of goods to customers, which
represents the culmination of the lease asset life cycle and occurs when title passes to the customer. Such revenue is measured at the
fair value of the consideration received or receivable.
iii) Commissions Earned and Charges and Fees
Commissions earned are recognized when, or as, a performance obligation is satisfied by providing a service to a customer, in the
amount of the consideration to which the Company expects to receive. Charges and fees are recognized as revenue at a point in time
upon when the transaction is completed.
VENDOR REBATES
The Company participates in various vendor rebate programs, including vendor volume rebates and vendor advertising incentives. The
Company records the benefit of vendor volume rebates on purchases made as a reduction of lease assets based on the rebate amounts
the Company believes are probable and reasonably estimable during the term of each rebate program. Vendor advertising incentives
that are related to specific advertising programs are accounted for as a reduction of the related expenses.
CASH
Cash consists of bank balances and cash on hand, adjusted for in-transit items such as outstanding cheques and deposits.
FINANCIAL ASSETS
Initial Recognition and Measurement
Financial assets are classified at initial recognition at fair value through: i) profit or loss (“FVTPL”), ii) amortized cost, iii) debt financial
instruments measured at fair value through other comprehensive income (“FVOCI”), iv) equity financial instruments designated at FVOCI,
or v) financial instruments designated at FVTPL, based on the contractual cash flow characteristics of the financial assets and the
business model under which the financial assets are managed. All financial assets are measured at fair value with the exception of
financial assets measured at amortized cost. Financial assets are reclassified when and only when the business model under which
they are managed has changed. All reclassifications are to be applied prospectively from the reclassification date.
All debt instrument financial assets that do not meet a “solely payment of principal and interest” (“SPPI”) test, including those that
contain embedded derivatives are classified at initial recognition as FVTPL. For debt instrument financial assets that meet the SPPI
test, classification at initial recognition is determined based on the business model under which these instruments are managed. Debt
instruments that are managed on a “held for trading” or “fair value” basis are classified as FVTPL. Debt instruments that are managed
on a “hold to collect and for sale” basis are classified as FVOCI for debt. Debt instruments that are managed on a “hold to collect” basis
are classified as amortized cost.
Financial assets consist of amounts receivable, consumer loans receivable and investment, and are initially measured at fair value plus
transaction costs. They are subsequently measured at amortized cost.
Amortized cost is determined using the effective interest rate method, factoring in acquisition costs paid to third parties, and the
allowance for loan losses. The effective interest rate is the rate that exactly discounts the estimated future cash receipts through the
expected life of the financial asset to the carrying amount. When calculating the effective interest rate, the Company estimates future
cash flows considering all contractual terms of the financial instrument.
goeasy Ltd. 2019 Annual Report 85
The Company does not have any financial assets that are subsequently measured at fair value except for investment and the derivative
financial instrument which may be in an asset or liability position depending on the prevailing foreign exchange rates at such time (see
section “Derivative Financial Instruments and Hedge Accounting”).
Financial assets are derecognized when the rights to receive cash flows from the asset have expired or the Company has transferred
its rights to receive cash flows from an asset.
Impairment of Financial Assets
The Company applies an expected credit loss (“ECL”) model, where credit losses that are expected to transpire in future years irrespective
of whether a loss event has occurred or not as at the statement of financial position date, are provided for. The Company assesses
and segments its loan portfolio into performing (Stage 1), under-performing (Stage 2) and non-performing (Stage 3) categories as at
each statement of financial position date. Loans are categorized as under-performing if there has been a significant increase in credit
risk. The Company utilizes internal risk rating changes, delinquency and other identifiable risk factors to determine when there has
been a significant increase or decrease in the credit risk of a loan. Indicators of a significant increase in credit risk include a recent
degradation in internal company risk rating based on the Company’s custom behaviour credit scoring model, non-sufficient fund (“NSF”)
transactions, delinquency and adjustments to the loan’s terms. Under-performing loans are recategorized to performing only if there
is deemed to be a substantial decrease in credit risk. Loans are categorized as non-performing if there is objective evidence that such
loans will likely charge-off in the future which the Company has determined to be when loans are delinquent for greater than 30 days.
For performing loans, the Company is required to record an allowance for loan losses equal to the expected losses on that group of loans
over the ensuing twelve months. For under-performing and non-performing loans, the Company is required to record an allowance for
loan losses equal to the expected losses on those groups of loans over their remaining life.
The Company does not provide any additional credit to borrowers who are delinquent. In order for additional credit to be advanced to
a borrower, they must be current on their pre-existing loan and meet the Company’s credit and underwriting requirements. In limited
situations, the Company may amend the terms of a loan, typically through deferring payments and extending the loan amortization
period, for customers that are current or are in arrears as a means to ensure the customer remains able to repay the loan.
The key inputs in the measurement of ECL allowances are as follows:
• The probability of default is an estimate of the likelihood of default over a given time horizon;
• The exposure at default is an estimate of the exposure at a future default date;
• The loss given default is an estimate of the loss arising in the case where a default occurs at a given time; and
• Forward-looking indicators (“FLIs”).
Ultimately, the ECL is calculated based on the probability weighted expected cash collected shortfall against the carrying value of the
loan and considers reasonable and supportable information about past events, current conditions and forecasts of future events and
economic conditions that may impact the credit profile of the loans. Forward-looking information is considered when determining
significant increase in credit risk and measuring expected credit losses. Forward-looking macroeconomic factors are incorporated
in the risk parameters as relevant. From an analysis of historical data, management has identified and reflected in the Company’s
ECL allowance those relevant FLIs variables that contribute to credit risk and losses within the Company’s loan portfolio. Within the
Company’s loan portfolio, the most highly correlated variables are unemployment rates, inflation, oil prices, and gross domestic product
(“GDP”).
Unsecured customer loan balances that are delinquent greater than 90 days and secured customer loan balances that are delinquent
greater than 180 days are written off against the allowance for loan losses.
Consumer loan balances, together with the associated allowances, are written off when there is no realistic prospect of further recovery.
If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the
impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If
a write-off is later recovered, the recovery is credited to bad debt expense.
For amounts receivable, the Company applies a simplified approach in calculating ECLs recognizing a loss allowance based on lifetime
ECLs at each reporting date.
goeasy Ltd. 2019 Annual Report 86
Modified Loans
In cases where a borrower experiences financial difficulties, the Company may grant certain concessionary modifications to the terms
and conditions of a loan. Modifications may include payment deferrals, extension of amortization periods, rate reductions and other
modifications intended to minimize the economic loss. The Company has policies in place to determine the appropriate remediation
strategy based on the individual borrower.
If the Company determines that a modification results in the expiry of cash flows, the original asset is derecognized while a new asset
is recognized based on the new contractual terms. Significant increase in credit risk is assessed relative to the risk of default on the
new financial instrument at the date of derecognition. A gain or loss is assessed at the date of modification or derecognition equal to the
difference between the fair value of the cash flows under the original and modified terms.
If the Company determines that a modification does not result in derecognition, significant increase in credit risk is assessed based
on the risk of default at initial recognition of the original asset. Expected cash flows arising from the modified contractual terms are
considered when calculating the ECL for the modified asset. For loans that were modified while having lifetime ECLs, the loans can
revert to having twelve-month ECLs after a period of performance and improvement in the borrower’s financial condition.
LEASE ASSETS
Lease assets are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
The cost of lease assets comprises their purchase price and any costs directly attributable to bringing the assets to the location and
condition necessary for them to be capable of operating in the manner intended by management. Vendor volume rebates are recorded
as a reduction of the cost of lease assets.
As the leases are effectively cancellable by the customer with a week’s notice, and there are no bargain purchase options provided to the
customer, the customer leases are considered operating in nature. Lease agreements entitle customers to buy out a lease asset earlier
in accordance with conditions stipulated in the lease agreements.
The residual value, useful life and depreciation method of the lease assets are reviewed at each financial year-end, and if expectations
differ from previous estimates, they are adjusted, and the changes are accounted for prospectively as a change in accounting estimates.
In the event management determines that the Company can no longer lease or sell certain lease assets, they are written off. The
residual value of lease assets is nominal.
Depreciation on lease assets is charged to net income as follows:
• Lease assets, excluding game stations, computers and related equipment, are depreciated using the units of activity method over
the expected lease agreement term.
• Game stations are depreciated on a straight-line basis over 18 months. Computers and related equipment are depreciated on a
straight-line basis over 24 months.
• Depreciation for all lease assets includes the remaining book values at the time of disposition of the lease assets that have been
sold and amounts that have been charged off as stolen, lost or no longer suitable for lease.
The Company’s lease assets are subject to theft, loss or other damage from its customers. The Company records a provision against the
carrying value of lease assets for estimated losses.
PROPERTY AND EQUIPMENT
The cost of property and equipment comprises their purchase price and any costs directly attributable to bringing the assets to the
location and condition necessary for them to be capable of operating in the manner intended by management.
Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
Subsequent costs are included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All
other expenses are charged to net income as repairs and maintenance expense when incurred.
Depreciation on property and equipment is charged to net income.
goeasy Ltd. 2019 Annual Report 87
Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Asset Category
Estimated Useful Lives
Furniture and fixtures
Computer
Office equipment
Automotive
Signage
Leasehold improvements
7 years
5 years
7 years
5 years
7 years
5 to 10 years depending on the lease term
Property and equipment are derecognized upon disposal or when no future economic benefits are expected from their use or disposal.
Any gains or losses arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the
carrying amount of the assets) are included in net income in the period the assets are derecognized.
INTANGIBLE ASSETS
Intangible assets acquired separately are measured on initial recognition at cost. The costs of intangible assets acquired in a business
combination are their estimated fair values at the date of acquisition. Following initial recognition, intangible assets are carried at
costs less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding
capitalized development costs, are not capitalized and the expenditure is reflected in net income in the period in which the expenditure
is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the economic useful life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with
a finite useful life are reviewed at least at the end of each reporting period for potential impairment indicators. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing
the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in net income.
Customer lists and software are amortized over their estimated useful lives of five years. Websites and digital properties are amortized
over their estimated useful lives of three years
Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. The assessment of indefinite life
is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
The Company’s trademarks have been assessed to have an indefinite life.
Gains or losses arising from the derecognition of intangible assets are measured as the difference between the net disposal proceeds
and the carrying amounts of the asset and are recognized in net income when the assets are derecognized.
LEASES
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration
A. Company as a Lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-
value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use
the underlying assets.
i) Right-of-use Assets
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized at the inception of
the lease, initial direct costs incurred, and lease payments made at or before the lease commencement date less any lease incentives
received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized
right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use
assets are subject to impairment.
goeasy Ltd. 2019 Annual Report 88
ii) Lease Liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease
incentives receivable, plus variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the
Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or
condition that triggers the payment occurs.
In determining a lease component, the Company does not separate the non-lease components from the lease component and instead
accounts for each lease component and any associated non-lease components as a single lease component.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate on leases at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount
of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease
payments or a change in the assessment to purchase the underlying asset.
iii) Short-term Leases and Leases of Low Value Assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of
12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets
recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and
leases of low value assets are recognized as expense on a straight-line basis over the lease term.
B. Company as a Lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified
as operating leases. Lease revenue recognition is discussed above.
DEVELOPMENT COSTS
Development costs, including those related to the development of software, are recognized as an intangible asset when the Company
can demonstrate:
• The technical feasibility of completing the intangible asset so that it will be available for use or sale;
•
Its intention to complete and its ability to use or sell the asset;
• How the asset will generate future economic benefits;
• The availability of resources to complete the asset; and
• The ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at
cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is
complete, and the asset is available for use. It is amortized over the period of the expected future benefit.
BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured at the fair value of the
assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, and liabilities
and contingent liabilities assumed in a business combination are measured initially at fair value at the date of acquisition, irrespective
of the extent of any non-controlling interest.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the Company’s share in the net fair
value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the fair values of the assets, liabilities and contingent
liabilities can only be calculated on a provisional basis, the business combination is recognized initially using provisional values. Any
adjustments resulting from the completion of the measurement process are recognized within twelve months of the date of acquisition.
After initial recognition, goodwill is measured at cost less accumulated impairment losses, if any. Goodwill is not amortized. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Company’s operating segments that are expected to benefit from the synergies of the combination, irrespective of whether other assets
and liabilities of the acquiree are assigned to those segments.
goeasy Ltd. 2019 Annual Report 89
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Company assesses, at each reporting date, whether there is an indication that an asset or a cash-generating unit (“CGU”) may be
impaired.
The Company regularly reviews lease assets that are idle for more than 90 days for any indicators of impairment. Such assets deemed
not leaseable or sellable are discarded and their net carrying value reduced to nil.
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
For the easyhome business unit, a CGU was determined to be at the individual store level as the cash inflows of an individual store are
largely independent of the cash inflows of other assets in the Company. For the easyfinancial business unit, a CGU was determined to be
at the business unit level rather than at the individual store or kiosk level, as the cash inflows are largely dependent on easyfinancial’s
centralized loan and collections centre.
If an indication of impairment exists, or when annual testing for an asset is required, the Company estimates the asset or CGU’s
recoverable amount. The recoverable amount is the higher of the asset or CGU’s fair value less costs to sell and its value in use. The
recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent
of those from other assets or groups of assets, in which case it is determined for the CGU to which the asset belongs. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable
amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs
to sell, an appropriate valuation model is used. Impairment losses are recognized in net income.
The impairment test calculations are based on detailed budgets and forecasts which are prepared annually for each CGU to which the
assets are allocated. These budgets and forecasts generally cover a period of three years with a long-term growth rate applied after
the third year.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s
or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions
used to determine the asset or CGU’s recoverable amount since the last impairment loss was recognized. The reversal is limited so
that the carrying amount of the asset or CGU does not exceed its recoverable amount, nor exceed the carrying amount that would have
been determined, net of amortization, had no impairment loss been recognized for the asset or CGU in prior years. Such reversals are
recognized in net income.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment
is determined for goodwill by assessing the recoverable amount of each group of CGUs to which the goodwill relates. Where the
recoverable amount of the CGUs is less than their carrying amount, an impairment loss is recognized. Impairment losses relating to
goodwill cannot be reversed in future periods.
Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level and when circumstances indicate that
the carrying value may be impaired.
FINANCIAL LIABILITIES
Financial liabilities are initially recognized at fair value. In the case of certain loans and borrowings, the fair value at initial recognition
includes the value of proceeds received net of directly attributable transaction costs. The Company’s financial liabilities include a
revolving credit facility, USD denominated notes payable, convertible debentures, term loans, derivative financial instruments and
accounts payable and accrued liabilities.
After initial recognition, the Company’s interest-bearing debt is subsequently measured at amortized cost using the effective interest
rate method. Amortized cost is calculated by taking into account any fees or costs related to the interest-bearing debt. Interest expense
and the amortization of deferred financing charges are included in finance costs.
Non-interest bearing financial liabilities, such as accounts payable and accrued liabilities, are carried at the amount owing.
A financial liability is derecognized when the obligation under the liability is settled, discharged, cancelled or expired. Any gains or losses
are recognized in net income when liabilities are derecognized.
goeasy Ltd. 2019 Annual Report 90
CONVERTIBLE DEBENTURES
Convertible debentures include both liability and equity components associated with the conversion option. The liability component of
the convertible debentures is initially recognized at fair value determined by discounting the future principal and interest payments at
the rate of interest prevailing at the date of issue for a similar non-convertible debt instrument.
The equity component of the convertible debentures is initially recognized at fair value determined as the difference between the gross
proceeds of the convertible debt issuance less the liability component and the deferred tax liability that arises from the temporary
difference between the carrying value of the liability and its tax basis. The equity component is allocated to contributed surplus within
shareholders’ equity. Directly attributable transaction costs related to the issuance of convertible debentures are allocated to the liability
and equity components on a pro-rata basis, reducing the fair value at the time of initial recognition.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Company’s financing activities expose it to the financial risks of changes in foreign exchange rates. The Company utilizes derivative
financial instruments as cash flow hedges to assist in the management of certain foreign exchange risks.
Derivative financial instruments are initially measured at fair value on the trade date and are subsequently remeasured at fair value at
each reporting date using observable market inputs.
The Company designates derivative financial instruments as cash flow hedges to hedge the change due to foreign exchange risk when
the derivative financial instruments meet the criteria for hedge accounting in accordance with IFRS 9, Financial Instruments.
In order to qualify for hedge accounting, formal documentation must include identification of the hedging instrument, the hedged item,
the nature of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship
qualifies for hedge accounting if it meets all the following effectiveness requirements:
• There is an economic relationship between the hedged item and the hedging instrument.
• The effect of credit risk does not dominate the change in values that result from that economic relationship.
• The hedge ratio of the hedging relationship is consistent with management’s risk strategy.
Where an effective hedge exists, the change in the fair value of the derivative instrument is recognized in other comprehensive income
(loss) and reclassified to profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash
flows (in this case the interest or principal payments of the Company’s USD Notes Payable) affect profit or loss. As such there is no net
impact on net income.
Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis. Should a hedge cease to be effective any changes
in fair value related to movements in the foreign currency rates would be taken in net income.
PROVISIONS
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event, and the
costs to settle the obligation are both probable and reliably measurable. Where there is expected to be a reimbursement of some or
all of a provision, for example under an insurance contract, the reimbursement is recognized as a separate asset, but only when the
reimbursement is virtually certain. If the effect of the time value of money is material, provisions are discounted. Where discounting is
used, the increase in the provision as a result of the passage of time is recognized as a finance cost.
TAXES
i) Current Income Taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those enacted or substantively enacted by the end of the reporting period.
Current income tax assets and liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company
intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current income tax relating to items recognized directly in equity is recognized in equity and not in net income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions where appropriate.
goeasy Ltd. 2019 Annual Report 91
ii) Deferred Income Taxes
Deferred income taxes are provided for using the liability method on temporary differences at the reporting date between the tax basis
of assets and liabilities and their carrying amount for financial reporting purposes. Deductible income tax liabilities are recognized for
all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carry forward
of unused tax credits and unused tax losses, to the extent that it is probable that taxable income will be available against which the
deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized.
The following temporary differences do not result in deferred income tax assets or liabilities:
• The initial recognition of assets or liabilities, not arising in a business combination, that does not affect accounting or taxable
profit;
• The initial recognition of goodwill; and
•
Investment in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary differences
can be controlled and reversal in the foreseeable future is not probable.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilized.
Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has
become probable that future taxable income will be available to allow the deferred income tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is
realized, or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax assets and liabilities are offset if a legally enforceable right exists to set off current income tax assets against
current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
iii) Sales Tax
Revenue, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a purchase of assets
or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of
the asset or as part of the expense item as applicable.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of amounts receivable or accounts
payable and accrued liabilities in the consolidated statements of financial position.
STOCK-BASED PAYMENT TRANSACTIONS
The Company has stock-based compensation plans as described in note 15.
i) Equity-Settled Transactions
The Company has stock options, Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”) which are currently accounted
for as equity-settled awards. The cost of such equity-settled transactions is measured by reference to the fair value determined using
the market value on the grant date or the Black-Scholes option pricing model, as appropriate. The inputs into this model are based on
management’s judgments and estimates.
The cost of equity-settled transactions is charged to net income, with a corresponding increase in contributed surplus over the vesting
period. The cumulative expense recognized for equity-settled transactions at each reporting date reflects the extent to which the vesting
period has elapsed and the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense for
a period is recognized in stock-based compensation expense in the consolidated statements of income. No expense is recognized for
awards that do not ultimately vest.
ii) Cash-Settled Transactions
The Company has Performance Share Units (“PSUs”) which mirror the value of the Company’s publicly-traded common shares and
can only be settled in cash (“cash-settled transactions”). The cost of cash-settled transactions is measured initially at fair value at the
grant date. The liability is remeasured to fair value, at each reporting date up to and including the settlement date, based on the value
of the Company’s publicly-traded common shares and the Company’s best estimate of the number of cash-settled instruments that will
ultimately vest.
goeasy Ltd. 2019 Annual Report 92
The cost of cash-settled transactions is charged to net income, with a corresponding increase in liabilities, over the period in which the
performance and service conditions are fulfilled. The cumulative expense recognized for cash-settled transactions at each reporting date
reflected the extent to which the vesting period had elapsed and the Company’s best estimate of the number of cash-settled instruments
that will ultimately vest. The expense for a period including changes in fair value are recognized in stock-based compensation expense
in the consolidated statements of income. No expense is recognized for awards that do not ultimately vest.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during
the year.
Diluted earnings per share is calculated using the treasury stock method, which assumes that the cash that would be received on the
exercise of options, warrants and convertible debentures is applied to purchase shares at the average price during the period and that
the difference between the shares issued upon exercise of the options and the number of shares obtainable under this computation, on
a weighted average basis, is added to the number of shares outstanding.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in conformity with IFRS requires management to make accounting judgements,
estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.
These accounting judgments, estimates and assumptions are continuously evaluated and are based on management’s historical
experience, best knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances.
As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates,
which could materially impact these consolidated financial statements. Changes in estimates will be reflected in the consolidated
financial statements in future periods.
Key areas of estimation where management has made difficult, complex or subjective judgments often in respect of matters that are
inherently uncertain are as follows:
i) Allowance for Credit Losses and Allowance for Loan Losses
ECL method is applied in determining the allowance for credit losses on gross consumer loans receivable. The key inputs in the
measurement of ECL allowances, all of which are subject to accounting judgments, estimates and assumptions are discussed in note
2, Financial Assets.
ii)
Interest Receivable from Consumer Loans
Consumer loans receivable include accrued interest earned from consumer loans that is expected to be received in future periods.
Interest receivable from consumer loans is determined based on the amounts the Company believes will be collected in future periods.
iii) Depreciation of Lease Assets
Certain assets on lease, (excluding game stations, computers and related equipment) are depreciated based on the time on lease
against the lease agreement term, which is estimated by management for each product category. Other assets on lease such as game
stations, computers and related equipment are depreciated on a straight-line basis over their estimated useful lives.
iv) Impairment on Non-financial Assets
The indicators of impairment are based on management’s judgment. If an indication of impairment exists, or when annual testing for
an asset is required, the Company estimates the asset’s or CGU’s recoverable amount. Where the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the
recoverable amount, management estimates the asset’s or CGU’s value in use. Value in use is based on the estimated future cash flows
of the asset or CGU discounted to their present value using a discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset.
The impairment test calculations are based on detailed budgets and forecasts which are prepared for each CGU to which the assets are
allocated. These budgets and forecasts generally cover a period of three years with a long-term growth rate applied after the third year.
Key areas of management judgment include the cash flow forecast, the growth rate applied to cash flows subsequent to the third year
and the discount rate.
v)
Impairment of Goodwill and Indefinite-Life Intangible Assets
In assessing the recoverable amount, management estimated the group of CGU’s value in use. Value in use is based on the estimated
future cash flows of the asset or CGU discounted to their present value using a discount rate that reflects current market assessments
goeasy Ltd. 2019 Annual Report 93
of the time value of money and the risks specific to the asset. The impairment test calculations are based on detailed budgets and
forecasts which are prepared for each CGU to which the assets are allocated. These budgets and forecasts generally cover a period of
three years with a long-term growth rate applied after the third year. Key areas of management judgment involve the cash flow forecast,
the growth rate applied to cash flows subsequent to the third year and the discount rate.
vi) Fair Value of Stock-Based Compensation
The fair value of equity-settled stock-based compensation plan grants are measured at the grant date using either the related market
value or the Black-Scholes option pricing model, as appropriate. The Black-Scholes option pricing model was developed for estimating
the fair value of traded options that are fully transferable and have no vesting restrictions. In addition, option pricing models require
the input of highly subjective assumptions, including expected share price volatility. The Company’s share options have characteristics
significantly different from those of freely traded options and because changes in subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a single reliable measure of the fair value of the unit options granted.
The vesting of the Company’s stock-based compensation plans is based on the expected achievement of long-term targets and
management retention rates, the assessment of which are subject to management’s judgment.
vii) Taxation Amounts
Tax provisions, including current and deferred income tax assets and liabilities, may require estimates and interpretations of federal and
provincial income tax rules and regulations and judgments as to their interpretation and application to the Company’s specific situation.
Therefore, it is possible that the ultimate value of the tax assets and liabilities could change in the future and that changes to these
amounts could have a material effect on the Company’s consolidated financial statements.
viii) Unearned Revenue
Unearned revenue includes lease payments that have not yet been earned, lease processing fees that are received at the inception of
a consumer lease and secured loan origination fees charged to consumers. The processing fees are recognized into income over the
expected life of the lease agreement, as estimated by management. The secured loan origination fees are recognized into income over
the expected life of the loan, as estimated by management.
ix) Convertible Debentures
The convertible debentures are accounted for as a compound financial instrument with a liability component and a separate equity
component. The debt component of this compound financial instrument is measured at fair value on initial recognition by discounting
the stream of future interest and principal payments at the rate of interest prevailing at the date of issue for instruments of similar term
and risk as estimated by management. The debt component is subsequently deducted from the total carrying value of the compound
financial instrument to derive the equity component.
x) Premises Lease Contracts
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably
certain not to be exercised.
Under some of the Company’s lease contracts for premises, it has the option to lease the premises for additional terms of one to ten
years. The Company applies judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers
all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company
reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew (i.e., a change in business strategy).
xi) Fair Value Measurement of Investments
When the fair values of investments recorded in the consolidated statement of financial position cannot be measured based on quoted
prices in active markets, their fair value is measured using alternative valuation techniques. The inputs to these models are taken
from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values.
Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these
factors could affect the reported fair value of financial instruments.
3. ADOPTION OF ACCOUNTING STANDARD
IFRS 16, Leases (“IFRS 16”)
IFRS 16 supersedes IAS 17, Leases (“IAS 17”), IFRIC 4, Determining whether an Arrangement contains a Lease (“IFRIC 4”), SIC-15, Operating
Leases-Incentives and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases
under a single on-balance sheet model.
goeasy Ltd. 2019 Annual Report 94
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating
or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Company is the
lessor such as the Company’s easyhome merchandise leasing business.
The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1,
2019. Under this method, comparative figures for 2018 were not restated and the cumulative effect of initially applying the standard was
recognized as an adjustment to the opening balance of retained earnings as at January 1, 2019.
The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously
identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition
exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase
option (“short-term leases”).
i)
Impact of Adoption of IFRS 16
The following table summarizes the transition adjustment required to adopt IFRS 16 as at January 1, 2019.
Right-of-use assets
Deferred tax assets
Lease liabilities
Deferred lease inducements
Retained earnings
CARRYING
AMOUNT UNDER PREVIOUS
ACCOUNTING STANDARDS AS
AT DECEMBER 31, 2018
TRANSITION
ADJUSTMENT
IFRS 16 CARRYING
AMOUNT AS AT
JANUARY 1, 2019
-
9,445
-
1,234
143,710
41,763
1,244
47,523
(1,234)
(3,282)
41,763
10,689
47,523
-
140,428
The Company has lease contracts for various items of premises and vehicles. Before the adoption of IFRS 16, the Company classified
each of its leases (as lessee) at the inception date as an operating lease under IAS 17. In such operating leases, the leased property was
not capitalized, and the lease payments were recognized as rent expense in the consolidated statement of income on a straight-line
basis over the lease term.
Upon adoption of IFRS 16, the Company reviewed all operating leases under IAS 17, except for short-term leases (generally defined as
those with a term of less than 12 months). The IFRS 16 standard provides specific exemptions for such short-term leases and hence
the accounting for those leases did not change. The Company also applied the available practical expedients whereby the Company:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
In accordance with IFRS 16, the Company recognized right-of-use assets and lease liabilities for those leases previously classified as
operating leases, except for short-term leases.
The right-of-use assets for leases recognized as at January 1, 2019 (date of adoption) is the net carrying amount for the leases
assuming that the standard had always been applied. As such, the net carrying amount is measured at the amount of lease liabilities
recognized as if the standard had always been applied (apart from the use of incremental borrowing rates on leases at the date of initial
application), less any accumulated depreciation (from the lease inception to the January 1, 2019 date of adoption) and less any lease
incentives received. As such, the deferred lease inducements previously reported on the consolidated statements of financial position
are effectively netted against the right-of-use assets. The lease liabilities were recognized based on the present value of the remaining
lease payments as at January 1, 2019, discounted using the incremental borrowing rate on leases at the date of initial application. As
mentioned above, the difference between the right-of-use assets and lease liabilities recognized at the date of initial application was
recognized as an adjustment to the opening balance of retained earnings as at January 1, 2019.
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at January 1, 2019 as follows:
Lease commitments as at January 1, 2019 (excluding commitments relating to estimated variable lease
payments and short-term leases)
Weighted average incremental borrowing rate on leases as at January 1, 2019
Lease liabilities as at January 1, 2019
54,173
4.7%
47,523
goeasy Ltd. 2019 Annual Report 95
The lease liabilities are derived by discounting the operating lease payments to which the Company is committed (but excluding variable
lease payments such as property tax and common area maintenance charges on property leases and short-term leases as allowed
under IFRS 16), at the average incremental borrowing rate on leases under the leases. The Company applied the available practical
expedients whereby the Company did not separate the non-lease components from the lease component and instead accounts for each
lease component and any associated non-lease components as a single lease component.
ii)
Impact on the Consolidated Statements of Income
The net effect of adopting IFRS 16 on the consolidated statements of income is to decrease operating expenses before depreciation
and amortization while increasing depreciation and amortization and financing costs with an insignificant impact on net income. By
extension this will result in earnings before interest, income tax, depreciation and amortization (EBITDA) increasing as the depreciation
of the right-of-use assets and interest on the lease liabilities are excluded from this measure. Operating income will also increase as
the interest on the lease liabilities are excluded from this measure. The adoption of IFRS 16 has no impact on the cash flows of the
Company. For the year ended December 31, 2019, the adoption of IFRS 16 decreased net income by $13 as described in the Company’s
Management’s Discussion and Analysis for the year ended December 31, 2019.
Right-of-use Assets and Lease Liability
Set out below, are the carrying amounts of the Company’s right-of-use assets and lease liabilities and the movements during the period.
RIGHT-OF-USE ASSETS
PREMISES
VEHICLES
TOTAL
LEASE LIABILITIES
As at January 1, 2019
Additions
Depreciation expense
Interest expense
Interest payment
Lease inducement received
Principal payment
39,274
18,553
(14,408)
-
-
-
-
2,489
1,030
(791)
-
-
-
-
41,763
19,583
(15,199)
-
-
-
-
As at December 31, 2019
43,419
2,728
46,147
47,523
19,583
-
2,464
(2,464)
1,208
(15,741)
52,573
For the year ended December 31, 2019, the Company recognized rent expense from short-term leases of $1,438 and variable lease
payments of $11,266.
4. CASH
Certain cash on deposit at banks earns interest at floating rates based on daily bank deposit rates. The Company has pledged part of
its cash to fulfill collateral requirements under its derivative financial instruments contract. As at December 31, 2019, the fair value of
the cash pledged as a cash collateral in respect of the derivative financial instruments was $11.6 million (2018 – $29.9 million cash
collateral was posted by the counterparties).
5. AMOUNTS RECEIVABLE
Vendor rebate receivable
Due from franchisees
Commission receivable
Other
Current
Non- current
DECEMBER 31, 2019
DECEMBER 31, 2018
324
3,349
11,082
3,727
18,482
17,384
1,098
18,482
593
2,467
9,439
2,951
15,450
14,438
1,012
15,450
Other amounts receivables consist of amounts due from customers and other items.
goeasy Ltd. 2019 Annual Report 96
6. CONSUMER LOANS RECEIVABLE
Consumer loans receivable represent amounts advanced to customers and includes both unsecured and secured loans. Unsecured loan
terms generally range from 9 to 60 months while secured loan terms generally range from 6 to 10 years.
Gross consumer loans receivable
Interest receivable from consumer loans
Unamortized deferred acquisition costs
Allowance for credit losses
DECEMBER 31, 2019
DECEMBER 31, 2018
1,110,633
16,384
20,642
(107,107)
1,040,552
833,779
10,472
18,354
(79,741)
782,864
The allocation of the Company’s gross consumer loans receivable as at December 31, 2019 and 2018 based on loan types are as follows:
Unsecured instalment loans
Secured instalment loans
DECEMBER 31, 2019
DECEMBER 31, 2018
995,122
115,511
1,110,633
780,850
52,929
833,779
The scheduled principal repayment aging analyses of the gross consumer loans receivable portfolio as at December 31, 2019 and 2018
are as follows:
0 - 6 months
6 - 12 months
12 - 24 months
24 - 36 months
36 - 48 months
48 - 60 months
60 months +
DECEMBER 31, 2019
DECEMBER 31, 2018
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
182,896
130,043
275,038
259,598
154,908
44,918
63,232
1,110,633
16.5%
11.7%
24.8%
23.4%
13.9%
4.0%
5.7%
100.0%
139,631
104,619
221,626
204,227
106,346
29,002
28,328
833,779
16.7%
12.5%
26.6%
24.5%
12.8%
3.5%
3.4%
100.0%
The gross consumer loans receivable portfolio categorized by the contractual time to maturity at year-ends are summarized as follows:
0 - 1 year
1 - 2 years
2 - 3 years
3 - 4 years
4 - 5 years
5 years +
DECEMBER 31, 2019
DECEMBER 31, 2018
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
42,623
139,414
296,891
366,359
156,439
108,907
3.8%
12.6%
26.7%
33.0%
14.1%
9.8%
1,110,633
100.0%
34,355
108,262
260,205
270,621
108,932
51,404
833,779
4.1%
13.0%
31.2%
32.5%
13.1%
6.1%
100.0%
goeasy Ltd. 2019 Annual Report 97
An aging analysis of gross consumer loans receivable past due is as follows:
1 - 30 days
31 - 44 days
45 - 60 days
61 - 90 days
91 - 180 days
DECEMBER 31, 2019
DECEMBER 31, 2018
$
% OF TOTAL LOANS
$
% OF TOTAL LOANS
40,508
7,692
7,579
8,578
321
64,678
3.7%
0.7%
0.7%
0.8%
0.0%
5.9%
25,442
5,931
5,930
6,559
83
43,945
3.1%
0.7%
0.7%
0.8%
0.0%
5.3%
The following table provides the gross consumer loans receivable split by the Company’s risk ratings and further segregated by Stage 1, Stage
2, and Stage 3. The categorization of borrowers into low, normal and high risk is based on the Company’s custom behaviour credit scoring
model. This scoring model has been built and refined using analytical techniques and statistical modelling tools which has proven more
effective at predicting future losses than traditional credit scores available from credit reporting agencies. Borrowers categorized as low risk
have expected future losses that are lower than the average expected loss rate of the overall loan portfolio. Customers categorized as normal
risk have expected future losses that are approximately the same as the average expected loss rate of the overall loan portfolio. Customers
categorized as high risk have expected future losses that are higher than the average expected loss rate of the overall loan portfolio. The
median TransUnion Risk Score for those borrowers categorized as low, normal and high risk is presented below as reference.
MEDIAN TRANSUNION
RISK SCORE
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
AS AT DECEMBER 31, 2019
601
531
489
535
445,584
400,040
137,699
983,323
1,198
6,379
95,871
103,448
6
225
23,631
23,862
446,788
406,644
257,201
1,110,633
MEDIAN TRANSUNION
RISK SCORE
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
AS AT DECEMBER 31, 2018
610
539
496
544
324,989
310,059
66,119
701,167
1,517
8,763
103,998
114,278
-
-
18,334
18,334
326,506
318,822
188,451
833,779
Low Risk
Normal Risk
High Risk
Total
Low Risk
Normal Risk
High Risk
Total
goeasy Ltd. 2019 Annual Report 98
An analysis of the changes in the classification of gross consumer loans receivable is as follows:
YEAR ENDED DECEMBER 31, 2019
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)
STAGE 3
(NON-
PERFORMING)
TOTAL
Balance as at January 1, 2019
701,167
114,278
18,334
833,779
Gross loan originated
Principal payments and other adjustments
Transfers to (from)
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Gross charge-offs
Balance as at December 31, 2019
1,095,375
(684,412)
281,552
(334,752)
(43,089)
(32,518)
983,323
-
-
12,999
(5,582)
1,095,375
(676,995)
(266,836)
351,835
(88,061)
(20,767)
103,448
(14,716)
(17,083)
131,150
(88,241)
23,862
-
-
-
(141,526)
1,110,633
YEAR ENDED DECEMBER 31, 2018
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-
PERFORMING)
STAGE 3
(NON-
PERFORMING)
TOTAL
Balance as at January 1, 2018
446,920
68,440
11,186
526,546
Gross loan originated
Principal payments and other adjustments
Transfers to (from)
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Gross charge-offs
Balance as at December 31, 2018
922,550
(527,488)
135,378
(234,495)
(22,481)
(19,217)
701,167
-
-
13,559
(3,226)
922,550
(517,155)
(133,616)
250,963
(70,007)
(15,061)
114,278
(1,762)
(16,468)
92,488
(63,884)
18,334
-
-
-
(98,162)
833,779
The changes in the allowance for credit losses are summarized below:
Balance, beginning of year
Net amounts written-off against allowance
Increase due to lending and collection activities
Balance, end of year
DECEMBER 31, 2019
DECEMBER 31, 2018
79,741
(129,376)
156,742
107,107
49,112
(88,351)
118,980
79,741
goeasy Ltd. 2019 Annual Report 99
An analysis of the changes in the classification of the allowance for credit losses is as follows:
YEAR ENDED DECEMBER 31, 2019
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
Balance as at January 1, 2019
Gross loans originated
Principal payments and other adjustments
Transfers to (from) including remeasurement
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Net amounts written-off against allowance
Balance as at December 31, 2019
37,715
53,740
(23,631)
57,526
(30,588)
(7,923)
(30,909)
55,930
28,214
-
3,006
(57,192)
105,649
(26,271)
(19,735)
33,671
13,812
-
79,741
53,740
(13,654)
(34,279)
(11,017)
(10,683)
(12,913)
120,010
(78,732)
17,506
62,148
85,816
(129,376)
107,107
YEAR ENDED DECEMBER 31, 2018
STAGE 1
(PERFORMING)
STAGE 2
(UNDER-PERFORMING)
STAGE 3
(NON-PERFORMING)
TOTAL
Balance as at January 1, 2018
Gross loans originated
Principal payments and other adjustments
Transfers to (from) including remeasurement
Stage 1 (Performing)
Stage 2 (Under-Performing)
Stage 3 (Non-Performing)
Net amounts written-off against allowance
Balance as at December 31, 2018
7.
INVESTMENT
24,384
53,883
(20,232)
23,634
(20,893)
(4,754)
(18,307)
37,715
16,193
-
2,713
(25,868)
70,393
(20,870)
(14,347)
28,214
8,535
-
(11,009)
(1,252)
(12,403)
85,638
(55,697)
13,812
49,112
53,883
(28,528)
(3,486)
37,097
60,014
(88,351)
79,741
In September 2019, the Company purchased a minority equity interest in PayBright for an aggregate price of $34.3 million. PayBright
is a non-listed Canadian lending company and payments platform focused on providing consumers with pay-later solutions at their
favourite retailers, both online and in-store.
The Company’s investment in PayBright is classified at FVTPL. The fair value of the PayBright was determined using an enterprise
value technique. No gains or losses were incurred in the year ended December 31, 2019.
8. LEASE ASSETS
Cost
Balance, beginning of year
Additions
Disposals
Balance, end of year
Accumulated Depreciation
Balance, beginning of year
Depreciation for the year
Disposals
Balance, end of year
Net book value
DECEMBER 31, 2019
DECEMBER 31, 2018
62,180
36,877
(44,217)
54,840
(10,562)
(37,402)
41,820
(6,144)
48,696
68,493
37,913
(44,226)
62,180
(14,175)
(40,088)
43,701
(10,562)
51,618
goeasy Ltd. 2019 Annual Report 100
During the year ended December 31, 2019, the net book value of the lease assets sold by the Company was $2,397 (2018 – $516).
9. PROPERTY AND EQUIPMENT
FURNITURE AND
FIXTURES
COMPUTER AND
OFFICE EQUIPMENT
AUTOMOTIVE
SIGNAGE
LEASEHOLD
IMPROVEMENTS
TOTAL
Cost
As at December 31, 2017
Additions
Disposals
As at December 31, 2018
Additions
Disposals
As at December 31, 2019
Accumulated Depreciation
As at December 31, 2017
Depreciation
Disposals
As at December 31, 2018
Depreciation
Disposals
As at December 31, 2019
Net Book Value
As at December 31, 2018
As at December 31, 2019
14,501
1,926
(683)
15,744
658
(7,033)
9,369
(10,648)
(1,070)
654
(11,064)
(1,127)
7,022
(5,169)
4,680
4,200
10,398
2,066
(1,400)
11,064
1,336
(4,024)
8,376
(6,665)
(1,128)
1,309
(6,484)
(1,178)
3,936
(3,726)
4,580
4,650
212
-
(6)
206
30
(236)
-
(210)
(3)
7
5,911
393
(121)
6,183
381
(3,157)
3,407
(4,357)
(411)
103
26,631
6,840
(1,451)
32,020
5,812
(15,006)
22,826
57,653
11,225
(3,661)
65,217
8,217
(29,456)
43,978
(19,832)
(3,107)
1,424
(41,712)
(5,719)
3,497
(206)
(4,665)
(21,515)
(43,934)
(3)
209
-
(449)
3,138
(1,976)
(3,524)
14,939
(6,281)
29,244
(10,100)
(20,971)
-
-
1,518
1,431
10,505
12,726
21,283
23,007
As at December 31, 2019, the amount of property and equipment classified as under construction or development and not being
amortized was $0.9 million (2018 – $1.5 million).
During the year ended December 31, 2019, the net book value of the property and equipment sold by the Company was $212 (2018 –
$168).
For easyhome, various impairment indicators were used to determine the need to test a CGU for impairment. Examples of impairment
indicators include a significant decline in revenue, performance significantly below budget and expectations and negative CGU operating
income during the year. Where these impairment indicators existed, the carrying value of the assets within a CGU was compared with
its estimated recoverable value which was generally considered to be the CGU’s value in use. When determining the value in use of
a CGU, the Company developed a discounted cash flow model for the individual CGU. Sales and cost forecasts were based on actual
operating results, three-year operating budgets consistent with strategic plans presented to the Company’s Board of Directors and a
1% long-term growth rate. The pre-tax discount rate used on the forecasted cash flows was 11.5%. Where the carrying value of the
CGU’s assets exceeded the recoverable amounts, as represented by the CGU’s value in use, the store’s property and equipment assets
were written down. It was concluded that, due to the portability of lease assets held within the CGU and the cash flows generated by
individual lease assets, no impairment write-down of the lease assets was required. As such, the CGU impairment charge would be
limited to the property and equipment held by the impaired CGU.
For easyfinancial, it was determined that no indicators of impairment existed that would require an impairment test on property and
equipment.
For the year ended December 31, 2019, the Company recorded a net impairment recovery in depreciation of property and equipment of
nil (2018 – $150 net impairment recovery). All impairment charges and recoveries in 2018 are related solely to the easyhome segment.
goeasy Ltd. 2019 Annual Report 101
10. INTANGIBLE ASSETS AND GOODWILL
TRADEMARKS
CUSTOMER LISTS
SOFTWARE
TOTAL
Cost
As at December 31, 2017
Additions
Disposals
As at December 31, 2018
Additions
Write-off
As at December 31, 2019
Accumulated Amortization
As at December 31, 2017
Amortization
Disposals
As at December 31, 2018
Amortization
Write-off
As at December 31, 2019
Net Book Value
As at December 31, 2018
As at December 31, 2019
2,088
-
-
2,088
-
-
2,088
(1,992)
-
-
(1,992)
-
-
(1,992)
96
96
1,202
481
-
1,683
9
(438)
1,254
(809)
(230)
-
(1,039)
(257)
438
(858)
644
396
30,916
5,141
(2)
36,055
8,633
(9,795)
34,893
(16,242)
(5,966)
2
(22,206)
(5,225)
9,795
(17,636)
13,849
17,257
34,206
5,622
(2)
39,826
8,642
(10,233)
38,235
(19,043)
(6,196)
2
(25,237)
(5,482)
10,233
(20,486)
14,589
17,749
Trademarks are considered indefinite-life intangible assets as there is no foreseeable limit to the period over which the assets are
expected to generate net cash flows.
Included in additions for the year ended December 31, 2019 were $8.6 million (2018 – $5.1 million) of internally developed software
application and website costs.
Goodwill was $21.3 million as at December 31, 2019 (2018 – $21.3 million). There were no disposals or impairments applied to
goodwill during the years ended December 31, 2019 and 2018.
Goodwill and indefinite-life intangible assets were allocated to the group of CGUs to which they relate. The carrying value of goodwill
was fully allocated to the easyhome CGUs. Impairment testing is performed annually and was performed as at December 31, 2019
and 2018. The impairment test consisted of comparing the carrying value of assets within the CGU to the recoverable amount of that
CGU as measured by discounting the expected future cash flows using a value in use approach. The discounted cash flow model was
based on historical operating results, detailed sales and cost forecasts over a three-year period, a 1% long-term growth rate and a
pre-tax discount rate used on the forecasted cash flows of 11.5%, all of which were consistent with the strategic plans presented to
the Company’s Board of Directors.
Based on the analysis performed by management, no impairment charge was required on goodwill.
11. REVOLVING CREDIT FACILITY
The revolving credit facility is provided by a syndicate of banks.
During 2019, the Company entered into amendments to its revolving credit facility. The amendments increased the maximum principal
amount available to be borrowed from $174.5 million in 2018 to $310.0 million and extended the maturity date from November 1,
2020 to February 12, 2022. As part of these amendments, the cost of borrowing under the revolving credit facility was also reduced.
Previously, interest on advances was payable at either the Canadian Bankers’ Acceptance rate (“BA”) plus 450 bps or the lender’s prime
rate (“Prime”) plus 350 bps, at the option of the Company. Subsequent to these amendments, interest on advances is payable at either
the BA plus 300 bps or Prime plus 200 bps, at the option of the Company.
goeasy Ltd. 2019 Annual Report 102
As at December 31, 2019, $115.0 million was drawn on this facility based on 90-day BA rate plus 300 bps. No amount was drawn on
this facility as at December 31, 2018.
The financial covenants of the revolving credit facility were as follows:
FINANCIAL COVENANT
REQUIREMENTS
DECEMBER 31,2019
Minimum consolidated tangible net worth
Maximum consolidated leverage ratio
Minimum consolidated fixed charge coverage ratio
Maximum net charge-off ratio
Minimum collateral performance index
>132,000, plus 50% of
consolidated net income
< 3.25
> 1.75
< 15.0%
> 90.0%
$276,735
3.08
2.27
13.3%
99.4%
December 31, 2019, the Company was in compliance with all of its financial covenants under its credit agreements.
12. CONVERTIBLE DEBENTURES
In June 2017, the Company issued $53.0 million of 5.75% convertible unsecured subordinated debentures, with interest payable semi-
annually on January 31 and July 31 each year and commenced on January 31, 2018 (the “Debentures”). The Debentures mature on
July 31, 2022 and are convertible at the holder’s option into common shares of the Company at a conversion price of $44.00 per share.
On and after July 31, 2020, and prior to July 31, 2021, the Debentures may be redeemed in whole or in part from time to time and with
proper notice by the Company, provided that the volume-weighted average trading price of the common shares on the TSX for the 20
consecutive trading days prior to the 5th trading day before redemption notification date was not less than 125% of the conversion
price. On or after July 31, 2021, the Company may redeem with proper notice the convertible debentures for the principal amount plus
accrued and unpaid interest.
The following table summarizes the details of the convertible debentures:
LIABILITY COMPONENT OF
DEBENTURE
EQUITY COMPONENT OF
DEBENTURE
NET BOOK VALUE
As at January 1, 2018
Conversion of debentures to equity (net of $1,013
unamortized deferred financing costs)
Accretion in carrying value of debenture liability
Accrued interest
Interest payment
As at December 31, 2018
Conversion of debentures to equity (net of $1
unamortized deferred financing costs)
Accretion in carrying value of debenture liability
Accrued interest
Interest payment
As at December 31, 2019
47,985
(7,924)
1,234
2,858
(3,572)
40,581
(6)
1,137
2,533
(2,533)
41,712
3,220
-
-
-
-
3,220
-
-
-
-
3,220
51,205
(7,924)
1,234
2,858
(3,572)
43,801
(6)
1,137
2,533
(2,533)
44,932
During 2019, $7.0 thousand (2018 – $8.9 million) of Debentures were converted into 158 (2018 – 203,108) common shares. Unamortized
deferred financing costs related to these Debentures amount to $1.0 thousand (2018 – $1.0 million).
13. NOTES PAYABLE
On November 27, 2019, the Company issued USD550.0 million of 5.375% senior unsecured notes payable (“Notes Payable”) with
interest payable semi-annually on June 1 and December 1 of each year and commencing on June 1, 2020. The Notes Payable mature
on December 1, 2024.
The Notes Payable include certain prepayment features: i) up to December 1, 2021, all of the Notes Payable can be prepaid at par plus
a premium and accrued and unpaid interest or, if the proceeds are acquired from an equity offering, up to 40% of the Notes Payable
(including future additions) can be prepaid at a price of 105.375% plus accrued and unpaid interest; ii) from December 1, 2021 to
November 30, 2022, all of the Notes Payable can be prepaid at a price of 102.688% plus accrued and unpaid interest; iii) from December
goeasy Ltd. 2019 Annual Report 103
1, 2022 to November 30, 2023, all of the Notes Payable can be prepaid at a price of 101.344% plus accrued and unpaid interest; and iv)
subsequent to December 1, 2023 the Notes Payable can be prepaid at par plus accrued and unpaid interest.
The proceeds of the November 27, 2019 notes issuance was used to extinguish the Company’s previous USD475.0 million of 7.875%
senior unsecured outstanding notes payable that would have matured on November 1, 2022, and unwind the related cross-currency
swap for USD325.0 million at USD1.000 = CAD1.289 and USD150.0 million at USD1.000 = CAD1.316. As a result of repaying these
notes, the Company incurred an early repayment penalty, recognized the remaining unamortized deferred financing costs and
unamortized premium associated with these notes, realized derivative loss, and reclassified the net change in cash flow hedge from
other comprehensive income (loss) to the consolidated statement of income resulting in a one-time before tax charge of $21.7 million.
The following table summarizes the details of the notes payable:
Notes Payable in CAD at issuance
Change in fair value of Notes Payable since issuance date due to
changes in foreign exchange rate
Accrued interest on credit facilities
Unamortized premium
Unamortized deferred financing costs
DECEMBER 31,2019
DECEMBER 31,2018
728,310
(13,851)
714,459
3,303
-
(15,348)
702,414
The following table summarizes the total carrying value of the notes payable:
DECEMBER 31,2019
DECEMBER 31,2018
Issued November 2017
Issued July 2018
Issued November 2019
-
-
702,414
702,414
616,383
31,375
647,758
8,169
8,868
(14,314)
650,481
438,076
212,405
-
650,481
Concurrent with the issuance of the Notes Payable, the Company entered into derivative financial instruments (the “cross-currency
swaps”) as cash flow hedges to fix the foreign currency exchange rate for the proceeds from the offering and for all required payments
of principal and interest under the Notes Payable at a fixed exchange rate of USD1.000 = CAD1.3242, thereby fully hedging the USD550.0
million Notes Payable at a CAD interest rate of 5.65%. The cross-currency swaps fully hedge the obligation under the Notes Payable
to $728.3 million.
The Company has elected to use hedge accounting for the notes payable and their cross-currency swaps (i.e., the same notional
amount, maturity date, interest rate and interest payment dates). The Company has elected to designate foreign currency basis as a
cost of hedging, thereby excluding foreign currency basis spreads from the designation of the hedging relationship, and has established
a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange contracts is identical to the hedged
risk components. To test the hedge effectiveness, the Company uses the hypothetical derivative method and compares the changes
in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.
There are no significant sources of hedge ineffectiveness between the Notes Payable and cross-currency swaps. There was no hedge
ineffectiveness recognized in net income for the years ended December 31, 2019 and 2018.
As the notes payable and their cross-currency swaps are in an effective hedging relationship, changes in the fair value of the cross-
currency swaps is recorded in other comprehensive income (loss) and subsequently reclassified into net income to offset the effect
of foreign currency exchange rates related to the notes payable recognized in net income. The amount of the foreign currency basis
spread at inception, designated as a cost of hedging, is amortized to profit and loss on a straight-line basis over the life of the Notes
Payable.
goeasy Ltd. 2019 Annual Report 104
The cross-currency swaps have an aggregated notional amount equal to the aggregated principal outstanding of the hedged notes
payable. The fair value of cross-currency swaps is determined from swap curves adjusted for credit risks. Swap curves are obtained
directly from market sources. The change in fair value of the cross-currency swaps used for measuring ineffectiveness for the period
is as follows:
Derivative financial assets (liabilities)
Issued November 2017
Issued July 2018
Issued November 2019
14. SHARE CAPITAL
Authorized Capital
DECEMBER 31,2019
DECEMBER 31,2018
-
-
(16,435)
(16,435)
25,680
9,414
-
35,094
The authorized capital of the Company consisted of an unlimited number of common shares with no par value and an unlimited
number of preference shares.
Each common share represents a shareholder’s proportionate undivided interest in the Company. Each common share confers to its
holder the right to one vote at any meeting of shareholders and to participate equally and rateably in any dividends of the Company.
The common shares are listed for trading on the TSX.
Common Shares Issued and Outstanding
The changes in common shares issued and outstanding are summarized as follows:
Balance, beginning of year
Exercise of stock options
Exercise of RSUs
Dividend reinvestment plan
Shares purchased for cancellation
Convertible debt
Share issuance, net of cost
Balance, end of year
Dividends on Common Shares
DECEMBER 31, 2019
DECEMBER 31, 2018
# OF SHARES
(IN 000S)
$
# OF SHARES
(IN 000S)
$
14,405
138,090
13,476
188
201
10
(458)
-
-
4,284
3,560
490
(4,474)
6
-
46
146
12
(398)
203
920
14,346
141,956
14,405
85,874
562
2,860
508
(3,820)
7,924
44,182
138,090
For the year ended December 31, 2019, the Company paid dividends of $16.7 million (2018 – $11.7 million) or $1.155 per share (2018 –
$0.855 per share). On November 4, 2019, the Company declared a dividend of $0.310 per share to shareholders of record on December
27, 2019, payable on January 10, 2020. The dividend paid on January 10, 2020 was $4.4 million.
Shares Purchased for Cancellation
During the year ended December 31, 2019, the Company purchased and cancelled 458,260 (2018 – 398,452) of its common shares
on the open market at an average price of $44.31 (2018 – $37.61) for a total cost of $20.3 million (2018 – $15.0 million) pursuant to a
normal course issuer bid. This normal course issuer bid expired on November 12, 2019. The normal course issuer bid was renewed on
December 18, 2019 which allows for a total purchase of up to 1,038,269 common shares and expires on December 19, 2020.
15. STOCK-BASED COMPENSATION
Share Option Plan
Under the Company’s share option plan, options to purchase common shares may be granted by the Board of Directors to directors,
officers and employees. Options are generally granted at exercise prices equal to the fair market value at the grant date, vest at the
end of a three-year period based on earnings per share targets and have exercise lives of five years.
goeasy Ltd. 2019 Annual Report 105
Outstanding balance, beginning of year
Options granted
Options exercised
Options forfeited or expired
Outstanding balance, end of year
Exercisable balance, end of year
DECEMBER 31, 2019
DECEMBER 31, 2018
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
613
115
(188)
(68)
472
47
27.67
40.60
17.74
35.33
33.67
18.81
526
186
(46)
(53)
613
236
23.70
35.50
9.81
31.30
27.67
17.98
Outstanding options to officers and employees as at December 31, 2019 were as follows:
OUTSTANDING
EXERCISABLE
RANGE OF
EXERCISE
PRICES
$
18.81 - 19.99
20.00 - 29.99
30.00 - 39.99
40.80
18.81 - 40.80
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
REMAINING
CONTRACTUAL LIFE IN
YEARS
WEIGHTED AVERAGE
EXERCISE PRICE
$
# OF OPTIONS
(IN 000S)
WEIGHTED AVERAGE
EXERCISE PRICE
$
47
-
330
95
472
0.13
-
2.97
4.12
2.92
18.81
-
33.73
40.80
33.67
47
-
-
-
47
18.81
-
-
-
18.81
The Company used the fair value method of accounting for stock options granted to employees. During the year ended December 31,
2019, the Company recorded an expense of $1,151 (2018 – $914) in stock-based compensation expense related to its stock option plan
in the consolidated statements of income, with a corresponding adjustment to contributed surplus.
Options granted in 2019 and 2018 were determined using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate (% per annum)
Expected hold period to exercise (years)
Volatility in the price of the Company’s shares (%)
Dividend yield (%)
Restricted Share Unit (“RSU”) Plan
2019
2018
1.82
4.75
37.37
3.00
2.01
4.75
35.74
2.03
Under the Company’s RSU Plan, RSUs may be granted by the Board of Directors to employees of the Company. RSUs are granted at fair
market value at the grant date and generally vest at the end of a three-year period based on long-term targets.
Outstanding balance, beginning of year
RSUs granted
RSU dividend reinvestments
RSUs exercised
RSUs forfeited
Outstanding balance, end of year
DECEMBER 31, 2019
DECEMBER 31, 2018
# OF RSUS
(IN 000S)
WEIGHTED AVERAGE
FAIR VALUE AT
GRANT DATE
$
# OF RSUS
(IN 000S)
WEIGHTED AVERAGE
FAIR VALUE AT
GRANT DATE
$
533
126
8
(201)
(65)
401
31.14
43.93
48.27
17.58
37.03
41.34
641
184
10
(226)
(76)
533
22.78
39.78
39.80
16.93
25.26
31.14
For the year ended December 31, 2019, $5,096 (2018 – $5,181) was recorded as an expense in stock-based compensation expense related
to the Company’s RSU program in the consolidated statements of income with a corresponding adjustment to contributed surplus.
goeasy Ltd. 2019 Annual Report 106
Deferred Share Unit (“DSU”) Plan
During the year ended December 31, 2019, the Company granted 58,103 DSUs (2018 – 14,767 DSUs) to directors under its DSU Plan.
DSUs are granted at fair market value at the grant date and vest immediately upon grant. For the year ended December 31, 2019,
$2,439 (2018 – $741) was recorded as stock-based compensation expense under the DSU Plan in the consolidated statements of
income. Additionally, for the year ended December 31, 2019, an additional 5,368 DSUs (2018 – 3,684 DSUs) were granted as a result
of dividends reinvested.
Contributed Surplus
The following is a continuity of the activity in the contributed surplus account:
DECEMBER 31, 2019
DECEMBER 31, 2018
Contributed surplus, beginning of year
Equity-settled stock-based compensation expense
Stock options
Restricted share units
Deferred share units
Reduction due to exercise of stock-based compensation
Stock options
Restricted share units
Contributed surplus, end of year
16. OTHER EXPENSES
16,105
1,151
5,096
2,439
(941)
(3,554)
20,296
15,305
914
5,181
741
(112)
(5,924)
16,105
In the normal course of its operations, the Company periodically sells select lease portfolios, loan portfolio and other assets. For the
year ended December 31, 2019, other expenses included net gains realized on the sale of lease portfolios, loan portfolio and other
assets of $2.6 million (2018 – $0.6 million).
17. INTEREST EXPENSE AND AMORTIZATION OF DEFERRED FINANCING CHARGES
Interest expense and amortization of deferred financing charges under finance costs in the consolidated statements of income include the following:
DECEMBER 31, 2019
DECEMBER 31, 2018
Interest expense
Notes payable
Convertible debt
Revolving credit facility
Amortization of deferred financing costs and accretion expense
Interest income, net
18. INCOME TAXES
The Company’s income tax expense was determined as follows:
Combined basic federal and provincial income tax rates
Expected income tax expense
Non-deductible expenses
U.S. and SPE results not tax effected
Effect of capital gains on sale of assets and investments
Other
46,118
2,534
2,631
4,819
(1,008)
55,094
DECEMBER 31, 2019
DECEMBER 31, 2018
27.3%
24,439
1,090
(70)
(248)
(48)
25,163
39,250
2,868
630
4,541
(1,489)
45,800
27.2%
20,112
574
27
(92)
172
20,793
goeasy Ltd. 2019 Annual Report 107
The significant components of the Company’s income tax expense are as follows:
DECEMBER 31, 2019
DECEMBER 31, 2018
Current income tax:
Current income tax charge
Adjustments in respect of prior years and other
Deferred income tax:
Relating to origination and reversal of temporary differences
27,876
(113)
27,763
(2,600)
25,163
The significant components of the Company's deferred tax assets are as follows:
DECEMBER 31, 2019
DECEMBER 31, 2018
Amounts receivable and allowance for credit losses
Financing fees
Stock-based compensation
Right-of-use assets, net of lease liabilities
Revaluation of notes payable and cross-currency swaps
Loss carry forwards
Unearned revenue
Tax cost of lease assets and property and equipment in excess
of net book value
Premium on notes payable
8,890
6,707
2,411
1,224
685
616
378
(5,950)
-
14,961
23,689
665
24,354
(3,561)
20,793
7,481
(1,044)
1,994
-
(986)
187
454
(991)
2,350
9,445
All changes to the deferred tax assets were recorded as an expense in deferred tax expense in the consolidated statements of income.
As at December 31, 2019 and 2018, there was no recognized deferred tax liabilities for taxes that would be payable on the undistributed
earnings of the Company’s subsidiaries. The Company has determined that undistributed earnings of its subsidiaries would not be
distributed in the foreseeable future.
19. EARNINGS PER SHARE
Basic Earnings Per Share
Basic earnings per share amounts were calculated by dividing the net income for the year by the weighted average number of ordinary
shares and DSUs outstanding. DSUs were included in the calculation of the weighted average number of ordinary shares outstanding
as these units vest upon grant.
DECEMBER 31, 2019
DECEMBER 31, 2018
Net income
Weighted average number of ordinary shares outstanding (in
000s)
Basic earnings per ordinary share
64,349
14,635
4.40
53,124
14,045
3.78
For the year ended December 31, 2019, 238,529 DSUs (2018 – 173,667 DSUs) were included in the weighted average number of
ordinary shares outstanding.
Diluted Earnings Per Share
Diluted earnings per share reflect the potential dilutive effect that could occur if additional common shares were assumed to be issued
under securities or instruments that may entitle their holders to obtain common shares in the future. Dilution could occur through the
exercise of stock options, the exercise of RSUs, or the exercise of the conversion option of the convertible debentures. The number of
additional shares for inclusion in the diluted earnings per share calculation was determined using the treasury stock method. For the
goeasy Ltd. 2019 Annual Report 108
years ended December 31, 2019 and 2018, the convertible debentures were dilutive. Therefore, diluted earnings per share is calculated
based on a fully diluted net income (adjusted for the after-tax financing cost associated with the convertible debentures) and including
the shares to which those debentures could be converted.
DECEMBER 31, 2019
DECEMBER 31, 2018
Net income
After tax impact of convertible debentures
Fully diluted net income
Weighted average number of ordinary shares outstanding (in 000s)
Dilutive effect of stock-based compensation (in 000s)
Dilutive effect of convertible debentures (in 000s)
Weighted average number of diluted shares outstanding (in 000s)
Dilutive earnings per ordinary share
64,349
2,698
67,047
14,635
426
1,001
16,062
4.17
53,124
2,690
55,814
14,045
496
1,130
15,671
3.56
For the year ended December 31, 2019, 94,648 stock options to acquire common shares (2018 – 185,784), were considered anti-
dilutive using the treasury stock method and therefore excluded in the calculation of diluted earnings per share.
20. NET CHANGE IN OTHER OPERATING ASSETS AND LIABILITIES
The net change in other operating assets and liabilities was as follows:
DECEMBER 31, 2019
DECEMBER 31, 2018
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes payable
Deferred lease inducements
Unearned revenue
Accrued interest
(3,032)
(3,242)
(3,753)
(3,312)
-
2,080
(4,866)
(16,125)
(1,028)
(290)
2,032
(1,946)
(60)
1,183
1,956
1,847
Supplemental disclosures in respect of the consolidated statements of cash flows comprised the following:
Income taxes paid
Income taxes refunded
Interest paid
Interest received
21. COMMITMENTS AND GUARANTEES
DECEMBER 31, 2019
DECEMBER 31, 2018
31,948
873
60,492
338,361
26,300
-
45,023
253,578
The Company is committed to software maintenance, development and licensing service agreements, and operating leases for
premises and vehicles. Some of the Company’s lease contracts for premises include extension options. Management exercises
significant judgement in determining whether these extension options are reasonably certain to be exercised. As at December 31,
2019, no extension option for lease contracts for premises is expected to be exercised.
goeasy Ltd. 2019 Annual Report 109
The undiscounted potential future lease payments for operating leases for premises and vehicles and the estimated operating costs
related to technology commitments required for the next five years and thereafter are as follows:
WITHIN 1 YEAR
AFTER 1 YEAR, BUT NOT MORE THAN 5 YEARS
MORE THAN 5 YEARS
Premises
Vehicles
Technology commitments
22. CONTINGENCIES
16,863
965
9,893
27,721
35,254
2,043
11,221
48,518
6,309
124
-
6,433
The Company was involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not
expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the Company’s policies.
The Company maintains insurance policies that may provide coverage against certain claims.
23. CAPITAL RISK MANAGEMENT
The Company manages its capital to maintain its ability to continue as a going concern and to provide adequate returns to shareholders
by way of share appreciation and dividends. The capital structure of the Company consists of bank debt (revolving operating facility),
notes payable, convertible debentures and shareholders’ equity, which includes share capital, contributed surplus, accumulated other
comprehensive income (loss) and retained earnings.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval
from its Board of Directors, will balance its overall capital structure through new share issues, share repurchases, the payment of
dividends, increasing or decreasing bank debt and term debt or by undertaking other activities as deemed appropriate under specific
circumstances. The Company’s strategy, objectives, measures, definitions and targets have not changed significantly in the past year.
The Company has externally imposed capital requirements as governed through its financing facilities. These requirements are to
ensure the Company continues to operate in the normal course of business and to ensure the Company manages its debt relative to
net worth. The capital requirements are congruent with the Company’s management of capital.
The Company monitors capital on the basis of the financial covenants of its financing facilities.
For the years ended December 31, 2019 and 2018, the Company was in compliance with all of its externally imposed financial covenants.
24. FINANCIAL RISK MANAGEMENT
Overview
The Company’s activities are exposed to a variety of financial risks: credit risk, liquidity risk, interest rate risk and currency risk.
The Company’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to
minimize potential adverse effects on the Company’s financial performance.
Credit Risk
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans receivable and
lease assets with customers under merchandise lease agreements. The Company makes consumer loans and leases products to thousands
of customers pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk with any particular
individual, company or other entity, although the Company is subject to a higher level of credit risk due to the credit constrained nature of
many of the Company’s customers and in circumstances where its policies and procedures are not complied with.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is impacted by FLIs. The
analysis performed by the Company determined that the rate of inflation and rate of unemployment were positively correlated with the
Company’s historic loss rates while oil prices and the rate of GDP were negatively correlated with the Company’s historic loss rates. For
purposes of determining its allowance for loan losses at each consolidated statement of financial position date, the Company utilizes the
forecasts of these FLIs from five large Canadian banks. The impact on the allowance for credit losses as a percentage of ending gross
consumer loans receivable should each of these FLIs increase (or decrease) by 10%, as at December 31, 2019 is as follows:
CHANGE IN FLIS
IMPACT ON ALLOWANCE FOR CREDIT LOSSES AS A PERCENTAGE
OF THE ENDING GROSS CONSUMER LOANS RECEIVABLE
Rate of unemployment
Rate of inflation
Oil prices
GDP
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 2 bps
+/- 6 bps
-/+ 12 bps
-/+ 2 bps
goeasy Ltd. 2019 Annual Report 110
As at December 31, 2019, the Company’s gross consumer loans receivable portfolio was $1,110.6 million (2018 – $833.8 million). Net
charge-offs expressed as a percentage of the average loan book were 13.3% for the year ended December 31, 2019 (2018 – 12.7%).
The credit risk related to lease assets with customer’s results from the possibility of customer default with respect to agreed upon
payments or in not returning the lease assets. The Company has a standard collection process in place in the event of payment default,
which includes the recovery of the lease asset if satisfactory payment terms cannot be worked out with the customer, as the Company
maintains ownership of the lease assets until payment options are exercised. As at December 31, 2019, the Company’s lease assets
were $48.7 million (2018 – $51.6 million). Lease asset losses for the year ended December 31, 2019 represented 2.9% (2018 – 3.3%)
of total revenue for the easyhome segment.
The credit risk related to other amounts receivable are managed in accordance with policies and procedures resulting from the
possibility of default on rebate payments, amounts due from licensee and franchisees and other amounts receivable. The Company
deals with credible companies, performs ongoing credit evaluations of creditors and consumers and allows for uncollectible amounts
when determined to be appropriate.
Liquidity Risk
The Company addresses liquidity risk management by maintaining sufficient availability of funding through its financing facility. The
Company manages its cash resources based on financial forecasts and anticipated cash flows, which are periodically reviewed with
the Company’s Board of Directors.
The Company believes that the cash flow provided by operations and funds available from the credit facility will be sufficient in the near
term to meet operational requirements, purchase lease assets, meet capital spending requirements and pay dividends. In addition,
the incremental financing obtained in 2019 will allow the Company to continue growing its consumer loans receivable portfolio into
the third quarter of 2021. In order for the Company to achieve the full growth opportunities available, however, additional sources of
financing over and above the currently available credit facility will be required in the future. There is no certainty that these long-term
sources of capital will be available or at terms favourable to the Company.
Substantially all liabilities are due within 12 months with the exception of convertible debentures and notes payable. These credit
facilities have no current component and are due as disclosed in notes 12 and 13. As at December 31, 2019, $115.0 million was drawn
on the Company’s revolving credit facility (note 11).
Interest Rate Risk
Interest rate risk measures the Company’s risk of financial loss due to adverse movements in interest rates. As at December 31, 2019,
the notes payable and the convertible debentures had a fixed rate of interest. The $310.0 million revolving credit facility has a variable
interest rate at either the BA rate plus 300 bps or the Prime rate plus 200 bps, at the option of the Company.
The Company does not hedge interest rates on the revolving credit facility. Accordingly, future changes in interest rates will affect the
amount of interest expense payable by the Company to the extent that draws are made on the variable rate revolving credit facility.
As at December 31, 2019, the Company’s outstanding borrowing from its revolving credit facility was subject to movements in the BA
rate. A 10% movement in the BA rate would have increased or decreased net income for the year by approximately $193.
Currency Risk
Currency risk measures the Company’s risk of financial loss due to adverse movements in currency exchange rates.
The Company completed an offering of USD$550.0 million Notes Payable. These notes are due December 1, 2024 with a USD coupon
rate of 5.375%. Concurrent with these offerings, the Company entered into currency swap agreements to fix the foreign exchange rate
for the proceeds from the offerings and for all required payments of principal and interest under these notes effectively hedging the
obligation. The hedge is designed to match the cash flow obligations of the Company under the Notes Payable.
The Company sources a portion of the assets it leases in Canada from U.S. suppliers. As a result, the Company had foreign exchange
transaction exposure. These purchases were funded using the spot rate prevailing at the date of purchase. Pricing to customers
can be adjusted to reflect changes in the CAD landed cost of imported goods and, as such, there is not a material foreign currency
transaction exposure. A 5% movement in the CAD and USD exchange rate would have increased or decreased net income for the year
by approximately $34.
goeasy Ltd. 2019 Annual Report 111
25. FINANCIAL INSTRUMENTS
Recognition and Measurement of Financial Instruments
The Company classified its financial instruments as follows:
FINANCIAL INSTRUMENTS
MEASUREMENT
DECEMBER 31, 2019
DECEMBER 31, 2018
Cash
Amounts receivable
Consumer loans receivable
Investment
Derivative financial assets
Revolving credit facility
Accounts payable and accrued liabilities
Derivative financial liabilities
Convertible debentures
Notes payable
Fair Value Measurement
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
46,341
18,482
1,040,552
34,300
-
115,000
41,350
16,435
41,712
702,414
100,188
15,450
782,864
-
35,094
-
45,103
-
40,581
650,481
All assets and liabilities for which fair value was measured or disclosed in the consolidated financial statements were categorized
within the fair value hierarchy, described as follows, based on the lowest level input that was significant to the fair value measurement
as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
or indirectly observable.
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The hierarchy required the use of observable market data when available. The following table provides the fair value measurement
hierarchy of the Company’s financial assets and liabilities measured as at December 31, 2019 and 2018:
DECEMBER 31, 2019
TOTAL
LEVEL 1
LEVEL 2
LEVEL 3
Cash
Amounts receivable
Consumer loans receivable
Investment
Revolving credit facility
Accounts payable and accrued liabilities
Derivative financial liabilities
Convertible debentures
Notes payable
46,341
18,482
1,040,552
34,300
115,000
41,350
16,435
41,712
702,414
46,341
-
-
-
-
-
-
-
-
DECEMBER 31, 2018
TOTAL
LEVEL 1
LEVEL 2
Cash
Amounts receivable
Consumer loans receivable
Derivative financial assets
Accounts payable and accrued liabilities
Convertible debentures
Notes payable
100,188
15,450
782,864
35,094
45,103
40,581
650,481
100,188
-
-
-
-
-
-
-
-
-
-
-
-
16,435
-
-
-
-
-
35,094
-
-
-
-
18,482
1,040,552
34,300
115,000
41,350
-
41,712
702,414
LEVEL 3
-
15,450
782,864
-
45,103
40,581
650,481
goeasy Ltd. 2019 Annual Report 112
There were no transfers between Level 1, Level 2, or Level 3 during the current or prior year.
26. RELATED PARTY TRANSACTIONS
Key management personnel includes all corporate officers with the position of president, executive vice president or senior vice
president. The following summarizes the expense related to key management personnel during the year.
Short-term employee benefits including salaries
Share-based payment transactions
27. SEGMENTED REPORTING
DECEMBER 31, 2019
DECEMBER 31, 2018
4,426
2,865
7,291
6,049
4,111
10,160
For management purposes, the Company had two reportable segments: easyfinancial and easyhome. The Company’s business units
generate revenue in four main categories: i) interest generated on the Company’s gross consumer loans receivable portfolio; ii) lease
payments generated by easyhome lease agreements; iii) commissions and other revenues generated by the sale of various ancillary
products; and iv) charges and fees.
General and administrative expenses directly related to the Company’s business segments were included as operating expenses for
those segments. All other general and administrative expenses were reported separately as part of Corporate. Management assessed
the performance based on segment operating income (loss).
The following tables summarize the relevant information for the years ended December 31, 2019 and 2018:
YEAR ENDED DECEMBER 31, 2019
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
Total operating expenses before depreciation
and amortization
Depreciation and amortization
Depreciation and amortization of lease assets,
property and equipment and intangible assets
Depreciation of right-of-use assets
Segment operating income (loss)
Finance costs
Interest expense and amortization of
deferred financing charges
Interest expense on lease liabilities
Refinancing cost relating to notes payable
Income before income taxes
334,124
-
126,806
9,278
470,208
11,873
113,236
8,704
5,362
139,175
-
-
-
-
-
345,997
113,236
135,510
14,640
609,383
267,356
67,253
41,617
376,226
7,194
6,521
13,715
189,137
39,140
7,943
47,083
24,839
2,831
735
3,566
(45,183)
49,165
15,199
64,364
168,793
55,094
2,464
21,723
79,281
89,512
goeasy Ltd. 2019 Annual Report 113
YEAR ENDED DECEMBER 31, 2018
EASYFINANCIAL
EASYHOME
CORPORATE
TOTAL
Revenue
Interest income
Lease revenue
Commissions earned
Charges and fees
Total operating expenses before depreciation
and amortization
Depreciation and amortization
Depreciation and amortization of lease assets,
property and equipment and intangible assets
Segment operating income (loss)
Finance costs
Interest expense and amortization of
deferred financing charges
Income before income taxes
250,622
-
110,423
7,280
368,325
5,375
119,745
6,577
6,169
137,866
-
-
-
-
-
255,997
119,745
117,000
13,449
506,191
218,138
74,215
42,118
334,471
8,333
141,854
42,104
21,547
1,566
(43,684)
52,003
119,717
45,800
73,917
As at December 31, 2019, the Company’s goodwill of $21.3 million (2018 – $21.3 million) related entirely to its easyhome segment.
In scope under IFRS 15 are revenues relating to commissions earned and charges and fees. Lease revenue is covered under IFRS 16.
Included in lease revenue is certain additional services provided by the Company related to the lease, but which fall under the scope
of IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). These revenues totalled $13.4 million and $14.2 million in 2019 and
2018, respectively.
The Company’s easyhome business consisted of four major product categories: furniture, electronics, computers and appliances.
Lease revenue generated by these product categories as a percentage of total lease revenue for the years ended December 31, 2019
and 2018 were as follows:
Furniture
Electronics
Computers
Appliances
DECEMBER 31, 2019
(%)
DECEMBER 31, 2018
(%)
44
32
11
13
100
44
31
12
13
100
goeasy Ltd. 2019 Annual Report 114
CORPORATE INFORMATION
HEAD OFFICE
33 City Centre Drive
Suite 510
Mississauga, Ontario
L5B 2N5
Tel:
(905) 272-2788
INVESTOR RELATIONS
Jason Mullins
President & Chief Executive Officer
Tel:
(905) 272-2788
David Ingram
Executive Chairman of the Board
Tel:
(905) 272-2788
Hal Khouri
Executive Vice-President
& Chief Financial Officer
(905) 272-2788
Tel:
BANKERS
Bank of Montreal
Toronto, Ontario
Wells Fargo Canada
Toronto, Ontario
Canadian Imperial Bank
of Commerce
Toronto, Ontario
ICICI Canada
Toronto, Ontario
TRANSFER AGENT
TSX Trust Company
Toronto, Ontario
LISTED
Toronto Stock Exchange
Trading Symbol: GSY
SOLICITORS
Blake, Cassels & Graydon LLP
Toronto, Ontario
AUDITORS
Ernst & Young LLP
Toronto, Ontario
WEBSITE
www.goeasy.com
BOARD OF DIRECTORS
CORPORATE OFFICERS
David Ingram
Executive Chairman of the Board
Jason Mullins
President & Chief Executive Officer
Donald K. Johnson
Chairman Emeritus
David Appel
Corporate Director
Karen Basian
Corporate Director
Susan Doniz
Corporate Director
Sean Morrison
Corporate Director
Sabrina Anzini
Senior Vice-President, Legal & Corporate Affairs
Jason Appel
Executive Vice-President & Chief Risk Officer
David Cooper
Senior Vice-President, Human Resources
Andrea Fiederer
Executive Vice-President & Chief Marketing Officer
Hal Khouri
Executive Vice-President & Chief Financial Officer
Honourable James Moore
Corporate Director
Steven Poole
Senior Vice-President, Operations and Merchandising
goeasy Ltd. 2019 Annual Report 115