The PNC Financial Services Group
Annual Report 2020

Plain-text annual report

Appendix 4E and Annual Report For the year ended 30 June 2020 Pioneer Credit Limited ABN 44 103 003 505 Annual Report - 30 June 2020 Contents Appendix 4E - Results for announcement to the market Corporate Directory About Pioneer Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Financial Statements Independent Auditors Report to the Members Shareholder information 3 7 8 9 29 30 32 94 100 Pioneer Credit Limited 30 June 2020 2 Pioneer Credit Limited ABN 44 103 003 505 Appendix 4E Preliminary Final Report for the year ended 30 June 2020 (previous corresponding period 30 June 2019) Appendix 4E - Results for announcement to the market Key information 30 June 2020 $’000 30 June 2019 $’000 Change $’000 % Revenue from ordinary activities (Loss) / Profit from ordinary activities after tax attributable to members Net (loss) / profit for the period attributable to members 55,889 74,717 (18,828) (25) (40,084) (40,084) 4,281 4,281 (44,365) (44,365) (1,036) (1,036) Revenue from ordinary activities excludes bank interest income and the profit on sale / revaluation of other assets in the comparative period. ASIC Relief ASIC Corporations (Extended Reporting and Lodgement Deadlines – Listed Entities) Instrument 2020/451 Pioneer Credit Limited is applying the ASIC Relief to extend the lodgement date for its audited accounts. Dividends per ordinary share / distributions There is no provision for a final dividend in respect of the year ended 30 June 2020. Financial Statements Released with this Appendix 4E report are the following statements:  Consolidated Statement of Profit or Loss and Other Comprehensive Income together with notes to the Statement  Consolidated Statement of Financial Position together with notes to the Statement  Consolidated Statement of Changes in Equity, showing movements  Consolidated Statement of Cash Flows together with notes to the Statement This report is based on financial statements which have been audited. Pioneer Credit Limited 30 June 2020 3 Key ratios 30 June 2020 (cents) 30 June 2019 (cents) Net tangible assets per fully paid ordinary share Basic (loss) earnings per fully paid ordinary share 87.85 (63.36) 161.28 6.88 The Right of Use Asset under AASB 16 Leases ($7.4m) has been excluded from tangible assets, while the lease liability has been included in liabilities. Review of operations and results The Company experienced a challenging operating environment over the past year, with the impacts of an extensive refinancing process, and the terminated change of control transaction, imposing constraints on the Company’s ability to fully operationalise its business and portfolio. These events, together with the impacts of the COVID-19 pandemic, have seen revenue from ordinary activities decrease by 25%. This was driven in part by a 25% decrease in new purchased debt portfolios (“PDPs”) compared to prior year as major debt vendors suspended their debt sale programmes. This decreased investment in PDPs contributed materially to receipts from liquidations decreasing 15% to $101.0m. The results for the period were also adversely impacted by a number of significant one-off costs related to the terminated scheme of arrangement and subsequent refinancing process. An overview of these events is outlined below with additional details provided in note 3 of the accompanying Financial Statements. Scheme Implementation Agreement and Refinancing Overview In December 2019, the Company entered into a Scheme Implementation Agreement with Robin BidCo Pty Ltd and Robin HoldCo Holdings Limited, entities part of the Carlyle Group (“Carlyle”). Under the Scheme Implementation Agreement, it was agreed that Carlyle would acquire all of the Pioneer ordinary shares (“Scheme”). Carlyle, through their entity Project Robin, L.P. (“Senior Financier”) also acquired the debt outstanding under Pioneer’s senior secured debt facility from its then senior financiers (“Carlyle Facility”). From December 2019 to March 2020 the Company worked to finalise the Scheme booklet for lodgement with ASIC, however by April 2020 it became apparent that Carlyle would not proceed with the Scheme. In April 2020, Carlyle issued a notice alleging a range of defaults under its syndicated facility agreement and that the secured money owed to it by the Company was immediately due and payable. The Company refuted the existence of any default, terminated the Scheme, and the dispute became the subject of legal proceedings. In May 2020 the parties entered into a Standstill Agreement providing the Company time to refinance its debt facilities. As part of the Standstill Agreement the Company, amongst other things, discontinued its legal proceedings against the Senior Financier. Pioneer Credit Limited 30 June 2020 4 On 16 September 2020, the Group entered into a new syndicated facility agreement (“SFA”) for $189,000,000 providing for the refinancing of the Carlyle Facility and funding for future growth. The SFA comprises:    $169,000,000 term facility; $20,000,000 acquisition facility, for up to 50% of the value of portfolio debt purchases (“Acquisition Facility”); and 15,750,626 zero cost detachable warrants to be issued to the syndicate (“Warrants”) and contains the following terms:  Weighted average interest rate of BBSY +11% p.a.;  Commitment fee of 2.5% on the undrawn commitment under the Acquisition Facility;   Exit fee of 2.0% per annum on actual amounts drawn and outstanding; Top-up fee to achieve an IRR of 14.5%, including the value of warrants issued to the Syndicate;  Maturity date of 30 September 2022, with the ability, subject to conditions, to extend this to 1 July 2023; and  Financial covenants to be tested quarterly from 31 December 2020. The Warrants have a nil exercise price, are detachable and expire 4 years from 16 September 2020. The Warrants will be issued in two tranches to the Syndicate as follows:   9,509,737 Warrants issued immediately; and 6,240,889 Warrants to be issued subject to Shareholder approval. With the successful completion of the refinancing, together with the current cash flow forecasts that make allowance for uncertain macroeconomic conditions (including the potential impacts of COVID-19), the Company will be able to realise its assets and discharge its liabilities in the normal course of business. Impacts of COVID-19 At the onset of the COVID-19 pandemic in mid-March 2020, and through April 2020, the Company experienced a reduction in its average payment instalments and lump sum settlements, consistent with the expectation that customers would naturally become more cautious about their finances. The Company expected that the reduction in payments would behave in a manner representing deferrals of customer payments rather than hard defaults. This has, to date, proven to be the case with noticeable growth coming through payment arrangements each month since May 2020. The Company’s customer centric approach, combined with the high quality of its debt portfolio, being predominantly Australian bank products with a strict origination process, has contributed to minimising any material adverse impacts of the COVID-19 pandemic on liquidations. However as noted above, this was not the case for the purchasing of new debt portfolios which were significantly impacted as major debt vendors suspended their debt sale programmes. Some of these debt programs have now resumed and the Company recommenced purchasing in July 2020. There remains a level of uncertainty as to the future economic outlook and potential impacts to the Company’s future performance. Pioneer Credit Limited 30 June 2020 5 Business risk statement Like all businesses, Pioneer faces uncertainties in the future. The ability to understand, manage and mitigate risk is a source of the Company’s competitive advantage. No period has bought to light the need to appropriately manage risk than the onset of COVID-19 in early 2020. For Pioneer, generally the most significant immediate financial risk is that our customers may not meet the expected level of repayments as they manage their financial commitments. Our success in working with our customers over time is based on a number of factors that mitigates default risk with people who have experienced financial difficulty. These include:  Treating them with empathy, understanding and respect;  Offering expert help in getting over financial challenges;  A high investment in analytics to match effort and engagement method to a customer’s financial capability; Investing only in quality account portfolios from leading financial institutions; and   Our people, who are here to help, rather than chase, and who work in a culture of strong values where a premium is placed on customer service and empathy. These aspects to the Pioneer business were critical in guiding it through the onset of COVID-19, and the Directors Report contained herein references performance through this period specifically. We are also conscious that the Company needs to be able to purchase debt portfolios at appropriate prices, and that risk is influenced by a number of factors. The availability of debt portfolios for acquisition is at the sole discretion of the debt vendors and there exists the risk that debt vendors will stop or delay selling portfolios in response to their own operating strategy or as a result of any potential changes in government policy. While acknowledging this risk, the Company’s investment approach is a source of advantage:  Pioneer has been successfully buying quality portfolios for over ten consecutive years, and has consistently been one of the largest participants in this market in Australia;  Pioneer’s empathetic approach to customers makes us a preferred partner for major financial institutions who are sensitive to how their customers are treated;  Pioneer’s analytics is driven by a professional team of analysts and data scientists using a large, growing and relevant statistical base to inform investment decisions; and  Pioneer’s success is evidenced by standing out of markets during periods of relatively high prices. Overlaying this are the usual risks of regulatory change, the importance of our people complying with regulations and our own internal policies, the impact of a strategy that is not well executed, the potential failure to respond appropriately to changes in technology and the threat posed through competitor behaviours. These are the source of regular attention and review by the Company’s Executive and Board of Directors Sale of Consumer Loan Book The Consumer Loan portfolio was sold during the year at a loss of $2.3m. Pioneer Credit Limited 30 June 2020 6 Corporate Directory Directors Mr Michael Smith (Chairperson) Mr Keith John Ms Andrea Hall Ms Ann Robinson Mr Mark Dutton (resigned effective 4 March 2020) Company Secretary Ms Susan Symmons Principal Registered Office Share Registrar Auditor Solicitors Bankers Level 6 108 St Georges Terrace Perth WA 6000 Link Market Services Limited Level 12 250 St Georges Terrace Perth WA 6000 +61 1300 554 474 Deloitte Touche Tohmatsu Brookfield Place Tower 2 123 St Georges Terrace Perth WA 6000 +61 8 9365 7000 K&L Gates Level 32 44 St Georges Terrace Perth WA 6000 +61 8 9216 0900 Nomura Australia Ltd 1 Farrer Place Level 25 Governor Philip Tower Sydney NSW 2000 +61 2 9321 3531 Stock Exchange Listings Pioneer Credit Limited shares are listed on the Australian Securities Exchange (ASX). Website www.pioneercredit.com.au Pioneer Credit Limited 30 June 2020 7 About Pioneer Pioneer Credit in an ASX listed company (ASX:PNC) providing high quality, flexible, financial services support to help everyday Australians out of financial difficulty. We have the trust of long-term vendor partners to do the right thing and respectfully support customers to achieve their financial independence. With more than 250,000 customers throughout Australia and New Zealand, our focus is on providing them with exceptional levels of customer service along with a range of products and solutions to help them achieve their financial goals. We specialise in acquiring and servicing retail debt portfolios. These portfolios consist of individuals with financial obligations to us and are the cornerstone of our customer relationships. We value and respect our customers greatly, and we work with our customers over time so that they can meet their obligations and progress toward financial recovery, and through this process evolve as a ‘new consumer’. We work with Australia’s major banks and financial institutions. Our success has been built on long-lasting relationships, and while we have grown rapidly, we remain small and agile enough to meet our clients’ business requirements. Our key focus is on providing commercial solutions to our financial sector partners. We never forget that the reputation of our partners is paramount, and that how we approach the servicing of portfolios can directly impact both our own brand and that of our partners – either positively or negatively. A focus on customer service We invest in the ongoing training and development of our staff to ensure we provide a consistent customer service-oriented approach to our customer engagement. We also monitor all customer contact and are at the forefront of compliance best practice. This approach means we are confident of delivering an industry-leading service to our partners. Strong corporate culture Pioneer Credit has a strong corporate culture, built around six Pioneer Principles. These are a very well defined set of values that our people work and live by. They form the core of what we expect in terms of behaviour from our people; they are embedded throughout the organisation and underpin every interaction we have with our customers and our stakeholders. Pioneer Credit Limited 30 June 2020 8 Directors’ Report The Board of Directors present their report on the Consolidated Entity (‘the Group’ or ‘the Company’) consisting of Pioneer Credit Limited and the entities it controlled at or during the year ended 30 June 2020. Directors The following people were Directors of Pioneer Credit Limited during the financial year and at the date of this report: Mr Michael Smith (Chairperson) Mr Keith John Ms Andrea Hall Ms Ann Robinson Mr Mark Dutton (Resigned effective 4 March 2020) Principal activities Pioneer is a financial services provider that specialises in acquiring and servicing unsecured retail debt portfolios. Pioneer provides high quality, flexible financial services support to help everyday Australians out of financial difficulty. Pioneer has the trust of long-term vendor partners to do the right thing and respectfully support customers to achieve their financial independence. Pioneer focuses on driving customer loyalty through our organisational values - the Pioneer Principles. Dividends Since the end of the financial year the Directors have not declared a final dividend. Review of operations As has been well disclosed by the Company over the past year, Pioneer has experienced a challenging operating environment that persisted throughout the year to 30 June 2020. The period was one where the Board and Management were heavily engaged on a range of processes to ensure maximum value was both preserved and potentially realised for shareholders. This included the running of an extensive refinancing and change of control process during a period that saw the Company’s securities voluntarily suspended from trading and the operation of lengthy Standstill Arrangements with its senior financiers. As previously reported, in December 2019 the Company entered into a Scheme Implementation Agreement with Robin BidCo Pty Ltd and Robin HoldCo Holdings Limited, entities part of the Carlyle Group (“Carlyle”) to acquire all of the Company’s ordinary shares. Unfortunately, this did not eventuate and the business found itself in a position that required a refinancing of its senior debt facility. The impacts of an extensive refinancing process, including a lengthy Standstill Arrangement, imposed constraints on the Company’s ability to fully operationalise its business and portfolio. A new Syndicated Facility Agreement was executed on 16 September 2020. Pioneer Credit Limited 30 June 2020 9 At a statutory level, and prior to adjusting the effect of one-off items, for the year ended 30 June 2020, Pioneer incurred a loss after tax of $40.1m. Receipts from Liquidations of Purchased Debt Portfolios were $101.0m, down 15% on the prior period. Pioneer’s core business, investment discipline and our inclusive and empowering culture remains solid and resilient. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Events since the end of the financial year On 16 September 2020, the Company entered into a new syndicated facility agreement to refinance its senior debt facility. The notes provided in the accompanying financial statements outline the events and impacts arising with respect to the Company’s financing facility and the Directors’ assessment of the going concern basis of preparation. No other matter or circumstance has occurred subsequent to the year-end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. Environmental regulation The Company is not affected by any significant environmental regulations. Pioneer Credit Limited 30 June 2020 10 Information on Directors Mr Michael Smith Experience and expertise Listed Company Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares and options Mr Keith John Experience and expertise Listed Company Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares and options Independent Non-Executive Chairman  Appointed Chairman of Pioneer in February 2014  Managing Director of strategic marketing consultancy Black House, Non-Executive Chairman of 7-Eleven Stores Pty Ltd and Starbucks Australia  Fellow of AICD, D. Litt. (Hon) from UWA for his contribution to business and the arts  Previous roles include Deputy Chairman of Automotive Holdings Group Limited and Chairman of iiNet Limited, Lionel Samson Sadleirs Group, Synergy, Verve, Perth International Arts Festival, West Coast Eagles and Scotch College. Nil Chairman of the Board Chairman of Nomination Committee Member of Remuneration Committee Member of Audit and Risk Management Committee Ordinary Shares 695,940 Managing Director Mr John has over 25 years’ experience in the financial services industry, is the founder of Pioneer Credit and is widely regarded as an expert in the impaired credit sector in Australia. Goldfields Money Limited 27 May 2016 to 13 March 2018 Managing Director Ordinary Shares Indeterminate rights Medium Term Notes 5,259,124 1,000,000 500 Pioneer Credit Limited 30 June 2020 11 Ms Andrea Hall Experience and expertise Independent Non-Executive Director  Appointed a Director of Pioneer in November 2016  A director of Parenti Global Limited, Evolution Mining Limited, Insurance Commission of WA and Fremantle Football Club  Bachelor of Commerce from UWA, a Masters of Applied Finance, is a Fellow of the Institute of Chartered Accountants Australia and New Zealand  Previously director of Automotive Holdings Group Limited, C-Wise, Lottery Wise and Tap Oil Limited, chair of the WA Council of Chartered Accountants Australia and New Zealand and a Risk Consulting Partner at KPMG with over 20 years’ experience in governance and risk management, financial management, internal audit and external audit. Tap Oil Limited 18 October 2016 to 31 January 2018 3 May 2018 to 30 September 2019 Automotive Holdings Group Limited Member of Nomination Committee Member of Remuneration Committee Chair of Audit and Risk Management Committee Ordinary Shares Nil Listed Company Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares and options Ms Ann Robinson Experience and expertise Independent Non-Executive Director  Appointed a Director of Pioneer in February 2018  Experience includes management consulting to clients in Australia and overseas. She also has extensive experience in mergers and acquisitions, post-merger integration and commercial management and governance, from her executive roles at Wesfarmers Limited  A director of the Lionel Samson Sadleirs Group, Rottnest Island Authority Board and a member of the Curtin University Audit, Risk and Compliance Committee  Holds a Bachelor of Arts, Bachelor of Psychology and Graduate Diploma in Applied Finance and Investment, and is a graduate of the AICD. Nil Member of Nomination Committee Chair of Remuneration Committee Member of Audit and Risk Management Committee Ordinary Shares 15,000 Listed Company Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares and options Pioneer Credit Limited 30 June 2020 12 Meeting of Directors The number of meetings held, and attended, by the Directors during the year ended 30 June 2020 was: Name Board Meetings Mr Michael Smith Mr Keith John Ms Andrea Hall Ms Ann Robinson Mr Mark Dutton 1 Attended 65 60 61 65 38 Held 66 65 66 66 40 Audit and Risk Attended Held 7 7 n/a n/a 7 7 7 7 6 4 Committee Meetings Remuneration Attended Held 3 3 n/a n/a 3 3 3 3 3 3 Nomination Attended Held 1 1 1 0 1 1 1 1 1 1 1 Mr Mark Dutton resigned effective 4 March 2020 Company Secretary Ms Susan Symmons joined Pioneer as Company Secretary and General Counsel on 1 October 2015. Ms Symmons has over 25 years’ corporate experience including positions with Heytesbury Pty Ltd, Evans & Tate Limited, Automotive Holdings Group Limited and Helloworld Limited. Ms Symmons holds a Bachelor of Commerce from Curtin University and a Master of Business Law from UNSW and is a member of the Institute of Company Directors and Governance Institute of Australia. Pioneer Credit Limited 30 June 2020 13 Remuneration Report This Remuneration Report explains the Board’s approach to executive remuneration and the remuneration outcomes for the Company’s Key Management Personnel for the year ended 30 June 2020. 1. Overview Key Management Personnel (‘KMP’) KMP includes all directors and executives who have responsibility for planning, directing and controlling material activities of the Company. In this report ‘senior executives’ refers to KMP excluding Non-Executive Directors. The information in this remuneration report has been audited under the Corporations Act 2001 S 308(3C). List of KMP Directors Mr Michael Smith Mr Keith John Ms Andrea Hall Ms Ann Robinson Mr Mark Dutton Independent Non-Executive Chairman Managing Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Senior Executives Ms Susan Symmons Ms Andrea Hoskins Mr Jason Musca Mr Barry Hartnett Ms Lisa Stedman Mr Leslie Crockett Company Secretary Chief Operating Officer Chief Financial Officer Chief Development Officer Chief Operating Officer Chief Financial Officer Resigned effective 4 March 2020 Commenced effective 8 June 2020 Commenced effective 25 May 2020 Commenced effective 8 June 20201 Ceased effective 9 July 2019 Ceased effective 3 April 2020 1 Mr Barry Hartnett has been employed by the Company since 29 May 2013 and commenced as a member of KMP from 8 June 2020. Pioneer Credit Limited 30 June 2020 14 Remuneration policy and link to performance In setting the Company’s remuneration strategy, the Remuneration Committee makes recommendations which: a) motivate senior executives to deliver long term sustainable growth within an appropriate control framework; b) demonstrate a clear and strong correlation between performance and remuneration; and c) align the interests of senior executives with those of the Company’s shareholders. Structuring employee remuneration to better align with the life of the assets Pioneer acquires is consistent with Pioneer’s differentiated approach and reflects the Board’s commitment to maintaining executive and senior management teams that are focused on making decisions for the long-term health and growth of the Company. To achieve this, the Board has determined that the Company will not award Short Term Incentives (“STIs”) to any part of the management, with the exception of Pioneer’s Operations team. The Operations team are required to comply with the Pioneer Principles and strategic goals as part of ongoing employment. This part of the Pioneer team is particularly focused on the effective liquidation of our customer portfolios on a daily basis and given this operational time frame it is appropriate that they are incentivised with STIs reflecting annual targets. These annual targets are set to support the achievement of strong returns across Pioneer's portfolio and business. Senior executives are incentivised based on Long Term Incentives (“LTIs”) through the issue of performance and indeterminate rights (“Rights”) under the Pioneer Credit Limited Equity Incentive Plan (“Plan”). The terms of these Rights are as follows: a) b) c) d) Rights vest over a period of 3 to 5 years Rights are issued for Nil consideration Performance Rights convert to ordinary shares in the capital of Pioneer on a one-for-one basis Indeterminate Rights may convert to ordinary shares in the capital of Pioneer on a one-for-one basis or, alternatively, the Board may determine in its absolute discretion that a vested Indeterminate Right will be satisfied by the Company making a cash payment in lieu of allocating Shares at the 5 days Volume Weighted Average Price (“VWAP”) prior to each vesting date. Pioneer Credit Limited 30 June 2020 15 The following table shows the statutory key performance indicators of the group over the last five years 2020 $’000 2019 $’000 2018 $’000 2017 $’000 2016 $’000 (Loss) Profit for the year attributable to owners of the Group Basic earnings (loss) per share (cents) Dividend payments paid in financial year Paid and relating to prior years 2H performance Paid and relating to current year 1H performance Dividend payout ratio (Decrease) / Increase in share price (40,781) (64.46) - - - N/A (89.44)% 4,281 6.88 7,476 4,752 2,724 N/A (14.8)% 17,600 28.88 7,273 3,219 4,054 50% 33.2% 10,753 20.77 5,169 3,071 2,098 49% 38.1% 9,450 20.36 4,736 3,085 1,651 50% 8.1% Dividend payout ratio for FY18 and prior is calculated based on dividends paid as a ratio to the reported profit for the financial year performance from which the dividend was declared. For FY19 the dividend payment of $2.7m was declared based on the half-year reported profit of $5.5m. The dividend payout ratio was therefore 50% for this payment. It is not meaningful to present this ratio for the full year given the final full year result. No dividend has been declared since HY19. Pioneer Credit Limited 30 June 2020 16 2. Remuneration governance Overview Following The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, remuneration governance has come under increased scrutiny. Commissioner Hayne observed that remuneration policy sits within a broader cultural ecosystem that includes culture, ethics, people-oriented processes and risk controls. The Company’s Remuneration Committee is a committee of the Board which has clear responsibilities and a documented role. To support them, there is a robust internal framework, which includes:- - - - - a strong and embedded corporate culture, built around the Pioneer Principles; a controls register that provides visibility on the adequacy of controls in place; policies and procedures around key processes; and a Delegation of Authority that specifies delegations from the Board to the Managing Director and from the Managing Director to management. The elements of this framework are regularly reviewed and well understood throughout the Company. Role of the Remuneration Committee The Remuneration Committee is responsible for making recommendations to the Board on: a) Base salaries for executives, and Board and Committee fees for non-executive Directors; and b) The adequacy and structure of any short term and long term incentives including equity-based remuneration plans and the quantum provided to executives. The Corporate Governance Statement and the Remuneration Committee Charter provide further information on the role of this Committee. The Committee reviews its remuneration strategy at least annually to ensure that the Company’s remuneration structures are fair and support the attraction and retention of quality people who are aligned to the Company’s goal of sustainable long-term earnings growth. The Managing Director and senior executives do not participate in any decision relating to their own remuneration, nor that of their peers. Use of remuneration consultants To ensure the Remuneration Committee is fully informed when making decisions it will periodically seek external advice. Any appointment is made in accordance with the ASX Corporate Governance Principles and Recommendations and is made free from influence from KMP. The Company sought and considered external remuneration advice from expert advisors familiar with Pioneer’s industry and scale for senior executive remuneration during the financial year. Pioneer Credit Limited 30 June 2020 17 Pioneer Credit’s securities trading policy The Securities Trading Policy imposes trading restrictions on all employees, contractors and consultants who are considered to be in possession of market sensitive information. For FY20, trading restrictions in the form of closed periods for KMP who are prohibited from trading in the Company’s securities, except in a 30 days trading window period commencing 7 days after the release of the final and half yearly financial results and after the Annual General Meeting were imposed. On 1 September 2020, the Company amended its Securities Trading Policy to replace share trading windows with prohibited trading periods. These prohibited periods include the 30 day period prior to and 3 day period from release of the full year and half year results to the ASX and the 30 day period prior to and 3 day period from the AGM. KMP are prohibited from entering into contracts to hedge their exposure to any securities held in the Company. 3. Executive remuneration Executive remuneration strategy The Board recognises that satisfying appropriate remuneration expectations is important in attracting and retaining quality people and does this through its remuneration strategy. Due to the nature of Pioneer’s business, as an acquirer of assets that typically liquidate over a period of up to 10 years, the Board recognises the importance of appropriately incentivising employees such that they are accountable for the most significant part of tenure of acquired assets. In that regard, executives and senior management are primarily incentivised with equity. Structuring employee remuneration to align with the life of the assets Pioneer acquires is consistent with Pioneer’s differentiated approach and reflects the Board’s commitment to maintaining an executive that is focused on making decisions for the long-term health and growth of the Company. Executives are provided LTIs through the issue of Rights in the Company, vesting over a period commencing at 3 years after the grant of the award and up to 5 years from that date. This structure ensures executives are incentivised to continue delivering sustainable long-term earnings of the business. Fixed remuneration Fixed remuneration consists of base salary and superannuation as per the Superannuation Guarantee (Administration) Act 1992. The Managing Director reviews the performance of his executives by meeting each at least quarterly to discuss their performance and then separately assesses the performance of the executive team as a whole. The review process is consultative in nature and contains a subjective assessment of the executive’s performance and responsibilities and the setting of future expectations. The Chair of the Remuneration Committee meets regularly with the Managing Director to discuss a number of objectives including individual performance, strategy, leadership, management and financial performance. The Chair also obtains feedback from other Directors on the performance of the Managing Director, at least Pioneer Credit Limited 30 June 2020 18 twice per year and provides that feedback back to him. The Nomination Committee completes a formal performance evaluation of the Managing Director at least annually against the stated objectives. Remuneration for all executives is reviewed at least annually. There is no guaranteed increase in any executive’s employment contract. Any remuneration reviews are determined independent of any performance review. Short term incentive No executive was paid a short term incentive during FY20. Long term incentives At the Annual General Meeting held on 29 October 2014, shareholders approved the Pioneer Credit Equity Incentive Plan (‘the Plan’). At the 2017 Annual General Meeting the Company refreshed the Plan under ASX Listing Rule 7.2 (Exception 9(b)). A further refresh will be sought at the 2020 Annual General Meeting. Objective The Plan provides participants with an equity incentive that recognises their contribution to the achievement by the Company of its strategic goals and to provide a means of attracting, rewarding and retaining skilled employees. Proposed grants of LTI are generally awarded retrospectively after considering the performance of the executive over the previous 12 months, and then considered with the executive’s relative value to the business in the future. Participation Participation in the Plan is at the sole discretion of the Board. Assessment of performance The Board reviews and approves the performance assessment and any LTI award for each eligible executive. Sustained performance is required by senior executives over the life of the assets the Company acquires and is consistent with the Board’s commitment to maintaining an executive that is focused on making decisions for the long term health and growth of the Company. Payment method LTI awards are provided in grants of performance rights, which vest into shares on the achievement of service conditions. Indeterminate rights exist where the Board, in their absolute discretion, determine for the rights to vest into shares on the achievement of service conditions or to make a cash payment equivalent to the value of vested rights. Pioneer Credit Limited 30 June 2020 19 Long term incentive awards in place during the year LTI awards were made under the Plan on 31 July 2019 as follows: Performance rights for ordinary shares 150,000 performance rights 31 July 2019 Instrument Quantum Grant Date Key performance measures Employment at vesting date 31 July 2019 to 1 July 2024 Performance period No dividends are paid on performance rights yet to vest Dividends 1 July 2022 $2.08 Fair value, vesting date and 1 July 2023 $1.98 vesting period schedule 1 July 2024 $1.89 15% 25% 60% Rights by their nature do not have an exercise price. The above Rights’ vesting was accelerated on 3 April 2020 as part of the resignation of Mr Leslie Crockett. 4. Non-Executive Director Arrangements On appointment to the Board each Non-Executive Director enters into an agreement with the Company which sets out the policy to remunerate Non-Executive Directors at a fixed fee for time and responsibilities not linked to individual performance. Fees paid to Non-Executive Directors were considered during the year, with an increase in the Audit and Risk Management Committee Chair Fee applied during July 2019. Non-Executive Directors fees for FY20 were: Chairman Fee $160,000 (plus Superannuation) Audit and Risk Management Committee Chair $120,000 (plus Superannuation) Non-Executive Director $100,000 (plus Superannuation) No fees were payable for any Board Committee other than the Chair of Audit and Risk Management. A Non-Executive Director is not entitled to receive performance based remuneration. They may be entitled to fees or other amounts, as the Board determines, where they perform duties outside the scope of the ordinary duties of a Director. They may also be reimbursed for out of pocket expenses incurred. The maximum pool of non-executive director fees approved by shareholders at the 29 November 2018 AGM was $800,000. Pioneer Credit Limited 30 June 2020 20 5. Statutory remuneration disclosures The following table details KMP remuneration in accordance with applicable accounting standards. Statutory remuneration tables Non-Executive Directors Fixed remuneration Year Cash salary Mr Michael Smith 2020 2019 160,000 160,000 Ms Andrea Hall 2020 2019 119,615 100,000 Ms Ann Robinson 2020 2019 100,000 100,000 Mr Mark Dutton 1 2020 2019 Total 2020 2019 75,000 100,000 454,615 460,000 Non- monetary benefits Annual and long service leave Variable remuneration Post- employment benefits Cash bonus Post- employment benefits Options Total - - - - - - - - - - - - - - - - - - - - 15,200 15,200 11,363 9,500 9,500 9,500 7,125 9,500 43,188 43,700 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 175,200 175,200 130,978 109,500 109,500 109,500 82,125 109,500 497,803 503,700 1 Mr Mark Dutton resigned effective 4 March 2020 Executive Directors Year Cash salary Mr Keith John Fixed remuneration Variable remuneration Non- monetary benefits Annual and long service leave Post- employment benefits Cash bonus Post- employment benefits Indeterminate Rights Total 2020 2019 692,604 14,268 35,573 671,119 11,844 87,996 25,000 25,000 - - - - 712,223 1,479,668 576,358 1,372,317 Pioneer Credit Limited 30 June 2020 21 Executive Key Management Personnel Fixed remuneration Variable remuneration Year Cash salary Non- monetary benefits Annual and long service leave Post- employment benefits Cash bonus Post- employment benefits Performance Rights Total Ms Susan Symmons 2020 2019 246,885 11,844 36,025 244,788 11,844 5,107 23,438 22,485 Ms Andrea Hoskins 1 2020 2019 - 20,923 926 1,665 - - - - 1,759 - Mr Jason Musca 2 2020 2019 19,569 - Mr Barry Hartnett 3 14,601 926 1,123 - - Ms Lisa Stedman 4 70,027 381 339,711 11,844 25,100 - - 2020 2019 2020 2019 1,988 - 1,859 - 1,387 - 1,236 25,000 Mr Leslie Crockett 5 2020 2019 Total 2020 2019 769,918 10,892 - 411,779 11,844 23,773 24,831 25,000 1,834,527 39,237 76,145 1,778,022 47,376 141,976 79,739 103,228 - - - - - - - - - - - - - - - - - - - - - - - - 69,580 387,772 187,489 471,713 - - - - 25,502 - 23,187 - 9,301 27,338 - - - 71,644 20,576 422,231 610,422 324,701 1,740,764 - 382,095 854,491 610,422 1,115,805 3,755,875 - 1,166,518 3,237,120 1 Andrea Hoskins commenced effective 8 June 2020 2 Jason Musca commenced effective 25 May 2020 3 Barry Hartnett has been employed by the Company since 29 May 2013, and commenced as a member of KMP from 8 June 2020 4 Lisa Stedman resigned effective 9 July 2019 5 Leslie Crockett resigned effective 3 April 2020. Cash salary includes all termination benefits including payment of outstanding leave balances. Under the terms of the Plan, all performance rights have vested and his benefits will be paid in accordance with the original vesting schedule. The Company has determined that Leslie Crockett will receive a cash equivalent payment at the relevant vesting date based on the value of the underlying shares at that time. For accounting purposes, it is necessary to include the full grant date fair values associated with the rights at the date Leslie Crockett resigned notwithstanding payment will not occur for a number of years. A provision of $158,889 (at a share price of $0.285 per share) has been recognised at 30 June 2020. Pioneer Credit Limited 30 June 2020 22 Total KMP remuneration expensed Fixed remuneration Variable remuneration Year Cash salary Non- monetary benefits Annual and long service leave Post- employment benefits Cash bonus Post- employment benefits Total Indeterminate and Performance Rights 2020 2019 2,289,142 39,237 76,145 2,238,022 47,376 141,976 122,927 146,928 - - 610,422 1,115,805 4,253,678 - 1,166,518 3,740,820 Proportion of fixed and variable remuneration The following table shows the proportion of remuneration that is fixed and that which is linked to performance. Name Executive Director Mr Keith John Executive Key Management Personnel Ms Susan Symmons Ms Andrea Hoskins Mr Jason Musca Mr Barry Hartnett Ms Lisa Stedman Mr Leslie Crockett 2020 2020 2020 2020 2020 2020 2020 Contractual arrangements with senior executives Fixed remuneration At risk – STI At risk – LTI 52% 82% 100% 100% 65% 100% 100% - - - - - - - 48% 18% 0% 0% 35% 0% 0% The terms of employment for the Company’s executives are formalised in service agreements. There are no benefits payable to any executive on termination. The significant provisions of each service agreement are set out below. Employee Position Salary Ms Andrea Hoskins 1 Chief Operating Officer Mr Keith John Ms Susan Symmons Mr Jason Musca 2 Mr Barry Hartnett 3 Ms Lisa Stedman 4 Mr Leslie Crockett 5 Managing Director Company Secretary Chief Financial Officer $692,992 per annum plus superannuation $245,000 per annum plus superannuation $320,000 per annum plus superannuation $320,000 per annum plus superannuation Chief Development Officer $206,000 per annum plus superannuation $340,000 per annum plus superannuation $424,875 per annum plus superannuation Chief Operating Officer Chief Financial Officer Term of agreement and notice period Continuing agreement with 12 months’ notice by either party Continuing agreement with 3 months’ notice by either party Continuing agreement with 6 months’ notice by either party Continuing agreement with 6 months’ notice by either party Continuing agreement with 3 months’ notice by either party Continuing agreement with 6 months’ notice by either party Continuing agreement with 6 months’ notice by either party 4 Lisa Stedman resigned effective 9 July 2019 1 Andrea Hoskins commenced effective 8 June 2020 2 Jason Musca commenced effective 25 May 2020 5 Leslie Crockett resigned effective 3 April 2020 3 Barry Hartnett has been employed by the Company since 29 May 2013 and commenced as a member of KMP from 8 June 2020 Pioneer Credit Limited 30 June 2020 23 6. Equity instruments held by KMP The table below show the number of performance rights or indeterminate rights and shares in the Company held during the financial year by KMP, including their close family members and entities related to them. Performance rights or indeterminate rights Name Issued balance at the start of the year Granted Vested Forfeit Balance at the end of the year Unvested Indeterminate Rights Executive Director Mr Keith John 1,022,500 - (22,500) - 1,000,000 1,000,000 Performance Rights Executive Key Management Personnel Ms Susan Symmons Mr Barry Hartnett 1 Ms Lisa Stedman 2 Mr Leslie Crockett 3 167,500 289,500 342,500 510,000 - - - 150,000 (55,000) - (101,600) (660,000) - - (240,900) - 112,500 289,500 - - 112,500 289,500 - - Total 2,332,000 150,000 (839,100) (240,900) 1,402,000 1,402,000 1 Mr Barry Hartnett rights at date of commencement as KMP effective 8 June 2020 2 Ms Lisa Stedman resigned effective 9 July 2019 3 Mr Leslie Crockett resigned effective 3 April 2020 Performance rights and indeterminate rights by their nature do not have an exercise price. Executive Share Plan 500,000 shares remain from the shares issued to executives (excluding the Managing Director) under a share purchase facility of 18 July 2017. The key terms are: a) b) c) d) e) The price of each share issued was equal to the 5 day VWAP as at 1 July 2017 (namely $2.2864); The facility accrues interest at normal commercial rates; The shares are secured for the benefit of the Company; All dividends paid on any shares owned by the executive will be applied in full against the facility; and The facility is not recognised as a loan as the Company only has recourse to the value of the shares. Name Issued balance at the start of the year Granted as compensation Repaid during the year Balance at the end of the year Executive Key Management Personnel Ms Susan Symmons Ms Lisa Stedman 1 Mr Leslie Crockett 2 Total 250,000 250,000 250,000 750,000 1 Ms Lisa Stedman resigned effective 9 July 2019 2 Mr Leslie Crockett resigned effective 3 April 2020 - - - - - (250,000) - (250,000) 250,000 - 250,000 500,000 Pioneer Credit Limited 30 June 2020 24 Shareholdings Name Balance at the start of the year Other changes during the year Balance at the end of the year Non-Executive Directors Mr Michael Smith Ms Ann Robinson Mr Mark Dutton 1 Total – Non-Executive Directors Executive Director Mr Keith John Executive Key Management Personnel Ms Susan Symmons Mr Barry Hartnett 2 Ms Lisa Stedman 3 Mr Leslie Crockett 4 Total – Executive Key Management Personnel 695,940 15,000 122,330 833,270 5,236,624 287,957 138,491 390,580 559,417 6,613,069 - - (122,330) (122,330) 695,940 15,000 - 710,940 22,500 5,259,124 55,000 - (390,580) (309,417) (622,497) 342,957 138,491 - 250,000 5,990,572 Total held by the Board and KMP 7,446,339 (744,827) 6,701,512 1 Mr Mark Dutton resigned effective 4 March 2020 2 Mr Barry Hartnett rights at date of commencement as KMP effective 8 June 2020 3 Ms Lisa Stedman resigned effective 9 July 2019 4 Mr Leslie Crockett resigned effective 3 April 2020 Pioneer Credit Limited 30 June 2020 25 7. Other transactions with KMP Leases entered into with related parties Mr Keith John is the Sole Director and Secretary of Avy Nominees Pty Limited, the trustee of The John Family Primary Investments Trust (“JFPIT”). JFPIT is the owner of 190 Bennett Street, East Perth which is leased by the Company. The lease expires on 1 January 2022, is at arm’s length terms and for the year ended 30 June 2020 the total amount of $75,504 was paid to JFPIT in respect of the lease. No amount was owing to the related party at 30 June 2020. Loans from related parties The loan comprises participation by Mr Keith John in the medium term note issued which occurred on an arm’s length basis. Mr Keith John holds 500 medium term notes with a face value of $500,000. $30,522 in interest was paid on these notes during the financial year. Pioneer Credit Limited 30 June 2020 26 Insurance of officers During the year the Company paid a premium to insure its Directors and Officers. The exposures insured include legal costs that may be incurred in defending proceedings that may be brought against people in their capacity as officers of the Group, and any other payments arising from liabilities incurred in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty or the improper use of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Indemnity of auditors The Company has agreed to indemnify its auditors, Deloitte Touche Tohmatsu, to the extent permitted by law, against any claim by a third party arising from its breach of their audit engagement agreement. The indemnity stipulates that the Company will meet the full amount of any such liabilities including a reasonable amount of legal costs. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Pioneer Credit Limited 30 June 2020 27 Non-audit services Deloitte Touche Tohmatsu (“Deloitte”) were appointed auditors on 25 November 2019. Prior to that PricewaterhouseCoopers (“PwC”) were the appointed auditors. The Company may decide to engage the auditor for matters additional to their statutory audit duties. The Board has considered advice received from the Audit and Risk Management Committee, and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 because: a) all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor; and b) none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. A copy of the Auditor’s Independence Declaration under section 307C of the Corporations Act 2001 is on page 29. During the year the following fees were paid or payable for non-audit services. Deloitte Touche Tohmatsu 1 Total remuneration for non-audit services 2020 $ 2019 $ 118,272 - PricewaterhouseCoopers Australia International Network firms of PricewaterhouseCoopers Australia Payroll and registration services 28,527 11,345 1 Deloitte Touche Tohmatsu were appointed as the external auditors on 25 November 2019, these services were provided prior to their appointment as auditors. Rounding of amounts The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 (Rounding in Financial/Directors’ Reports) relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of Directors. Keith John Managing Director Perth 23 September 2020 Pioneer Credit Limited 30 June 2020 28 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au The Board of Directors Pioneer Credit Limited Level 6, 108 St Georges Terrace Perth WA 6000 23 September 2020 Dear Directors Pioneer Credit Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Pioneer Credit Limited. As lead audit partner for the audit of the financial statements of Pioneer Credit Limited for the financial year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Leanne Karamfiles Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte Network. 29 Corporate Governance Statement The Board of Directors is committed to achieving the highest standards of corporate governance and has the Corporate Governance Principles and reviewed Recommendations (4th edition) published by the ASX Corporate Governance Council. its corporate governance practices against The 2020 Corporate Governance Statement is dated 30 June 2020 and reflects the corporate governance practices in place throughout the 2020 financial year and was approved by the Board on 19 August 2020. The Group's Corporate Governance Statement can be viewed at: https://pioneercredit.com.au/documents/corporate/governance/Corporate-Governance-Statement- Aug20.pdf Risk Management Framework In managing Pioneer’s risk exposure and in promoting a consistent manner in which activities and processes are being undertaken across the business, the following are in place to facilitate this alignment: Policies, Procedures & Guidelines In addition to those policies recommended by the ASX Corporate Governance Council Guidelines (e.g. Board and Committee Charters, Code of Conduct, Conflict of Interest Policy, Risk Management Policy and Whistleblower Policy), policies, procedures & guidelines are in place across all key processes and business areas to facilitate the following:  Consistency in the manner processes are undertaken and controls adopted, leading to predictable / repeatable results;  Continuity in the process being performed from one individual to the next, especially where processes / controls are being performed by one or a handful of individuals (i.e. to reduce exposure to key dependency risk); and  Efficiency in executing a process by reducing (where possible) uncertainty and ambiguity. Management Level Controls As part of Pioneer’s Line of Defence (LOD) model, management level controls (i.e. preventative and detective manual / system controls) are implemented to provide internal / external stakeholders with a level of comfort that key processes are being undertaken as intended (i.e. 1st LOD). These controls are captured within Pioneer’s Controls Register. Controls Register Pioneer has a Controls Register that documents existing key controls and corresponding risk / obligations, in providing visibility on the adequacy of controls in place to mitigating existing / emerging key risks, or in complying with applicable regulatory and contractual obligations. The Controls Register establishes accountabilities and facilitates monitoring and reporting activities, as part of Pioneer’s risk governance framework and LOD model. Pioneer Credit Limited 30 June 2020 30 Compliance Obligations Register Pioneer’s Compliance Obligations Register is a tool that management and the Audit & Risk Management Committee monitor compliance obligations throughout the business and ensure that these obligations are met. Compliance Calendar Pioneer’s Compliance Calendar is a tool that the Pioneer Audit & Risk Management Committee uses to ensure that its obligation to review and consider Compliance related matters is maintained. The Calendar sets out the Committee’s timetable for the coming year and allocates time to review various areas of compliance and their frequency. Risk Monitoring In ensuring that Pioneer’s activities are conducted in a manner that is consistent with its risk appetite, the following forums and monitoring initiatives have been implemented: Audit & Risk Management Committee   Operational Risk Management Committee   Executive Leadership Committee, Information Technology Governance Group Independent Controls Assessment In assessing if the controls captured with the Controls Register described above continues to be effectively designed (in mitigating key risks and complying with obligations), and effectively operated (i.e. being conducted in the manner and frequency required), periodic control assessments are undertaken by independent personnel (i.e. Operational Risk Management team). This forms part of Pioneer’s LOD model (i.e. 2nd LOD). The scope, frequency and approach of these periodic control assessments are clearly defined on the Controls Register against each respective control. Internal Audit The Company has an Internal Audit & Risk Manager who objectively and independently reviews the Company’s business processes, evaluates risk management procedures and conducts internal audit and risk management reviews. This initiative forms part of Pioneer’s LOD model (i.e. 3rd LOD). Pioneer Credit Limited 30 June 2020 31 Pioneer Credit Limited ABN 44 103 003 505 Annual Report For the year ended 30 June 2020 Financial Statements Contents Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Contents of the notes to the consolidated financial statements Directors Declaration Independent Auditors Report to the Members 33 34 35 36 37 93 94 Pioneer Credit Limited 30 June 2020 32 Consolidated statement of profit or loss and other comprehensive income Continuing operations Interest income at amortised cost Net impairment (loss) gain on PDPs Other revenue Employee expenses Finance expenses Information technology and communications Direct liquidation expenses Office facility outgoings expenses Depreciation and amortisation Other expenses Professional expenses Impairment of tangible and intangible assets Travel and entertainment Fair value write down and impairment losses on financial assets Loss on sale Consumer loans (Loss) / Profit before income tax Income tax benefit (expense) (Loss) / Profit for the period from continuing operations Note 2020 $’000 2019 $’000 60,122 (6,320) 2,133 55,935 58,072 14,168 3,072 75,312 (34,816) (38,472) (4,251) (4,057) (1,348) (4,345) (2,281) (6,322) (405) (526) (682) (2,263) (43,833) 3,749 (40,084) (39,916) (8,422) (4,235) (3,515) (3,340) (2,937) (2,578) (2,114) (855) (650) (153) - 6,597 (2,316) 4,281 11 12 12 13 Total comprehensive (loss) / income for the year is attributable to: Owners of Pioneer Credit Limited (40,084) 4,281 (Loss) / Earnings per share Basic (cents per share) Diluted (cents per share) 30 30 (63.36) (63.36) 6.88 6.54 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2020 33 Consolidated statement of financial position Note 2020 $’000 2019 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Consumer loans Other current assets Current tax asset Purchased Debt Portfolios Total current assets Non-current assets Consumer loans Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets Right of use assets Purchased Debt Portfolios Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Lease liabilities Accruals and other liabilities Total current liabilities Non-current liabilities Lease liabilities Provisions Other liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings (deficit) Capital and reserves attributable to owners of Pioneer Credit Limited Total equity 14 7 16 18 17 15 7 8 20 15 15 20 21 21 11,019 1,844 - 1,182 634 87,255 11,184 2,185 1,472 762 5,404 92,711 101,934 113,718 - 1,070 2,761 932 - 7,440 6,738 4,054 212 1,502 720 - 172,792 157,065 184,995 170,291 286,929 284,009 2,849 4,356 206,292 169,871 373 - 4,109 216,329 178,709 521 2,568 4,099 5,722 919 - 6,641 - 841 1,720 2,561 222,970 181,270 63,959 102,739 80,049 3,870 (19,960) 78,131 4,032 20,576 63,959 102,739 63,959 102,739 The consolidated statement of financial position should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2020 34 Consolidated statement of changes in equity Share Based Note Contributed Equity $’000 Payment Retained Earnings Reserve $’000 $’000 Total Equity $’000 Balance at 1 July 2019 78,131 4,032 20,576 102,739 Deferred tax through equity Total comprehensive (loss) income for the year - - (1,369) (1,369) - 78,131 - 4,032 (40,084) (20,877) (40,084) 61,286 Transactions with owners in their capacity as owners Employee share scheme Treasury shares and share based payments Equity plans Issue of treasury shares to employees 229 - 421 1,268 1,918 - 1,106 - (1,268) (162) - 917 - - 917 229 2,023 421 - 2,673 Balance at 30 June 2020 21 80,049 3,870 (19,960) 63,959 Balance at 1 July 2018 71,779 2,969 26,966 101,714 Impact of adopting AASB 9 (net of tax) Total comprehensive income for the year - - 71,779 - - 2,969 (3,195) 4,281 28,052 (3,195) 4,281 102,800 Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs Acquisition of treasury shares Employee share scheme Dividend reinvestment plan Treasury shares and share based payments Issue of treasury shares to employees Equity plans Dividend declared and paid 166 (550) 61 4,830 - 793 1,052 - 6,352 - - - - 1,856 (793) - - 1,063 - - - - - - - (7,476) (7,476) 166 (550) 61 4,830 1,856 - 1,052 (7,476) (61) Balance at 30 June 2019 78,131 4,032 20,576 102,739 The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2020 35 Consolidated statement of cash flows Note 2020 $’000 2019 $’000 Cash flows from operating activities Receipts from liquidations1 of PDPs and services (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received 2 Interest paid Net income taxation refund (paid) Net cash inflow from operating activities before Consumer Loans 19 Cash flows from Consumer Loans Proceeds on sale of Personal Loan book Net consumer loans recovered / (advanced) Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds on the sale of property, plant and equipment Payments for intangible assets Acquisitions of purchased debt portfolios - financial assets Net receipts from other investments Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid to Company’s shareholders Proceeds from issue of ordinary shares and DRP Financing transaction costs Lease payments Treasury shares and KMP loan repayments Payment for shares acquired by the Incentive Plan Trust Net cash inflow from financing activities 102,985 120,842 (50,704) 52,281 (55,271) 65,571 46 (5,134) 4,601 51,794 38 (6,678) (7,353) 51,578 5,344 846 6,190 - (4,492) (4,492) 57,984 47,086 (179) - (483) (60,225) - (60,887) (524) 782 (1,724) (76,643) 937 (77,172) 141,725 (132,604) - - (4,380) (2,424) 421 - 2,738 40,923 (1,053) (7,476) 5,312 (17) - 721 (550) 37,860 7,774 3,410 11,184 Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year (165) 11,184 11,019 14 1 Liquidations of PDPs are the recognised flow of economic benefits from the acquiring and servicing of PDPs including all cash-flow sources from each portfolio’s respective purchase agreement. 2 Interest received represents interest earned on cash and cash equivalents. The consolidated statement of cash flows should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2020 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Contents of the notes to the consolidated financial statements 1. Basis of preparation 2. Going Concern 3. Events occurring after the reporting period 4. Significant changes in the current reporting period 5. Critical accounting estimates and judgements 6. Financial Instruments 7. Purchased Debt Portfolios 8. Borrowings 9. New standards and interpretations adopted 10. Segment information 11. Revenue 12. Other expense items 13. Income tax expense 14. Cash and cash equivalents 15. Right of Use Assets and Lease Liabilities 16. Property, plant and equipment 17. Intangible assets 18. Deferred tax balances 19. Cash flow information 20. Provisions 21. Equity 22. Financial risk management 23. Capital management 24. Group structure 25. Contingencies 26. Commitments 27. Related party transactions 28. Share-based payments 29. Remuneration of auditors 30. Earnings / (Loss) per share 31. Deed of cross guarantee 32. Parent entity financial information 33. Summary of significant accounting policies 38 38 39 42 42 45 46 49 51 51 51 52 53 54 55 58 60 62 63 64 66 69 73 74 75 75 76 77 79 80 82 83 84 Pioneer Credit Limited 30 June 2020 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 1. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Pioneer Credit Limited is a for-profit entity for the purpose of preparing the financial statements. i) Compliance with IFRS The consolidated financial statements of the Pioneer Credit Limited (Group) (“Pioneer”, the “Company”, “Group”) also comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared on an accruals basis and are based on historical costs modified, where applicable, by the measurement at fair value of selected financial assets and financial liabilities. ii) Functional and presentation currency The consolidated financial statements are presented in Australian dollars. 2. Going Concern The financial statements have been prepared on the going concern basis which assumes the realisation of assets and the settlement of liabilities in the ordinary course of business. At 30 June 2020, the Group has a net working capital deficiency of $114.4m (2019: $65.0m deficiency) and incurred a loss after tax of $40.1m (2019 profit: $4.3m). The working capital deficiency is primarily caused by the classification of all borrowings ($206.9m) as current liabilities due to the Standstill Agreement at the reporting date with the current Senior Financier. As detailed in note 3, on 16 September 2020 the Company entered into a binding agreement for a new senior Syndicated Facility Agreement (“SFA”) with a facility limit of $189.0m for the purpose of refinancing the Company's Senior Debt facility and to finance future acquisitions. The key terms of the SFA are outlined in note 3. Funds are expected to be drawn down on 23 September 2020 and will be used to repay the full amount owing to the current Senior Financier. The Directors consider that the expected liquidity from forecasted PDP liquidations and acquisitions as well as the available funding under the SFA will be adequate to enable the Group to meet its debts and obligations as and when they fall due for the twelve-month period from signing this financial report, subject to the matters described below. Management have prepared a cash flow forecast using best estimate assumptions. The Directors have assessed the cash flow forecast based on their expectation of PDP drivers including liquidations and acquisitions. In making their assessment the Directors have considered the impact of the Standstill Agreements and COVID-19 on the Group’s performance in the financial year ended 30 June 2020. In particular, PDP acquisitions were negatively impacted as most debt vendors suspended selling for a period from April to June 2020. The Company’s customer centric approach combined with the quality of its debt portfolio meant that any material adverse impacts of COVID-19 pandemic were minimised. Pioneer Credit Limited 30 June 2020 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The Standstill Agreements reached with the Senior Financier significantly reduced the ability to acquire and liquidate PDPs, hence the acquisition and liquidations were lower than previous years. The Group’s ability to meet its ongoing operational and financial obligations is primarily dependent on: i) ii) Achieving the cash flow forecast for the period through to September 2021 which is dependent on achieving the key assumptions on EBITDA, including those in respect of PDP acquisitions, liquidations and sales; and The ongoing compliance with the financial debt covenants and other undertakings under the SFA and the Medium Term Notes. The key assumptions underpinning the cash flow forecast are inherently uncertain and are subject to variation due to factors which are outside the control of the Group. For example, Government or debt vendor policy changes as a result of COVID-19 could impact on the ability to acquire or liquidate PDPs. Notwithstanding this, the Directors believe that it is appropriate to continue to adopt the going concern basis of preparation. 3. Events occurring after the reporting period Standstill Agreements On 18 May 2020, the Company entered into a Standstill Agreement (“Standstill Agreement”) with Project Robin, L.P. (“Senior Financier”) for the period 18 May 2020 to 17 July 2020. The Standstill Agreement provided that the Senior Financier will not, subject to the Company’s compliance with its terms, take any action during the term of the Standstill Agreement in relation to any anticipated or subsisting defaults under the Senior Facility Agreement. All interest and the make-whole payable under the Senior Debt Facility has been included in Borrowings as at 30 June 2020. On 20 July 2020, the Standstill Agreement entered into on 18 May 2020 was extended to 14 August 2020 by means of an Amendment Deed. The amended and extended standstill provided amongst others that:  The Senior Financier would not, subjected to the Company’s compliance with its terms, take any action during the term of the extended standstill agreement in relation to any anticipated or subsisting defaults on the Company’s senior facility agreement;  Allow for the orderly refinancing of all monies owed to the Senior Financier; and  Allows the ability for the Company to recommence its debt purchasing program within agreed parameters. In consideration for the Financier agreeing to the amendment of the Standstill Agreement, the Company paid the Financier a non-refundable extension fee of $2,500,000. The Company agreed to the reimbursement of certain legal, accounting, tax, financial advisory and other costs and out of pocket expenses of the Financier and an increase in the Default interest rate from 10% to 15% effective 7 April 2020 to 17 July 2020. Pioneer Credit Limited 30 June 2020 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 New Senior Syndicated Facility Agreement On 16 September 2020, the Company entered into a syndicated facility agreement (“SFA”) of $189,000,000 providing for the refinancing of its existing Senior Facilities. The SFA comprises:  $169,000,000 term facility;  $20,000,000 acquisition facility, for up to 50% of the value of portfolio debt purchases (“Acquisition Facility”); and  15,750,626 zero cost detachable warrants to be issued to the syndicate (“Warrants”) and contains the following terms:  Weighted average interest rate of BBSY +11% p.a.;  Commitment fee of 2.5% on the undrawn commitment under the Acquisition Facility;  Exit fee of 2.0% per annum on actual amounts drawn and outstanding;  Top-up fee to achieve an IRR of 14.5%, including the value of warrants issued to the Syndicate;  Maturity date of 30 September 2022 with the ability, subject to conditions, to extend this to 1 July 2023; and  Financial covenants to be tested on a quarterly basis from 31 December 2020.  The financial covenants included are: Interest Cover Ratio (EBITDA to senior interest expense) o Senior Leverage Ratio (Debt to Adjusted EBITDA) (net senior secured debt to EBITDA) o o Senior LBV (net senior secured debt to amortised cost portfolio value) o Total LBV (total net secured debt to amortised cost portfolio value) The Warrants will have a nil exercise price, are detachable and expire 4 years from 16 September 2020. The Warrants will be issued in two tranches to the Syndicate as follows:  9,509,737 Warrants issued immediately; and  6,240,889 Warrants to be issued subject to Shareholder approval (“Second Tranche Warrants”). The notice for the Annual General Meeting for Shareholder approval of the Second Tranche Warrants is expected to be despatched in October 2020. If the Second Tranche Warrants are not issued by 8 October 2021, a warrant fee set at a premium to the prevailing share price would be paid to the syndicate members at the time. Pioneer Credit Limited 30 June 2020 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Medium Term Notes On 10 July 2020, Noteholders for the Medium Term Notes (“Notes”) approved a series of modifications to the Notes, subject to completion being achieved under the SFA. Given that this occurred on 16 September 2020, the key changes to the terms of the Notes which came into effect include:  An increase in the margin from 5.25% p.a. to 7.25% p.a.;  An increase in maturity by 12 months to 22 March 2023; and  An increase in frequency of optional redemption dates (by Pioneer Credit Limited as the issuer), to the end of each quarter. Noteholders will receive a consent fee of 0.5% of the outstanding principal amount of each Note held if they had voted in favour of the changes. Service Contract for the operation of the Philippines facility The Philippines has been in one of the world’s toughest COVID-19 lockdowns since April 2020 and Pioneer has been operating on a skeleton staff since that date. From the shutdown, the majority of Pioneer’s Philippines operations were immediately diverted to its Australian operations. This process has had an immaterial impact on the Company’s overall business. Subsequent to 30 June 2020 the Company has terminated its contract with the third party contractor and is operating on a flexible basis, committing from September 2020 onwards on a month to month basis only until conditions improve. The Company will revisit the long term recommencement of its Philippine operations once the pandemic has subsided and the Philippines returns to normal. Pioneer Credit Limited 30 June 2020 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 4. Significant changes in the current reporting period Significant events and transactions that have affected the Group’s financial position and performance during the period under review since the last annual financial statement are as follows: New Syndicated Facility Agreement Pioneer has been operating under constraints due to Standstill Agreements entered into over the past year with Senior Financiers. Without access to additional funding and with requirements that limited its operational flexibility, Pioneer’s growth strategy including the acquisition of PDPs has been impeded and this has been reflected in the performance as reported in this report. The new Syndicated Facility Agreement is expected to release these constraints. The new Syndicated Facility Agreement was executed on 16 September 2020. Further information has been provided in note 3. Sale of Consumer Loan Book The Consumer Loan portfolio was sold during the year at a loss of $2.3m. Proceeds from the sale of the Consumer Loan book amounted to $5.3m. 5. Critical accounting estimates and judgements The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Board to exercise its judgement in the process of applying the Company's accounting policies. The Group makes estimates and assumptions concerning the future. The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. The Group also exercises judgement in applying the Group’s accounting policies. Uncertainty about the assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are discussed below: Pioneer Credit Limited 30 June 2020 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Purchased debt portfolios (“PDPs”) Classifying PDPs at amortised cost and the use of the credit-adjusted effective interest rate method requires the Group to estimate future cash flows from PDPs at purchase date and at each balance sheet date. Estimating the timing and amount of cash flows for both the calculation of credit-adjusted effective interest rates (“CAEIRs”) and subsequent re-measurement of the carrying amount of PDPs requires significant management judgement regarding key assumptions. The underlying estimates that form the basis for amortised cost accounting depends on variables including; how the customer accounts were originated and managed and by which financial institution; the quality and depth of information on the customer; how much time has elapsed since a payment was made against the accounts; amounts due; the time elapsed since acquisition; and the personal circumstances and characteristics of the customers. The Group adjusts the carrying amount of the portfolios to reflect the revised estimated cash flows. Events or changes in assumptions and management’s judgement will affect the recognition of revenue in the period. The Group has used information and data obtained from debt vendors at acquisition and observation of PDP attributes in the month of acquisition to determine expected cash flow forecasts for the calculation of CAEIRs. In addition, the Group applies judgement and considers long term expectations of performance informed by historic analysis to ensure the setting of CAEIRs is based on the best estimates that incorporate the lifetime expectation of credit losses for the PDP. These cash flow forecasts are reviewed by management, with model overlays used to address any modelling anomalies observed. Once the CAEIR is determined it is locked in and not revised. Any changes to PDP attributes from that point on, when additional information and data is sourced or becomes available, will result in changes to cash flow forecasts and impairment gains or losses. The Group has a policy of continually reviewing its estimation of cash flow forecasts. Cash flow forecasts are generated using models incorporating a number of factors which are informed by customer and account level data, credit agency data and the Company’s historical experience with accounts which have similar key attributes. Management also review the model on a portfolio basis to take into account factors, which have impacted historical, or will impact future performance and where necessary portfolios are calibrated to take into account these known factors. The assumptions and estimates made are specific to the particular characteristics of each portfolio. The model has been enhanced during the year with several changes incorporated, in particular:  Disaggregating the recovery curve from a single portfolio average to curves based on specific emergence patterns; Increasing the granularity of prediction level from portfolio to tranche level;   The use of the most recent cash flow experience has removed the requirement for a general scaling factor; and  The separation of the model overlay adjustments into a scenario based macroeconomic overlay and a model risk overlay. If total forecasted cash flow projections were to change by ±5%, the carrying value of PDPs at 30 June 2020 of $260.0m would change by $13.0m in a downside scenario and $13.0m in an upside scenario. If resolution of any uncertainty results in an increase or decrease in carrying value of PDPs, this is recognised in the statement of profit or loss at that point in time as an impairment gain or loss. Further details including details of the potential impact of the uncertain macroeconomic environment are outlined in note 7. Pioneer Credit Limited 30 June 2020 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 COVID-19 pandemic The COVID-19 pandemic has resulted in significant health, societal and economic impacts across the globe. The full effects of COVID-19 on the Australian economy are not yet known or quantifiable and the impacts on specific industries and businesses will vary widely. At the onset of the COVID-19 pandemic the Company experienced a drop in its average payment instalments and lump sum settlements, consistent with the expectation that customers would naturally become more cautious about their finances. The reduction in payments has generally been treated as deferrals of customer payments rather than hard defaults. As at 30 June 2020 the future impacts of COVID-19 remain unclear, and while particular parts of Australia have seen restrictions eased and some businesses reopened, the current government support is scheduled to commence an orderly wind back from October 2020 to March 2021. This could result in increased unemployment levels in the future and, there is a risk that a reduction in a customer’s disposable income could impact estimated future cash flows, both in timing and quantum. See note 7 for an analysis of the impacts of the uncertain macroeconomic environment. Accounting for taxation Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company’s ability to recover our deferred tax assets, we consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, the results of recent operations and events occurring after reporting date. The assumptions about future taxable income, including PDP liquidations, require the use of significant judgment and may ultimately vary from management’s best estimate. Lease standard AASB 16 Leases is applicable to annual reporting periods commencing on or after 1 January 2019 and has been adopted effective 1 July 2019, utilising the modified retrospective approach of paragraph C8(b)(ii). Judgement has been applied in determining the lease terms, term of the leases and incremental borrowing rates. Pioneer Credit Limited 30 June 2020 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 6. Financial Instruments The Group has the following financial instruments As at 30 June 2020 Note Measurement Current Non-current $’000 $’000 Total $’000 Financial assets Cash and cash equivalents Trade receivables Purchased Debt Portfolios 14 7 Amortised cost Amortised cost Amortised cost Financial liabilities Trade and other payables Borrowings Amortised cost Amortised cost 8 11,019 1,844 87,255 100,118 7,434 206,292 213,726 - - 11,019 1,844 172,792 260,047 172,792 272,910 436 7,870 - 206,292 436 214,162 As at 30 June 2019 Financial assets Cash and cash equivalents Trade receivables Consumer loans Purchased Debt Portfolios Investment Financial liabilities Trade and other payables Borrowings Measurement Current Non-current $’000 $’000 Total $’000 Amortised cost Amortised cost Amortised cost Amortised cost Fair Value – P/L Amortised cost Amortised cost 11,184 2,185 1,472 92,711 - 107,552 8,838 169,871 178,709 - - 6,738 11,184 2,185 8,210 157,065 249,776 667 164,470 272,022 667 383 9,221 - 169,871 383 179,092 Classification as trade and other receivables Trade receivables are amounts due for services performed in the ordinary course of business. Consumer loans and other receivables are held with the objective to collect the contractual cash flows and are therefore measured at amortised cost under AASB 9, which is consistent with their treatment in prior years. If recovery of an amount is expected in one year or less it is classified as a current asset. If not, it is presented as a non- current asset. Pioneer Credit Limited 30 June 2020 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Fair value of trade and other receivables, trade and other payables Due to the short-term nature of the current receivables and payables, their carrying amount is assumed to be the same as their fair value and for the majority of the non-current receivables and payables, the fair values are also not significantly different to their carrying amounts. Impairment and risk exposure Information about the impairment of trade receivables can be found in note 22. 7. Purchased Debt Portfolios Current Non-current Movement on purchased debt portfolios at amortised cost is as follows: Current and non-current At beginning of period Impact of adopting AASB 9 on 1 July 2018 Brought forward after AASB 9 opening adjustment Additions for the period Liquidations of PDPs Net gain on financial assets from PDPs Interest accrual Net impairment (loss) gain 2020 $’000 87,255 172,792 260,047 2019 $’000 92,711 157,065 249,776 2020 $’000 2019 $’000 - - 249,776 57,651 (100,924) 53,544 59,864 (6,320) 260,047 224,561 (4,564) 219,997 77,036 (118,466) 71,209 57,041 14,168 249,776 PDPs are recognised at fair value at the date of purchase and are subsequently measured at amortised cost. The fair value of PDPs at 30 June 2020 approximates the carrying value measured under amortised cost as the discount rate applied to determine fair value would be similar to the CAEIR. PDPs are reported in accordance with the rules for purchased or originated credit–impaired assets, that is, at amortised cost applying the credit-adjusted effective interest method with the life time expected credit losses incorporated into the calculation of the CAEIR at inception. This CAEIR is the rate that exactly discounts the estimated future cash receipts of the purchased portfolio asset to the net carrying amount at initial recognition (i.e. the price paid to acquire the portfolio). All changes in lifetime expected credit losses subsequent to the assets’ initial recognition are recognised as an impairment change (gain or loss). Pioneer Credit Limited 30 June 2020 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Cash flow projections are made at the portfolio level, which are assumed to have a maximum life of 10 years. For a small segment of the PDP assets (less than 2.5% of the carrying value) that have been part of the portfolio for at least 4 years, the maximum expected life (and therefore future expected cashflows) is now extended based on demonstrated consistency in customer payment behaviour. This extension in the cash flow projection period to a maximum of up to 11 years was implemented in the current financial year and increases the carrying value of the asset by $5.7m. The carrying amount of each portfolio is determined at each reporting period by discounting projected future cash flows to present value using the CAEIR as at the date the portfolio was acquired. A detailed analysis of the critical accounting estimates and judgements in note 5 outlines the elements considered in the application of judgement to estimate future cash flows at the time the CAEIR is determined and at each subsequent reporting date, including the key underlying variables that are analysed. In calculating the carrying value of the assets based on expected future cash flows, inclusive of an impairment charge, Pioneer evaluates a range of possible outcomes and takes into account the time value of money, past events, current and future economic conditions. All PDP assets are considered at a portfolio level as these are relatively homogeneous based on shared credit risk characteristics exhibited by purchased credit- impaired debt. Recovery methods include implementation and management of payment plans and multiple attempted communication with the customer to tailor an appropriate outcome. When the Group has exhausted all practical recovery methods, and there is no reasonable expectation of recovering cash flows from the financial asset, the financial asset is written off. Impacts of an Uncertain Macroeconomic Environment The estimating of future cash flows for the purposes of assessing the carrying value of the PDP portfolio involves significant management judgement. The uncertain macroeconomic environment (including COVID- 19) and its potential impact on the operational performance of the Company has the potential to impact forecast future cash flows and thereby impairment of the carrying value of the PDP portfolio. Given the uncertainty surrounding the future outlook, the Company adopted a generally accepted approach and included a probability weighted overlay that delayed or reduced the forecasted future cashflows by taking into account a number of different scenario outcomes. The scenarios modelled consider the potential impacts of a deferral in cashflows and the subsequent recovery of these cashflows, together with the impacts of non- recovery of a portion of those deferred cashflows. In determining a suitable timeframe for modelling these potential impacts, forward looking economic assumptions have been considered including unemployment rates, the Consumer Price Index and the RBA cash rate. The overlay has been determined by considering the following current and forecast macroeconomic assumptions:  Unemployment at 7% at June 2020, increasing to 10% in December 2020, and recovering to 7% by December 2022;  Consumer price index of -0.3% in June 2020, increasing to 1.5% in June 2022; and  RBA cash rate at 0.25% in December 2020 and remaining at 0.25% at June 2022. Pioneer Credit Limited 30 June 2020 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The Company has applied a probability-weighted view capturing the different scenarios which is a generally accepted method of producing a macroeconomic overlay, particularly where uncertainty about the near-term economic environment is prevalent. This has resulted in the inclusion of a negative macroeconomic overlay of $4.4m. Weighting Deferred Cashflows Period of Impact Recovery Rate Recovery Period Weighted Impact $’000 Low Impact Scenario Medium Impact Scenario Severe Downside Scenario 35% 60% 5% (5%) (10%) (15%) 12 months 24 months 24 months 100% 100% 50% 12 months 18 months 36 months 434 3,171 840 Model Risk Valuation model risk arises where key judgements may impact on the appropriateness of model outputs. Commensurate with the complexity, materiality and business use of the model, the Group mitigated model risk through:  effective challenge and critical analysis involving objective, qualified and experienced parties in the line of business in which the model is used;  the engagement of suitability qualified external third parties to consult on, advise and challenge the development of the models during any model development phase; and  output verification to ensure that the model performed as expected in line with design objectives and business use. Additional analysis is performed through back testing, stability testing and sensitivity analysis. The results, outcomes and actions affirmed the conceptual soundness of the model. However, given the inherent limitations of historic information predicting future liquidations, additional model risk mitigation is achieved through appropriate cautious downward calibration of the expected future cash flows, resulting in a model risk overlay of negative $3.3m. Pioneer Credit Limited 30 June 2020 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 8. Borrowings Secured Senior debt facilities Medium term notes Interest and make-whole payable Other loans Unsecured Other loans Current $’000 2020 Non- current $’000 Total Current $’000 $’000 2019 Non- current $’000 Total $’000 140,986 39,452 25,621 233 206,292 - 140,986 129,725 39,128 - 477 - - 342 - 206,292 169,672 39,452 25,621 233 - 129,725 39,128 - 477 - - 342 - 169,672 - - - 199 - 199 206,292 - 206,292 169,871 - 169,871 Secured liabilities and assets pledged as security Security over all the assets and undertakings of each of Pioneer Credit Limited, Pioneer Credit Solutions Pty Limited, Sphere Legal Pty Limited, Pioneer Credit (Philippines) Pty Limited, Pioneer Credit Connect Pty Ltd, Pioneer Credit Broking Services Pty Ltd, Credit Place Pty Ltd and Switchmyloan Pty Ltd and unlimited cross guarantees and indemnities from each of these entities. All property of the Group comprises the Group total assets of $286,929,000 (FY19: $284,009,000). Medium term notes The Group issued $40.0m in medium term notes on 22 March 2018. The notes have a maturity date of 22 March 2022 with the option to repay the notes at 101% of par plus any accrued interest one year prior to maturity. The notes have been classified as current due to the Standstill Agreement at the reporting date with the Senior Financier. Subsequent to 30 June 2020, Noteholders for the Medium Term Notes approved a series of modifications. These are outlined in note 3. Fair value For all of the borrowings, the fair values are not materially different to their carrying amounts, since the interest payable is either close to current market rates or the borrowings are of a short-term nature. Pioneer Credit Limited 30 June 2020 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Changes in liabilities arising from the financing activities Opening balance at 1 July 2019 $’000 Cash flow Other non- cash flow $’000 $’000 Closing Balance at 30 June 2020 $’000 Borrowings Lease liabilities 169,871 10,135 (393) (2,424) 36,814 579 206,292 8,290 180,006 (2,817) 37,393 214,582 Opening balance at 1 July 2018 $’000 Cash flow Other non- cash flow $’000 $’000 Closing Balance at 30 June 2019 $’000 Borrowings 128,570 40,317 128,570 40,317 984 984 169,871 169,871 Maturities of financial liabilities The following table reflects an undiscounted contractual maturity analysis for financial liabilities. The timing of cash flows represented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect the fact that the facilities were extended subsequent to the end of the financial year. At 30 June 2020 Trade payables Borrowings (incl. interest and make-whole) Provisions Accruals and other liabilities Lease liabilities At 30 June 2019 Trade payables Borrowings Provisions Accruals and other liabilities Within 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Carrying amount $’000 2,849 207,537 521 4,099 3,016 218,022 4,356 169,871 373 4,109 178,709 - - 19 - 3,075 3,094 - - - - - - - 900 - 2,973 3,873 - - 841 - 841 2,849 206,292 1,440 4,099 8,290 222,970 4,356 169,871 1,214 4,109 179,550 Pioneer Credit Limited 30 June 2020 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 9. New standards and interpretations adopted A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards: AASB 16 Leases The Group adopted AASB 16 effective 1 July 2019. The new standard has resulted in changes in accounting policy which, along with the impact on the financial statements, are disclosed in note 15. The Group has adopted the modified retrospective approach as allowed by the standard, paragraph C8(b)(ii). As such, comparative information has not been restated. AASB Interpretation 23 Uncertainty over Income Tax Treatment The Group adopted AASB Interpretation 23 Uncertainty over Income Tax Treatment effective 1 July 2019. The Interpretation provides guidance on considering uncertain tax treatments separately or together, examination by tax authorities, the appropriate method to reflect uncertainty and accounting for changes in facts and circumstances. 10. Segment information For management purposes, the Company is organised into one main business segment, which is the provisions of financial services specialising in acquiring and servicing unsecured debt portfolios. All significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole. 11. Revenue From continuing operations Interest income from PDPs Interest income from Consumer loans Net impairment (loss) gain from PDPs Other revenue Revenue Revenue recognition 2020 $’000 59,864 258 (6,320) 53,802 2,133 55,935 2019 $’000 57,041 1,031 14,168 72,240 3,072 75,312 Interest income includes revenue from PDPs representing the effective interest rate from acquired portfolio investments. Interest income on PDPs is measured using the Credit-Adjusted Effective Interest Rate (“CAEIR”). Pioneer Credit Limited 30 June 2020 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Impairment gains and losses are the changes to the expected future cashflows coming from the PDPs, subsequent to their initial recognition and discounted at the CAEIR. This also includes losses from PDPs closed during the period whose expected future cashflows are nil at the date of valuation. Other revenue includes revenue from services and is recognised as income when the service performance obligation is fulfilled. It primarily consists of legal services provided to external parties and income from the supply of resources to the Government of Western Australia’s State COVID-19 response unit. Interest earned on cash and cash equivalents is measured using the effective interest method. 12. Other expense items This note provides a breakdown of specific costs included in profit before income tax, from continuing operations. Finance expenses Bank fees and borrowing expenses Interest and finance charges paid / payable for financial liabilities not at fair value through profit or loss Right of use liability interest Senior financier make whole Depreciation and amortisation Depreciation Amortisation Right of use asset amortisation 2020 $’000 7,615 25,225 579 5,053 38,472 1,110 719 2,516 4,345 2019 $’000 1,749 6,673 - - 8,422 1,274 1,663 - 2,937 Pioneer Credit Limited 30 June 2020 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 13. Income tax expense This note provides an analysis of the Group’s income tax expense, what amounts are recognised directly in equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Group’s tax position. Current tax on profits for the year Adjustments for current tax and deferred tax of prior periods Deferred tax (benefit) expense Income tax (benefit) expense Income tax is attributable to: (Loss) Profit from operations Deferred income tax expense / (income) included in income tax expense comprises: (Increase) / decrease direct to equity (Increase) / decrease in deferred tax assets of prior years (Increase) / decrease in deferred tax assets 2020 $’000 - 169 (3,918) (3,749) 2019 $’000 (119) (41) 2,476 2,316 (43,833) 6,597 (1,369) (127) (2,422) (3,918) 1,369 49 1,058 2,476 See note 5 for critical accounting estimates and judgements on the taxation estimation related to PDPs under amortised cost. Numerical reconciliation of income tax expense to prima facie tax payable. 2020 $’000 2019 $’000 (Loss) / profit from operations before income tax expense (43,833) 6,597 Tax at the Australian tax rate of 30.0% (FY19: 30.0%) Non-deductible entertainment costs Non-deductible share based payments Employee share trust funding contribution Under / (over) provision for prior year current and deferred taxation Employee share scheme Fair value write down of investment Other non-deductible expenses and assessable income Tax losses not recognised as a deferred tax asset 1 Income tax (benefit) / expense (13,150) 59 722 - 42 (69) 203 20 8,424 (3,749) 1,979 21 562 (165) (41) (50) - 10 - 2,316 1 Deferred tax assets have only been recognised in relation to deductible temporary differences. No deferred tax assets have been recognised in relation to unused tax losses. Pioneer Credit Limited 30 June 2020 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Amounts recognised directly in equity 2020 $’000 2019 $’000 Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited or credited to equity: Current tax – credited directly to equity Deferred tax – (debited) / credited directly to equity Net current and deferred tax – credited directly to equity - (1,369) (1,369) - 1,369 1,369 14. Cash and cash equivalents Cash at bank and in hand 2020 $’000 2019 $’000 11,019 11,184 Pioneer Credit Limited 30 June 2020 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Right of Use Assets and Lease Liabilities The right-of-use assets and lease liabilities are disclosed on adoption of AASB 16 Leases from 1 July 2019. Impact of adoption of AASB 16 as at 1 July 2019 Operating lease commitments at 30 June 2019 (as previously reported) Effect of discounting the above amounts Lease liabilities recognised at 1 July 2019 Right-of-use assets recognised at 1 July 2019 Amount recognised in retained earnings Right-of-use assets Initial right-of-use assets recognised on adoption of AASB 16 Leases Leasehold improvements and lease incentive Depreciation charge Closing right-of-use assets as at 30 June 2020 Cost Accumulated depreciation Closing right-of-use assets as at 30 June 2020 Lease liabilities Current lease liabilities Non-current lease liabilities Total lease liabilities Accounting policy Right-of-use assets $’000 11,496 (1,361) 10,135 10,135 - 30 June 20 $’000 10,135 (179) (2,516) 7,440 9,956 (2,516) 7,440 30 June 20 $’000 2,568 5,722 8,290 The Group recognises 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 re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The recognised right-of-use assets are depreciated on a straight-line basis over the lease term. The recognised right-of-use assets relate to commercial property leases. The Group did not enter into any new leases during the period. Pioneer Credit Limited 30 June 2020 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentive receivable and variable lease payments that depend on an index or a rate. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date as the interest 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 and leases of low-value assets The Group applies the low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases (less than 12 months) and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term. The Group did not have any short-term or low value leases during the period. Significant judgement in determining the lease term of contracts with renewal options The Group 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 exercise, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases, to lease the assets for additional terms. The Group 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 Group 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 exercise) the option to renew. The non-cancellable lease terms are for periods up to 30 June 2023. Adjustments recognised on adoption of AASB 16 Leases The Group has adopted AASB 16 Leases using the modified retrospective method from 1 July 2019, and has not restated comparatives for the June 2019 reporting period, as permitted under the specific transitional provisions in the standard (paragraph C8(b)(ii)). On adoption of AASB 16 Leases, the Group recognised lease liabilities in relation to leases, which had previously been classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 6.45%. Pioneer Credit Limited 30 June 2020 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Maturity analysis - undiscounted Lease commitments (principal and interest) at 30 June 2020 Within one year Later than one year but no later than five years Practical expedients applied $’000 3,016 6,048 9,064 In applying AASB 16 Leases for the first time, the Group has used the following practical expedients permitted by the standard:    The use of a single discount rate to a portfolio of leases with reasonably similar characteristics; The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The timing of certain lease payments have changed as a result of COVID-19 rent deferrals, these changes have not been treated as a lease modification. Pioneer Credit Limited 30 June 2020 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 16. Property, plant and equipment 2020 At 1 July 2019 Cost Accumulated depreciation Net book amount Year ended 30 June 2020 Opening net book amount Additions Impairment charge Depreciation charge Lease incentive asset 1 Closing net book amount At 30 June 2020 Cost Accumulated depreciation Net book amount 2019 At 1 July 2018 Cost Accumulated depreciation Net book amount Year ended 30 June 2019 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2019 Cost Accumulated depreciation Net book amount Plant and equipment $’000 Furniture, fittings and equipment $’000 Leasehold improvements Total $’000 $’000 2,834 (2,045) 789 789 179 (71) (597) - 300 2,914 (2,614) 300 2,438 (1,626) 812 812 396 (419) 789 2,834 (2,045) 789 665 (321) 344 344 - - (137) - 207 665 (458) 207 587 (201) 386 386 78 (120) 344 665 (321) 344 5,663 (2,742) 2,921 2,921 - - (376) (1,982) 563 3,477 (2,914) 563 5,594 (2,007) 3,587 3,587 69 (735) 2,921 5,663 (2,742) 2,921 9,162 (5,108) 4,054 4,054 179 (71) (1,110) (1,982) 1,070 7,056 (5,986) 1,070 8,619 (3,834) 4,785 4,785 543 (1,274) 4,054 9,162 (5,108) 4,054 1 This amount represents leasehold improvements that have been presented together with the ROU Asset, the ROU Asset and the leasehold improvements have the same depreciation profile. Pioneer Credit Limited 30 June 2020 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Non-current assets pledged as security Refer to note 8 for information on assets pledged as security by the Group. Depreciation methods and useful lives Depreciation of property, plant and equipment is calculated using the diminishing balance method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. Certain leasehold improvements and leased plant and equipment are depreciated on a straight line basis over the term of the lease. Plant and equipment Furniture, fittings and equipment Leasehold improvements 15% - 66.7% 15% - 50% 20% - 50% During the year the Group identified certain assets that were no longer expected to be used in the operations of the business and were therefore considered to be impaired. See note 33 for the other accounting policies relevant to property, plant and equipment. Pioneer Credit Limited 30 June 2020 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 17. Intangible assets 2020 At 1 July 2019 Cost Accumulated amortisation Net book amount Year ended 30 June 2020 Opening net book amount Additions Impairment charge Amortisation charge Closing net book amount At 30 June 2020 Cost Accumulated amortisation and impairment Net book amount 2019 At 1 July 2018 Cost Accumulated amortisation Net book amount Year ended 30 June 2019 Opening net book amount Additions Impairment charge Amortisation charge Closing net book amount At 30 June 2019 Cost Accumulated amortisation and impairment Net book amount Goodwill Software and licenses $’000 $’000 Total $’000 - - - - - - - - - - - 140 - 140 140 - (140) - - - - - 4,900 (3,398) 1,502 4,900 (3,398) 1,502 1,502 483 (334) (719) 932 1,502 483 (334) (719) 932 5,049 (4,117) 932 5,049 (4,117) 932 3,891 (1,735) 2,156 2,156 1,724 (715) (1,663) 1,502 4,900 (3,398) 1,502 4,031 (1,735) 2,296 2,296 1,724 (855) (1,663) 1,502 4,900 (3,398) 1,502 Pioneer Credit Limited 30 June 2020 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Indicators of impairment The Company assesses, at each reporting date, whether there are any indicators that assets may be impaired. The Company considers information from both external sources (such as market interest rates, significant adverse changes in the technological, market, economic or legal environment in which the Company operates, market capitalisation being lower than net assets) and internal sources (such as internal restructurings, evidence of obsolescence or physical damage to the asset). During the year the Group identified certain software that was no longer expected to be used in the operations of the business and was therefore considered to be impaired. Amortisation methods and useful lives Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised. The Group amortises these intangible assets with a limited useful life using the straight-line method over 1 to 3 years. The estimated useful life and amortisation method are reviewed at the end of each reporting period. See note 33 for other accounting policies relevant to intangible assets and the policy regarding impairments. Pioneer Credit Limited 30 June 2020 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 18. Deferred tax balances The balance comprises temporary differences attributable to: Employee benefits (annual leave) Retirement benefit obligations (superannuation payable) Other Other accrued expenses (audit, accounting, payroll tax) Share issue expenses Other temporary differences (formation costs, legal and other professional costs, fixed and intangible timings) Prepayments Provision for impairment (PDPs) Revenue tax losses 2020 $’000 2019 $’000 343 77 420 2,179 54 1,829 327 63 390 280 123 593 (13) (1,708) - 2,341 (18) (3,605) 2,449 (178) 2,761 212 Net deferred tax assets Movements At 1 July 2019 (Charged) / credited To profit or loss Directly to equity At 30 June 2020 At 1 July 2018 (Charged) / credited To profit or loss Directly to equity At 30 June 2019 Employee benefits $’000 Retirement Benefit Obligation $’000 Other Provision for impairment (PDPs) $’000 $’000 Revenue tax losses $’000 Total $’000 327 16 - 343 269 58 - 327 63 14 - 77 59 4 - 63 978 (3,605) 2,449 212 3,071 - 4,049 991 (13) 978 1,897 - (1,708) (1,080) (1,369) - 3,918 (1,369) 2,761 - - 1,319 (3,605) - (3,605) 1,080 1,369 2,449 (2,476) 1,369 212 Pioneer Credit Limited 30 June 2020 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 19. Cash flow information Reconciliation of profit after income tax to net cash inflow from operating activities (Loss) Profit for the period Foreign currency translation Other non-cash expenses Fair value write down and Impairment of assets Lease Liability Interest accrual Non-cash employee benefits expense – share-based payments Loss on sale of Consumer loan book Non-cash financing amortisation Depreciation and amortisation Interest and make-whole Non-cash rental expense Consumer loan loss provision Profit on non-current asset held for sale Increase in value of investment Consumer loan interest accrual Amortisation of PDPs Change in operating assets and liabilities: (Increase) / decrease in trade receivables (Increase) / decrease in deferred tax assets through profit or loss Decrease in income tax receivable Increase in trade payables (Decrease) in income tax payable Increase / (Decrease) in accruals and other liabilities Net cash flow inflow from operating activities before changes in operating assets Non-cash investing and financing activities Fair value write down on financial assets Capitalised syndicate arrangement fee Non-cash financing amortisation 2020 $’000 2019 $’000 (40,084) 63 158 1,087 579 2,411 2,263 6,536 4,345 25,144 - - - - (258) 47,380 (26) (3,918) 4,770 1,067 - 277 51,794 4,281 (99) - 855 - 1,874 - 507 2,937 - 302 145 (233) (167) (1,051) 47,257 (237) 1,089 - 706 (6,115) (473) 51,578 2020 $’000 2019 $’000 (667) (2,370) (2,363) - - (507) Pioneer Credit Limited 30 June 2020 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 20. Provisions Current $’000 2020 Non- current $’000 Total Current $’000 $’000 450 35 36 521 313 483 123 919 763 518 159 1,440 373 - - 373 2019 Non- current $’000 383 458 - 841 Total $’000 756 458 - 1,214 Employee benefits Lease make good Share Based Payments Employee benefits - Long service leave The liabilities for long service leave are not generally expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are recognised in the provision for employee benefits and measured as the present value of expected future payments to be made up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using rates published in the ‘Group of 100 Discount Rate Report and Discount Curve’. Re- measurement as a result of experience, adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the consolidated balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. Lease make good The Group is required to make good each of its leased premises to their original condition at the end of each lease which is 30 June 2023. A provision has been recognised for the present value of the estimated expenditure required. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. Share Based Payments A provision has been recognised for the current value of the obligation to settle in future periods, at the then market value, the long term incentive rights that have been converted into a cash obligation. Pioneer Credit Limited 30 June 2020 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Movements in provisions At 1 July 2019 Opening carrying amount Charged to profit or loss Charged to share based payment reserve At 30 June 2020 At 1 July 2018 Opening carrying amount Charged to profit or loss At 30 June 2019 Employee benefits $’000 Lease make good $’000 Share Based Payments $’000 756 7 - 763 556 200 756 458 60 - 518 438 20 458 - - 159 159 - - - Total $’000 1,214 67 159 1,440 994 220 1,214 Pioneer Credit Limited 30 June 2020 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 21. Equity Contributed equity Share capital Ordinary shares – fully paid Excluding Treasury shares Movement 2020 Opening balance 1 July 2019 Employee share scheme (note 28) Treasury shares issued to employees Executive share plan Closing balance 30 June 2020 2019 Opening balance 1 July 2018 Dividend reinvestment plan Employee share scheme Acquisition of treasury shares Treasury shares issued to employees Options exercised Executive share plan Closing balance 30 June 2019 Ordinary shares 2020 Shares 2019 Shares 2020 $’000 2019 $’000 62,878,293 62,370,655 80,049 78,131 Number of shares $’000 62,370,655 83,538 424,100 - 62,878,293 60,362,442 1,597,309 76,404 (200,000) 284,500 250,000 - 62,370,655 78,131 229 1,268 421 80,049 71,779 4,830 227 (550) 793 480 572 78,131 All authorised ordinary shares have been issued, have no par value and the Company does not have a limited amount of authorised capital. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. At a general meeting of shareholders; every shareholder entitled to vote may vote in person or by proxy, attorney or representative; on a show of hands every shareholder who is present has one vote; and on a poll every shareholder who is present has one vote for every share held, but, in respect of partly-paid shares, shall have a fraction of a vote for each partly-paid share. Pioneer Credit Limited 30 June 2020 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Treasury shares 2020 Opening balance 1 July 2019 Treasury shares issued to employees Closing balance 30 June 2020 2019 Opening balance 1 July 2018 Receipt on treasury shares Treasury shares acquired Treasury shares issued to employees Closing balance 30 June 2019 Number of shares $’000 944,056 (424,100) 519,956 3,202 (1,268) 1,934 1,028,556 - 200,000 (284,500) 944,056 3,297 148 550 (793) 3,202 No treasury shares were acquired in the current financial year. Shares issued to employees are recognised on a first-in-first-out basis. The shares may be acquired on market and are held as treasury shares until such time as they are vested. Forfeited shares are reallocated in subsequent grants. Under the terms of the trust deed, Pioneer Credit Limited is required to provide the trust with the necessary funding for the acquisition of the shares. Included within the balance of treasury shares are 400,000 management shares that were initially recognised in March 2014. Options There are no outstanding options at 30 June 2020 and no options were granted, vested, exercised or had expired during the financial year. During the 2019 financial year 250,000 options were exercised and had been fully expensed by 30 June 2019. Pioneer Credit Limited 30 June 2020 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Share based payment reserve The following table shows a breakdown of the Statement of Changes in Equity line item Share Based Payments Reserve and the movements in this reserve during the period under review. The share based payments reserve is used to recognise the grant date fair value of options and rights issued but not exercised, over the vesting period. At 1 July Opening balance Share based payments and Executive share plan 1 Treasury shares loan repayments Performance rights issued At 30 June 2020 $’000 2019 $’000 4,032 1,106 - (1,268) 3,870 2,969 1,708 148 (793) 4,032 1 Includes accelerated vesting of Performance Rights that will be paid out in line with the original vesting dates, at the market value at that date. Pioneer Credit Limited 30 June 2020 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 22. Financial risk management The Group's activities expose it to a variety of risks and its overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is the responsibility of Key Management Personnel. Policies approved by the Board ensure that total risk exposure is consistent with the Group strategy, is in line with covenants and is within internal risk tolerance guidelines. The Group uses different methods to measure the different types of risk to which it is exposed which include sensitivity analysis of interest rates, preparation and review of ageing analysis for credit risk and projected cash flow analysis across the portfolio to manage the risk associated with financial assets and liabilities. The main risks the Group is exposed to through its financial instruments are market risk, liquidity risk and credit risk. The Group periodically considers the need to make use of derivative financial instruments and hedging arrangements to manage interest rate risk. There are currently no such arrangements in place. The following table lists financial assets and liabilities, interest rate type and carrying value. Financial assets Cash and cash equivalents Trade receivables Consumer loans Purchased Debt Portfolios Investment Financial liabilities Trade and other payables (excluding interest payable) Borrowings – before transaction costs Bank loans Senior financier Medium term notes Other loans Market risk management Interest Rate Risk Interest rate 2020 $’000 2019 $’000 Variable Variable Fixed Fixed N/A 11,019 1,844 - 260,047 - 11,184 2,185 8,210 249,776 667 Variable 2,849 4,356 Variable Fixed Variable Variable - 166,560 39,499 233 130,153 - 39,177 541 Risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Pioneer Credit Limited 30 June 2020 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The Group’s main interest rate risk arises from long term loans and borrowings issued at both fixed and variable interest rates. The Group’s fixed rate PDPs, receivables and consumer loans are carried at amortised cost and not subject to interest rate risk. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. The simulation is done on a half yearly basis to verify that the maximum loss potential is within the limit given by management. To manage interest rate and credit risk arising from the investment in PDPs, the Group undertakes pricing analysis prior to committing to any investment. This analysis includes consideration of information supplied under due diligence, as well as macro and micro economic elements to which senior executives’ experience and judgement is applied. In many instances there is knowledge of the performance of portfolios with similar characteristics. Currency Risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. New Zealand operations expose the Group to foreign exchange risk. This may result in the fair value of financial assets and liabilities fluctuating due to movements in exchange rates. Fluctuations in the New Zealand dollar relative to the Australian dollar may impact the Group’s financial results, though the impact of reasonably foreseeable exchange rate movements are unlikely to be material. Price Risk The risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market process. Liquidity risk management The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Prudent liquidity risk management requires maintaining sufficient cash reserves and debt funding to meet obligations when due and through maintaining a reputable credit profile. Management monitors forecasts of the Group’s liquidity reserve on the basis of expected cash flow. Cash flow is forecast on a day-to-day basis to ensure that sufficient funds are available to meet requirements. Financing arrangements The Group does not have an overdraft facility or undrawn facilities as at 30 June 2020. See note 8 on Borrowing facilities available to the Group as at 30 June 2020, and note 3 for Borrowing facilities subsequent to 30 June 2020. See note 8 for a maturity analysis of Borrowings. Pioneer Credit Limited 30 June 2020 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Credit risk management The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk arises from cash and cash equivalents, credit exposure to customers, including outstanding receivables and committed transactions. Credit risk is managed on a Group basis. For corporate customers, management assesses the credit quality of the customer. Individual risk limits are set by the Board. Purchased or originated credit-impaired financial assets (“POCI”) are financial assets classified at amortised cost that are purchased or originated at a deep discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry a separate impairment allowance; instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and / or regions. As at 30 June 2020 there were no material trade receivables that were past due and there are no trade receivables that are in default. The Group’s trade receivables and consumer loans are subject to AASB 9’s expected credit loss (“ECL”) model for recognising and measuring impairment of financial assets. Impairment of trade and other receivables Where a financial asset is measured at either amortised cost or fair value through other comprehensive income, an entity shall recognise an allowance for expected credit losses. The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The estimation of credit exposure for risk management purposes is complex and requires the use of models, as the exposure varies with changes in market conditions, expected cash flows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratio. Judgement has been applied on a forward-looking basis to assess the expected credit losses associated with its financial assets carried at amortised cost. Pioneer Credit Limited 30 June 2020 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The following table details the loss allowance balance and movement. Consumer loans Trade and other receivables 2020 $’000 2019 $’000 2020 $’000 Opening loss allowance as at 1 July 402 258 Increase in loss allowance recognised in profit or loss during the year Loss allowance utilised during the year Unused amount reversed Closing loss allowance at 30 June - (402) - - 144 - - 402 65 32 - - 97 2019 $’000 89 65 - (89) 65 Following the decision to cease lending under the Consumer Loan product offering, the performing Consumer Loan portfolio was sold during year. Impairment methodology Trade and other receivables The Group recognises a lifetime expected credit loss for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group. Pioneer Credit Limited 30 June 2020 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 23. Capital management The Group's objectives when managing capital are to:  safeguard its ability to continue as a going concern; and  maintain an optimal capital structure to reduce the cost of capital. Although the Group is not subject to any externally imposed regulatory requirement with respect to its capital position, it maintains a conservative and proactive capital management strategy which includes taking a prudent approach to gearing with the significant sources of funding being supplied by shareholder equity and variable rate financier borrowings, as well as appropriate trade working capital arrangements. The Board monitor key balance sheet ratios as part of the strategy as well as to demonstrate compliance with the financier covenant requirements. Three year rolling capital forecast analysis is regularly reviewed to assess the impact of growth and future opportunity on funding requirements with a focus on determining adequacy of short to medium term requirements. As far as possible, asset purchases are funded from operational cash flow, allowing undrawn balances to be maintained. Cash is monitored on a daily basis to ensure that immediate and short term requirements are met. Details of financing facilities at 30 June 2020 are set out in note 8, and post 30 June 2020 in note 3. Dividends No dividends were declared or paid during the financial year. No dividends have been declared subsequent to the financial year end. In the comparative period, the 2H18 final dividend of $4.8m and 1H19 interim dividend of $2.7m were paid. Franking Account The balance of the franking account at year end is, on a tax rate of 30.0%, $9.8m (FY19: $14.4m). Pioneer Credit Limited 30 June 2020 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 24. Group structure Significant investments in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 33. Name of entity Pioneer Credit Solutions Pty Limited Sphere Legal Pty Limited Pioneer Credit (Philippines) Pty Limited Pioneer Credit Connect Pty Limited Pioneer Credit Broking Services Pty Limited Switchmyloan Pty Limited Credit Place Pty Limited Pioneer Credit Acquisition Services (UK)Limited Pioneer Credit Solutions (NZ) Limited Pioneer Credit Connect (Fund 1) Pty Ltd Pioneer Credit Connect (Personal Loans) Pty Ltd Pioneer Credit Limited Equity Incentive Plan Trust Country of incorporation Class of shares Equity holding Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Australia Ordinary United Kingdom Ordinary Ordinary New Zealand Ordinary Australia Ordinary Australia N/A Australia 2020 % 100 100 100 100 100 100 100 100 100 100 100 100 2019 % 100 100 100 100 100 100 100 100 100 100 100 100 1 2 3 1 Pioneer Credit Acquisition Services (UK) Limited is an entity incorporated in the United Kingdom and has not conducted any business since inception to 30 June 2020. 2 Pioneer Credit Connect (Fund 1) Pty Ltd was incorporated on 15 January 2018 and has not conducted any business since inception to 30 June 2020. 3 Pioneer Credit Connect (Personal Loans) Pty Ltd was incorporated on 15 January 2018 and has not conducted any business since inception to 30 June 2020. Pioneer Credit Limited 30 June 2020 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 25. Contingencies The Group had contingent liabilities at 30 June 2020 in respect of: An external supplier commenced proceedings against the Company in January 2019 in respect of unpaid invoices in relation to a software service agreement, claiming approximately $220,000 plus interest. Pioneer counterclaimed for $591,000 for misleading or deceptive conduct and breach of contract. The Company has received advice that it has reasonable prospects of successfully defending the claim and prosecuting its counter claim. 26. Commitments Service Contract The Group has a services contract for the operation of its Philippines facility that ends September 2020 and a WAN services contract that ends October 2021. The minimum contractual commitments resulting from these agreements are outlined below. Commitments for minimum service payments in relation to non-cancellable contracts are payable as follows: Within one year Later than one year but not later than five years 2020 $’000 2019 $’000 732 155 887 2,207 4,739 6,946 Subsequent to 30 June 2020 the Company has terminated its contract with the third party contractor for the services of the Philippines operations, providing the necessary notice period, and is operating on a flexible basis, committing on a month to month basis. There were no termination fees payable. A commitment of $0.3m has been recognised within the number above as at 30 June 2020. Non-cancellable operating leases The right-of-use assets and lease liabilities are disclosed on adoption of AASB 16 Leases from 1 July 2019. See note 15. The Group has, in previous periods, leased various offices under non-cancellable operating leases. The leases had varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Pioneer Credit Limited 30 June 2020 2020 $’000 2019 $’000 - - - 2,755 8,741 11,496 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 27. Related party transactions Key Management Personnel Short-term employee benefits Post-employment benefits 1 Long-term benefits Share-based payments 1 Includes accelerated vesting of Performance Rights Transactions with other related parties Rental expenses and other services Entities owned or controlled by KMP Superannuation contributions Contributions to superannuation funds on behalf of Directors Other transactions Remuneration paid to Directors of the ultimate Australian parent entity Loans from related parties 2020 $ 2019 $ 733,349 76,145 2,328,379 2,285,398 146,928 141,976 1,115,805 1,166,518 4,253,678 3,740,820 2020 $ 2019 $ 75,504 78,912 68,466 68,700 1,867,695 1,707,477 The loan comprises participation in the medium term note issue described in note 8 all of which has occurred on an arm’s length basis. Loans from key management personnel Beginning of the year Interest charged Interest paid End of year 2020 $ 2019 $ 500,000 30,522 (30,522) 500,000 500,000 36,367 (36,367) 500,000 Pioneer Credit Limited 30 June 2020 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 28. Share-based payments Employee share scheme On 14 August 2019 the Company issued 83,538 fully paid ordinary shares under an Employee Offer which gifted up to $1,000 worth of shares to eligible employees. The employee offer shares were valued at $2.7442 each. The shares were issued for no consideration. Shares issued for no consideration are an expense to the Company. Equity incentive plan The Company operates a Pioneer Credit Limited Equity Incentive Plan whereby certain eligible employees are granted performance or indeterminate rights. Each Right entitles the holder to one fully paid ordinary share for no consideration, subject to vesting conditions being met. The cost of the equity settled transaction is determined by the fair value at the date when the grant is made using an appropriate valuation model. Inputs to the valuation model include Spot price, Exercise price, Vesting period, Expected future volatility, risk free rate and Dividend yield. The cost is recognised in employee expenses together with a corresponding increase in equity (reserves) over the vesting period. On 31 July 2019, 570,000 Performance Rights were granted to eligible employees. Each Right entitles the holder to one fully paid ordinary share for no consideration, provided the holder of the Right remains employed by the Group at the Vesting Date. The terms of each tranche of Rights and assumptions used to determine fair value % Rights that vest Grant date Fair value at grant date Share price at grant date Expiration period - years Dividend yield Vesting date Exercise price Tranche 1 Tranche 2 Tranche 3 15% 31-Jul-19 $2.08 $2.40 2.92 4.89% 1-Jul-22 Nil 25% 31-Jul-19 $1.98 $2.40 3.92 4.89% 1-Jul-23 Nil 60% 31-Jul-19 $1.89 $2.40 4.92 4.89% 1-Jul-24 Nil Pioneer Credit Limited 30 June 2020 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Summary of Rights Granted 2020 Number of rights 2019 Number of rights Equity settled rights issued during the year 570,000 1,180,000 Unvested Rights at the end of the period 2,020,000 2,818,000 Pioneer Credit Limited Equity Incentive Plan Trust The Trust acquires shares on market for the purpose of satisfying rights that vest under the Pioneer Credit Limited Equity Incentive Plan. The Trust did not acquire any shares during the financial year. The Company did not provide the Trust with any funds during the financial year. As at 30 June 2020 the Trust held 119,956 shares (2019: 544,056). Pioneer Credit Limited 30 June 2020 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Remuneration of auditors During the year the following fees were paid or are payable for services provided by the auditor of the Group, its related practices and non-related audit firms: Deloitte Touche Tohmatsu were appointed as the external auditors on 25 November 2019. Deloitte Audit and review of financial reports Other services 1 Total remuneration of Deloitte Australia PricewaterhouseCoopers Australia Audit and other assurance services Audit and review of financial reports Total remuneration of PricewaterhouseCoopers Australia Network firms of PricewaterhouseCoopers Australia Other services Other compliance and accounting advice Total remuneration of Network firms of PricewaterhouseCoopers Australia 2020 $ 2019 $ 610,732 118,272 729,004 - - - - - 121,267 518,393 121,267 518,393 28,527 28,527 11,345 11,345 878,798 529,738 Amounts are inclusive of GST and expense reimbursement. 1 Deloitte Touche Tohmatsu were appointed as the external auditors on 25 November 2019, these services were provided prior to their appointment as auditors. Pioneer Credit Limited 30 June 2020 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 30. Earnings / (Loss) per share Basic earnings / (loss) per share From continuing operations attributable to the ordinary equity holders of the Company Total basic earnings / (loss) per share attributable to the ordinary equity holders of the Company Diluted earnings / (loss) per share From continuing operations attributable to the ordinary equity holders of the Company Total diluted earnings / (loss) per share attributable to the ordinary equity holders of the Company Reconciliation of earnings / (loss) used in calculating earnings per share Basic earnings / (loss) per share (Loss) / profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share: From continuing operations Diluted earnings / (loss) per share (Loss) / profit from continuing operations attributable to the ordinary equity holders of the Company Used in calculating diluted earnings per share 2020 Cents (63.36) (63.36) 2019 Cents 6.88 6.88 2020 Cents (63.36) 2019 Cents 6.54 (63.36) 6.54 2020 $’000 2019 $’000 (40,084) 4,281 (40,084) 4,281 Pioneer Credit Limited 30 June 2020 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Weighted average number of shares used as the denominator 2020 Number 2019 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings / (loss) per share 63,268,250 62,210,718 Weighted average number of ordinary and potential shares used as the denominator in calculating diluted earnings per share 63,268,250 65,438,218 Performance rights Performance rights granted under the Pioneer Credit Limited Equity Incentive Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share. Pioneer Credit Limited 30 June 2020 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 31. Deed of cross guarantee Pioneer Credit Limited, Pioneer Credit Solutions Pty Limited, Sphere Legal Pty Limited, Pioneer Credit (Philippines) Pty Limited, Pioneer Credit Connect Pty Limited, Switchmyloan Pty Limited, Pioneer Credit Broking Services Pty Limited and Credit Place Pty Limited are parties to a deed of cross guarantee, entered into on 25 June 2015. Credit Place Pty Limited was joined to this deed of cross guarantee on 26 June 2017. Under the deed each company guarantees the debts of the others. By entering into the deed, these entities have been relieved from the requirement to prepare a financial report and Directors' report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission. The consolidated financial statements of Pioneer Credit Limited include the subsidiaries as set out in note 24. Pioneer Credit Solutions (NZ) Limited, Pioneer Credit Acquisition Services (UK) Limited, Pioneer Credit Connect (Fund 1) Pty Ltd and Pioneer Credit Connect (Personal Loans) Pty Ltd are not party to the deed of cross guarantee. They are stand-alone wholly-owned companies. The Directors have determined that Pioneer Credit Solutions (NZ) Limited, Pioneer Credit Acquisition Services (UK) Limited, Pioneer Credit Connect (Fund 1) Pty Ltd and Pioneer Credit Connect (Personal Loans) Pty Ltd are not reporting entities. As at 30 June 2020:   Pioneer Credit Solutions (NZ) Limited has assets of $2.36m (2019: $2.44m), liabilities of $1.19m (2019: $1.342m) of which the majority relates to amounts due to Group entities and contributed $0.16m (2019: $0.420m) to Group profit before income tax; and Pioneer Credit Acquisition Services (UK) Limited has assets of $6 and no liabilities. The UK entity generates no revenue. Pioneer Credit Limited 30 June 2020 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 32. Parent entity financial information The individual financial statements for the Parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholder equity Issued capital Share based payment reserve Accumulated (losses) / profits 2020 $’000 1,844 251,270 212,677 219,318 80,370 2,177 (50,595) 31,952 2019 $’000 6,292 263,567 176,775 179,335 79,821 2,339 2,072 84,232 Profit for the year Total comprehensive (loss) / income (55,629) 5,859 Guarantees entered into by the Parent entity The Parent entity is bound by an unlimited guarantee and indemnity as part of the Group, with security held over all property. Contingent liabilities of the Parent entity The Parent entity had contingent liabilities at 30 June 2020 and are outlined in note 25. Contractual commitments for the acquisition of property, plant or equipment at 30 June 2020 The Parent entity has no contractual commitments for the acquisition of property, plant or equipment at 30 June 2020. Pioneer Credit Limited 30 June 2020 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 33. Summary of significant accounting policies a) Principles of consolidation b) Income tax c) Cash and cash equivalents d) Trade and other receivables e) Consumer loans f) Property, plant and equipment Intangible assets g) h) Trade and other payables i) j) Borrowings Provisions k) Employee benefits l) Contributed equity m) Earnings per share n) Goods and Services Tax (GST) o) Rounding of amounts p) q) Government grants Impairment of assets r) Foreign Currency translation 85 86 86 87 87 88 88 88 88 89 89 89 90 90 90 91 91 91 Pioneer Credit Limited 30 June 2020 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 a) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Pioneer Credit Limited as at 30 June 2020. Pioneer Credit Limited and its subsidiaries together are referred to in this financial report as the Group or the Company. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The acquisition method of accounting is used to account for business combinations undertaken by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases. Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% to 50% of the voting rights or otherwise demonstrates significant influence. Investments in associates are accounted for using the equity method of accounting (described below), after initially being recognised at cost. Equity method Under the equity method of accounting, investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses, of the investee, in profit or loss, and the Group’s share of movements in other comprehensive income of the investee, in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. Pioneer Credit Limited 30 June 2020 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The Group assesses at the end of each reporting period whether there is any objective evidence that the equity-accounted investment is impaired. Objective evidence of impairment for an investment in an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the investee operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost may also be objective evidence of impairment. Where there is objective evidence based on observable data that there may be an impairment, the carrying amount of the equity accounted investment is tested. b) Income tax The income tax expense for the period is the tax payable on the current period's income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination, that at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The Group has implemented the tax consolidation legislation and its entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are offset in the consolidated financial statements. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Judgement has been applied on the uncertain tax treatment resulting from the transition of PDP financial assets from fair value to be classified as measured at amortised cost. c) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. Pioneer Credit Limited 30 June 2020 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 d) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less loss allowance. Trade receivables are generally due for settlement within 30 days, apart from certain Legal customers on extended terms not exceeding 120 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles over a period before 30 June 2020 and the corresponding credit losses experienced within this period. The historical loss rates are adjusted to reflect the current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Impairment losses are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. e) Consumer loans Consumer loans are initially recognised at fair value. Subsequent to initial recognition, consumer loans are measured at amortised cost and are presented net of impairment losses. Interest is calculated using the effective interest method and is recognised in the statement of profit or loss as part of revenue from continuing operations. Pioneer Credit Limited 30 June 2020 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 f) Property, plant and equipment All property, plant and equipment acquired are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. The assets' residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period and an asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts included in other reserves in respect of those assets to retained earnings. g) Intangible assets Software Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. h) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid and are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. i) Borrowings All borrowings are initially recognised at fair value which is usually their principal amount, net of directly attributable transaction costs incurred. Subsequent to initial recognition borrowings and interest are measured at amortised cost using the effective interest rate method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Pioneer Credit Limited 30 June 2020 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 j) Provisions Provisions for legal claims and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as an interest expense. k) Employee benefits Short term obligations Liabilities for wages and salaries, including non-monetary benefits such as annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Share-based payments The grant date fair value of equity-settled share-based payment awards granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service conditions at the vesting date. l) Contributed equity Ordinary shares issued are classified as equity. Where Pioneer Credit Limited purchases the Company’s equity instruments as a result of a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Pioneer Credit Limited as treasury shares. Shares held in Pioneer Credit Limited Equity Incentive Plan Trust are disclosed as treasury shares and deducted from contributed equity. Pioneer Credit Limited 30 June 2020 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 m) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing:   the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares; by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. Diluted earnings per share If basic earnings per share is a loss per share, then diluted earnings per share will reflect the same loss per share as basic earnings per share, regardless of all dilutive potential ordinary shares. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:   the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. n) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority in which case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated balance sheet. Cash flows are presented on a gross basis. o) Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Pioneer Credit Limited 30 June 2020 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 p) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. q) Government grants Grants that compensate the Group for expenses incurred are recognised through profit or loss on a systematic basis in the periods in which the expenses are recognised. To the extent that any of the Group entities are eligible to participate in the Government stimulus packages in the wake of COVID-19, receipts of approximately $2.4m have been accounted for as government grants and are presented as a reduction of the related employee costs and not revenue. r) Foreign Currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollar, which is the Group’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Pioneer Credit Limited 30 June 2020 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;  income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and  all significant resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities and of borrowings and other financial instruments designated as hedges of such investments are recognised in other comprehensive income. Pioneer Credit Limited 30 June 2020 92 Directors Declaration In the Directors' opinion: a) the financial statements and notes set out on pages 32 to 92 are in accordance with the Corporations Act 2001, including: i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii) giving a true and fair view of the Consolidated Entity's financial position as at 30 June 2020 and of its performance for the year ended on that date; and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group identified in note 24 will be able to meet any obligations or liabilities to which they are, or may become, liable by virtue of the deed of cross guarantee described in note 31. Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of Directors. Keith John Managing Director Perth 23 September 2020 Pioneer Credit Limited 30 June 2020 93 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Pioneer Credit Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Pioneer Credit Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte Network. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Liquidity How the scope of our audit responded to the Key Audit Matter Our audit procedures included, but were not limited to: As at 30 June 2020, the Group has a net working capital deficiency of $114.4m. As disclosed in note 3, on 16 September 2020 the Group executed the new Senior Facility Agreement (SFA) for the purpose of refinancing the Senior Debt Facility and to finance future Purchased Debt Portfolio acquisitions. The Group continues to closely monitor its financing arrangements and ongoing liquidity as disclosed in Notes 2, 8 and 22 to the financial statements. This requires the achievement of budgets and cash flow forecasts, which are inherently uncertain, to enable the Group to continue to meet its covenant obligations and maintain its liquidity. • • Assessing the process undertaken by management to develop the cash flow forecast for the 15-month period ending 30 September 2021; Evaluating the quantum and timing of forecast cash flows in the cash flow forecast, in particular: - Assessing forecasted PDP liquidations in the cashflow forecast against the underlying cashflow forecasts used for the determination of the amortised cost of the PDP; - Assessing actual liquidations after year end against forecast liquidations; - Comparing the forecasted portfolio acquisitions to historic levels as well as actual acquisitions to date for FY21; - Comparing forecasted employee benefits and other operating costs to historic levels for consistency; - Assessing the COVID-19 overlay applied by management; • Reading and understanding the key terms of the SFA and; - Evaluating the financing costs included in the cashflow model against the terms and conditions included in the SFA; - Evaluating the covenant calculations for consistency with the definitions in the SFA; and - Assessing the forecasted covenant calculations over the period to September 2021, including applying sensitives to PDP, liquidations, acquisitions and sales to identify reasonably possible potential breaches. We also assessed the appropriateness of the disclosures in the Going Concern Note 2 to the financial statements. 95 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Measurement of purchased debt portfolios (PDPs) As set out in Note 7 of the financial report, the PDPs are held at amortised cost. The measurement of the PDPs is estimated by the Group using internally developed cash flow models (the models). Complexity arises in respect of the accounting for PDPs due to the following: ● ● ● the requirement to calculate credit- adjusted effective interest rates (CAEIRs) when PDPs are acquired involves significant judgement in estimating the amount and timing of future expected cash flows. In particular, judgement is required in estimating the credit risk attributes of PDPs that underpin modelled cash flow forecasts on acquisition; and re-estimating future cash flows for PDPs at the end of each period results in impairment gains/losses which also require significant judgement and reliance on internally- developed cash flow models. estimating the impact of the macro- economic outlook on forecast cash flows requires significant judgement. • the models used by management remain sensitive to the inherent uncertainty of predicting future cash flows, both at acquisition date and at period end. As a result, the assessment of the carrying value PDPs is a key audit matter. Our audit procedures, performed in conjunction with our Treasury Specialists, included but were not limited to: • • Assessing the process undertaken by management to measure and account for PDPs; Evaluating the appropriateness of the accounting policy adopted by management Model methodology ● ● ● ● developing an understanding and critically assessing methodology and assumptions used by the Group to determine the construction of the cash flow models assessing if the model methodology appropriately included the expected amounts and timing of cash flows from customers; assessing the reasonableness of model parameters such as the period of cash flow forecasts; and re-performing a selection of mathematical calculations in the models Model inputs ● ● Testing a sample of current year additions, disposals and liquidations to underlying source documentation to assess the existence, accuracy and completeness of the model data; assessing the reasonableness of the assumptions and predictive factors used in the model with reference to historical experience by; - - - testing a sample of customer account characteristics to source documentation or system information to assess the existence, accuracy and completeness of the model data assessing the historical CAEIRs used in the model for consistency to what had previously been determined and locked in on historic PDPs, and performing sensitivity analysis and challenging management on cash flow forecast assumptions having a significant impact on model outputs such as liquidations 96 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Model outputs • • • • challenging the reasonableness of PDP interest income and impairment gains/losses calculated by management’s models and whether these were consistent with our expectations testing the reasonability of the mathematical outputs of the model forecasted cash flows for all customer account tranches, evaluating the reasonableness of the tax treatment of the PDPs, and agreeing the model outputs to accounting entries recorded in the Group’s financial report. Model overlays ● challenging the assumptions, judgments and quantifications made in determining the macro-economic outlook and model risk overlays. We also assessed the appropriateness of the disclosures in the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 97 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the financial report, 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 Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ 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 Group’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 financial report 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 Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors 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 the directors 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, actions taken to eliminate threats or safeguards applied. 98 From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 26 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Pioneer Credit Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Leanne Karamfiles Partner Chartered Accountants Perth, 23 September 2020 99 Shareholder information The shareholder information set out below was applicable as at 7 September 2020. Distribution of securities Analysis of numbers of equity security holders by size of holding Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holders 667 882 422 662 123 2,756 Ordinary shares 287,844 2,548,251 3,299,883 20,036,541 37,225,730 63,398,249 There were 859 holders of less than a marketable parcel of ordinary shares. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted securities are: Name Mr Keith R John Wroxby Pty Ltd Mrs Lilian J Warmbrand Citicorp Nominees Pty Ltd PNC Employee Sub-Register National Nominees Limited NSR Investments Pty Ltd CS Fourth Nominees Pty Ltd Mr Shang-Xian Wu & Mrs Xui-Rong Pan Ms Elif C Gunes Debuscey Pty Ltd CE Consultants Pty Ltd Merrill Lynch (Australia) Nominees Pty Ltd Mr Irwin D Klotz Amber Cloud Pty Ltd BNP Paribas Nominees Pty Ltd Ms Carole Vines Mr Leslie K Crockett James A Singh & Kristy N Milward The Stephens Group Super Fund Pty Ltd Mr Frederick B Warmbrand Number held 5,259,124 1,889,298 1,494,217 1,204,593 1,062,318 844,519 750,000 715,521 670,000 600,000 600,000 575,000 512,704 502,500 500,000 454,387 450,574 411,917 405,544 400,000 400,000 Ordinary shares Percentage of issued shares 8.30% 2.98% 2.36% 1.90% 1.68% 1.33% 1.18% 1.13% 1.06% 0.95% 0.95% 0.91% 0.81% 0.79% 0.79% 0.72% 0.71% 0.65% 0.64% 0.63% 0.63% Pioneer Credit Limited 30 June 2020 100 Unquoted equity securities Name Mr Keith R John Name Employee Incentive Plan Substantial holders Substantial holders in the Company are set out below: Name Mr Keith R John Securities subject to voluntary escrow Escrow ends 30 November 2021 14 August 2022 Voting rights Indeterminate rights Number held 1,000,000 Number of holders 1 Performance rights Number held 1,020,000 Number of holders 8 Number held 5,259,124 Percentage of issued shares 8.30% Class Number of shares Ordinary shares Ordinary shares 36,837 63,518 At a general meeting of shareholders: every shareholder entitled to vote may vote in person or by proxy, attorney or representative; on a show of hands every shareholder who is present in person or by proxy, attorney or representative has one vote; and on a poll every shareholder who is present in person or by proxy, attorney or representative has one vote for every share held, but, in respect of partly-paid shares, shall have a fraction of a vote for each partly-paid share. Pioneer Credit Limited 30 June 2020 101 

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