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Air Lease2013 SH A REHOLDER RE VIE W
MOMENTUM
FOR GROW TH
rentlo
CONTENTS
02 2013 Results and Highlights
03 Chairman’s Introduction
04 Managing Director’s Report
06 Radio Rentals and Rentlo
10 Thorn Equipment Finance
11 Thorn Financial Services
12 NCML
13 The future: strengthening and diversifying
14 Corporate Social Responsibility
18 Financial Summary
20 Four Year Performance Summary
IBC Corporate Directory
NoTICE oF MEETINg
Notice is hereby given that the Annual
general Meeting will be held at Four Points by
Sheraton, 161 Sussex Street Sydney on 22nd
August 2013, commencing at 11.00am.
Key facts:
thorn Group has over
customers and
110,000
90
outlets nationally
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Thorn is one of Australia’s leading providers of
alternative financial solutions for consumers and
commercial markets.
This year Thorn has delivered a strong performance
in a challenging market where consumer and business
confidence has been low, whilst also investing in the
strengthening and diversifying of the business and
providing sound returns for shareholders.
The group is gaining a strong ‘momentum for growth’
and this report sets out details of the initiatives that
are the platform for future expansion.
our focus is on continuing to develop into a broader
based financial services organisation by extending our
range of products and services to enable penetration
into a wider market of potential customers.
1
2013 Results and Highlights
AVERAgE CoNTRACTED TERM
(months)
PRo-FoRMA EBIT PERFoRMANCE
(A$m)
25
20
15
10
5
0
23.0
’09
’10
’11
’12
’13
50
40
30
20
10
0
42.3
’09
’10
’11
’12
’13
AVERAgE uNITS oN RENT
(’000s)
AVERAgE RENTAL DuES
(A$m)
300
250
200
150
100
50
0
258
’09
’10
’11
’12
’13
14
12
10
8
6
4
2
0
12.1
’09
’10
’11
’12
’13
FIN A NCI A L H IGHLIGHTS
OPER ATIONAL HIGHLIGHTS
• Revenue up 8% to $203m
• Record installations and earnings for Radio Rentals
• NPAT steady at $28m
• Radio Rentals customer retention rate up from 44%
• Cash NPAT consistent at $29m
• Positive operating cashflow reaching $93m
• Average return on capital strong at 24.8%
• EPS of 19.11 cents
• Full year dividends of 10.5 cents fully franked,
to 48%
• Cashfirst loan book grew 26% to $21m
• Cashfirst customer retention rate increased to 27%
• Thorn Equipment Finance strong book build to $36m
• NCML lift in new clients and debt ledger purchases
up 10.5%
• Rent Drive Buy trial delivering strong results
2
Chairman’s Report
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
This is Thorn Group’s seventh Annual
Report, presenting another year of solid financial
performance and returns for investors.
The backdrop to this year’s report is that many
customers in our target markets, and retailers
in particular, have encountered tough economic
conditions, with consumer and business
confidence at ongoing low levels. Thorn is not
immune from these conditions but another
record year from its core consumer rental
division coupled with a strong base of recurring
revenue streams and significant cashflows
underscores its resilience and strength.
This resilience and strength has enabled the
board and management to invest in a number
of initiatives focussed on ensuring that a strong
‘momentum for growth’ is created over the
medium to longer term along with improved
returns for our shareholders. In the short term,
there is the need for significant investment in
development of these initiatives and our results
this year reflect this commitment.
In financial year 2013, Thorn recorded some
significant achievements:
•
•
•
We have made excellent progress with our
strategy of enlarging our footprint in the
financial services sector
our biggest contributor to earnings, Radio
Rentals/Rentlo, achieved record installations
and revenue
From a zero base some four years ago,
Cashfirst now has an unsecured personal
loan book of $21 million, creating a solid
cornerstone for broader development of
Thorn Financial Services
•
Rejuvenation of Thorn Equipment Finance is
reaping rewards, with new financing up 155
per cent to $33 million
•
NCML is back on a growth path after a
challenging year
Another year of solid
financial performance
and returns for investors.
EARNINgS, BALANCE SHEET
These achievements which reflect business
growth, investment for the future and dealing
with challenging economic conditions, have
enabled Thorn to record a steady profit of $28
million in financial year 2013. The underlying
strength of the business is emphasised by the
return on average capital employed of 24.8
per cent, an impressive result, particularly
compared to many other organisations. The
ongoing strength of Thorn’s balance sheet,
with relatively low gearing, is an indicator of
both our conservative capital management and
our potential to fund future growth.
DIVIDEND
While profit has been steady, directors
believe that the increase in dividend and
payout ratio reflects our confidence in the
positive contribution to growth we expect
from investment in current initiatives and the
strategic development of the group as a broader
financial services business. Final dividend was
increased 9 per cent to 6 cents, taking full year
dividend to 10.5 cents a share fully franked, up
10.5 per cent and lifting the dividend payout
ratio to 55 per cent. We have continued the
dividend reinvestment plan at a discount of
2.5 per cent, providing further opportunity for
investors to share in future growth.
CoRPoRATE goVERNANCE AND
SuSTAINABILITY
Investors have a right to expect a high degree
of attention to the best standards of corporate
governance and as a board we seek to foster
and uphold those standards. The financial
report component of this Shareholder Review
sets out our policies and practices, including
those related to remuneration. We also see
great importance in Thorn embracing corporate
social responsibility, which the group achieves
through a number of endeavours. We adhere
strictly to the code of responsible lending in
the way we relate to customers. our caring
attitude has been reinforced by the introduction
of a hardship contract which assists customers
during a time of financial difficulty. It is
pleasing to note that this initiative was actually
suggested by our staff which shows their
genuine concern for customer welfare. We
actively seek to empower and support our
staff and hence provide a significant range
of learning and development opportunities
which is key to developing a positive
culture. our priority is to ensure Thorn is a
sustainable business and positive contributor
to the community. This incorporates financial
support for charitable organisations and local
welfare groups, integrating environmental
considerations into purchasing and supply
decisions, participation in industry associations
and pro-active consultation with legislative
bodies and regulators.
ouTLook
The board has a very positive view of the
medium term outlook for Thorn as it develops
a range of initiatives that will enable the
fulfilment of its strategy to build a broader
based financial services business. We recognise
that in the short term, we need to confront
David Carter
Chairman,
Non-Executive
Director
challenging economic conditions and also
absorb costs that are essential for our
investment in the future. But, as our track
record shows, we have a strong and profitable
base which places the organisation in a sound
position for this investment, without it being
significantly detrimental to overall performance.
In coming years, Thorn will be quite a different
business with a broader based contemporary
style that enables it to meet the needs of many
more Australians and becoming a significant
industry participant in financial services.
PEoPLE
The strategy on which Thorn is embarking
would not have been possible without the
foresight and capabilities of a talented
management team. To ensure continuity of
strategy implementation, the board has been
pleased to extend the contract of Managing
Director, John Hughes, for a further two
years. Mr Hughes has been a strong driver and
innovator of the business since its listing on the
ASX in 2006. We are grateful for his leadership
over this time and also for the efforts of
all staff who have helped make Thorn the
successful company it has become.
To further strengthen the capabilities of the
organisation to deliver on our future plans,
we recently appointed a number of senior
executives to new roles that will be key to
ensuring the ongoing success of the organisation.
We appreciate the ongoing support of
shareholders and I want to acknowledge
the outstanding contributions of my fellow
directors in governing Thorn’s growth path.
David Carter
Chairman, Non-Executive Director
3
Managing Director’s Report
In financial year 2013,
Thorn has recorded a sound
financial performance as
well as taking significant
steps in its financial services
diversification strategy.
John Hughes
Managing Director
and CEo
THEMES IN 2013
In 2013, we concentrated our efforts
on a number of critical areas that will
enable Thorn to achieve its strategic
objectives. Whilst individually important,
their interrelationship is key to optimising
future outcomes for the group. o ur starting
point was to focus on ensuring ongoing
growth of our existing businesses. Second,
we continued development of our initiatives
and IT systems that are core to refreshing
and expanding our business in line with our
diversification strategy. Third, was investment
in strengthening and expanding our executive
team to ensure we have sufficient senior
resources to implement this strategy. Fourth,
was enhancement of our funding platform
to provide the financial wherewithal for
expansion. Fifth, was ensuring disciplines and
structures were in place to optimise current
and future performance within our strict
risk management parameters. Progress has
been very positive on each of these areas and
provides a solid foundation for our evolution.
FINANCIAL PERFoRMANCE
In the midst of retail conditions that have
been among the toughest I have witnessed
during my career, I believe it is very
commendable that Thorn kept profit steady
at $28 million, particularly as we made a
substantial investment of time and money into
the development of our growth initiatives.
Pleasingly this included a record performance
from Radio Rentals/Rentlo, which is a standout
against other organisations exposed to the
retail market, significant book building by
Cashfirst and Thorn Equipment Finance and the
start of a turnaround by NCML.
In Radio Rentals/Rentlo, we showed that
by being responsive to customer needs and
4
broadening our product offering, we could
continue to grow the business. of particular
note is our increase in customer loyalty,
measured on the level of new contracts taken
up by customers completing a contract, now at
48 per cent. This outstanding result reinforces
the relevance and value of our offering to our
target market. The growth of our personal
loan portfolio through Cashfirst has clearly
demonstrated the potential in this market
area and hence the focus on expanding the
range of loan products we will make available
over the next 12 months. The continued
building of vendor and broker relationships
provided further impetus for the growth of
Thorn Equipment Finance, primarily in the SME
market which values long term supplier support
and has a strong demand for leasing. NCML
had a challenging year, but finished the year in
good shape with the successful achievement
of a number of new major contracts, which will
contribute significantly to our 2014 financial
year performance. While we have a number
of products and initiatives in the pipeline, the
response to our Rent, Drive, Buy trial provides
us with a strong level of confidence and shows
the benefits that come from cautious entry
into a new market with a well thought out
niche product.
BuSINESS RENEWAL AND REINVENTIoN
It has been long understood that every
business needs renewal and that failure to
embrace change and new opportunities can
lead to a loss of relevance in the market and
consequently impact long term performance.
The Radio Rentals business has been a leader
in the household goods rental market for
76 years and a fundamental reason for this
positioning has been continual change and
development of new products and offerings.
To remain contemporary and relevant, we
have responded to customer needs in many
ways over the past six years since Thorn has
been listed.
This year we conducted an even more rigorous
review of the business to ensure we stay in
a leadership position. We initiated research
among customers, analysed our business in
detail, assessed market opportunities and
investigated overseas concepts. We have a
good understanding of what brings customers
to us, how they shop, what our brand means
to them and where we are positioned with our
target market. What we have learned is that
if we are to broaden our target market to a
wider demographic, we also need to move the
description of our offering away from purely
rental and more towards consumer leasing
with a broader range of products and various
ownership options that caters for today’s
modern lifestyle. We are already taking steps
in this direction but implications of this also are
a reconsideration of the name of our flagship
business, which is the next step in our analysis
and positioning.
We have also taken the concept of renewal well
beyond Radio Rentals while recognising our
key strengths and capabilities are in providing
alternative financial solutions to both consumer
and commercial markets. Hence our plans to
significantly expand the range of products
we offer in financial services, while remaining
consistent with our skill set.
The success and appeal of Cashfirst to
consumers has shown there is a solid demand
for personal loans. Research supports our view
that there is a significant market opportunity,
especially with banks and other financial
institutions reducing their exposure in this
market and tightening their lending policies
post the gFC. The launch of a wider range of
products and potential distribution through a
branch network are among the initiatives that
are planned for implementation over the next
two years. An expanded Thorn Equipment
Finance, a rejuvenated NCML and likely national
launch of Rent Drive Buy are also exciting parts
of Thorn’s renewal and reinvention.
BuILDINg THE RIgHT TEAM
A vital part of any development program
is ensuring that we have the skills and
capabilities to achieve a successful
implementation and meet our objectives.
This has necessitated the recruitment of a
number of new managers and team members
as well as giving our existing team more
opportunities to fill leadership positions.
James Marshall has been appointed Chief
operating officer for Thorn group and
his remit will cover Radio Rentals, Thorn
Equipment Finance and NCML. James recently
celebrated 20 years with the business and has
been the key driver of the success of Radio
Rentals over the past six years.
Derrick Hubble has been promoted to g eneral
Manager Sales and operations for Radio
Rentals/Rentlo. Derrick recently re-joined
Thorn after an absence of some six years and
was previously general Manager of Radio
Rentals. Derrick has a wealth of knowledge
in the consumer market having held senior
management roles with Ticketek, Nuance,
oroton and Myer.
Darren-John Aquilina has been appointed
general Manager Marketing and
Merchandising for Radio Rentals/Rentlo and
has extensive experience in the household
goods consumer market. Darren spent
a number of years with Harvey Norman,
Bing Lee and more recently as Marketing
& Merchandising Manager with Flexigroup.
Immediately prior to joining, Darren was g M
Marketing and eCommerce for Toys R’ u s.
Alan Payne has joined the group as National
Business Development Manager for Radio
Rentals/Rentlo. Prior to joining Thorn Alan had
eight years’ experience with Mr Rental, most
recently as Managing Director International
and preceding that was general Manager for
Australia and New Zealand. Alan’s many years
of senior management experience across a
number of major organisations, along with
his strong knowledge of the consumer rental
market, will assist in the further development of
the Radio Rentals/Rentlo network as well as
providing sound insight into the potential
development of a second brand.
Another key appointment has
been Richard Shepherd as g eneral
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Manager for Thorn Financial Services,
which will be the cornerstone of our further
development as a broader based financial
services organisation. Richard has extensive
experience in the consumer finance market
with organisations including AgC, Westpac,
Bankwest, Standard Chartered Bank and most
recently Qantas with their customer loyalty
programs.
Peter Eaton’s role of Chief Financial o fficer
has been expanded to cover Compliance and
Risk along with Corporate HR and Business
Development. Further to this k enneth Au has
been promoted to g eneral Manager Finance,
having performed strongly as Financial
Controller over the last 18 months. k enneth
was previously CF o at ICE Design and
prior to that g roup Financial Controller for
Fantastic Holdings.
This year we conducted an even
more rigorous review of the
business to ensure we stay in a
leadership position.
Mark Birkbeck has been appointed general
Manager Business Development for the group
and has a wealth of experience and knowledge
of the business and its key dynamics. Mark was
previously Business Development and Analysis
Manager and most recently has also been
project leader for the Rent, Drive, Buy initiative.
Recruitment is underway for a g eneral
Manager of IT, which will provide additional
senior resourcing, capability and strategic
direction as the business implements a
number of key IT initiatives.
Investment in the leadership team is key as
we build a much larger and more diverse
business. While there is a corresponding
increase in overheads, it is an investment we
expect to see deliver sound returns over the
next few years.
FINANCIAL STRENgTH
Thorn’s balance sheet and attractive return
on capital provide a strong base for growth.
gearing is low, with debt to equity at 19 per
cent and this gives us the capacity to expand
banking facilities to fund our renewal program.
Through Westpac, we have increased our base
debt facility from $30 million to $50 million,
with a separate securitised facility of $50
million being finalised for expansion of Thorn
Equipment Finance.
CHANgINg FACE oF THoRN
over coming years Thorn’s evolving business
model will generate a greater variety of
revenue streams from financial services.
However, it will take several years for all of
these to become major contributors to group
performance. This is primarily due to the
time required to build critical mass in the new
portfolios and, as always, the costs associated
with development.
The emerging picture of Thorn will be that
of a much broader based business that is
able to provide a range of financial solutions
for Australian consumers and businesses,
particularly those who are seeking a quality
alternative to traditional lenders and
financial institutions.
We feel confident that the direction in
which Thorn is moving will create a strong,
sustainable future for the company along
with rewards for customers, employees,
shareholders and the wider community.
John Hughes
Managing Director and CEo
5
Business reports
Radio Rentals and Rentlo
Business performance and positioning - another record year
Record installations and earnings
Store network development
Increasing market penetration in unserved &
underserviced markets
A feature of the core Radio Rentals and
Rentlo division, which becomes more apparent
each year, is its resilience. Radio Rentals has
been a household brand in Australia since
1937 and continues to show that it provides
a service that many Australians consider
invaluable. The division has defied industry
trends and once again posted record revenue,
installations and earnings for financial year
2013. This is very positive given the ongoing
challenges in the market, which has resulted in
poor retail conditions for a number of years
utility costs, continuing to have an impact. As
an example, electricity costs in some states
have increased around 80 per cent over the
past four years, making it harder for families to
budget. Also, whilst the business has continued
to maintain its enviable performance in arrears
and bad debt management, consumer defaults
have increased across the general community
along with hardship requests. This is clearly
evident in the area of telecommunications and
utilities, which reflects poorly on the true state
of the economy.
National consumer confidence is not only at
low levels but has remained low for several
years, with higher costs of living, particularly
It is certainly a significant achievement for
Radio Rentals/Rentlo to record continuing
improved performance against this
backdrop. This is due to a combination of key
factors, including a strong and respected
national brand, an ongoing commitment
to outstanding customer service and the
continual focus on refreshing the Radio Rentals
and Rentlo offering.
The business has been a leader in embracing
the internet as a business driver and records
some 90,000 visits per month to the websites.
Complementing this, nearly every store in the
network has been remodelled over the past
few years to ensure they remain fresh and
have the ability to really showcase our ever
expanding range of products.
Total installation revenue grew 6 per cent and
earnings before interest, tax, depreciation
and amortisation were up 3 per cent to $48.1
million. An important statistic for assessing
business performance is customer retention
and this increased from 44 per cent to 48
per cent. This is an outstanding achievement
and truly indicates the strength of customer
loyalty within the business. It effectively means
that for every 100 customers who complete
a contract, nearly 50 sign up for another
contract. Another noteworthy performance
indicator is that the fastest growing product
category is furniture, with installation revenue
growing a substantial 46 per cent. Technology
products also performed well, with new
Apple products, smartphones and tablets,
contributing to improved revenues.
6
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Market positioning
Market leader and innovator
Rent, Try, $1 Buy™ – industry icon
Strong online presence
The way Radio Rentals and Rentlo staff
engage with customers has been an important
management priority over the past few years.
our ongoing review and implementation of
change has continued to provide positive
outcomes in several ways. The introduction
of a ‘hub and spoke’ business model in
metropolitan markets has had a positive
effect on the efficiency of operations. It has
also enabled greater flexibility in store design
options and locations, with many now situated
in high traffic shopping malls, which are proving
particularly effective.
Store layouts are now more lifestyle oriented
with furniture being a key focal point and
reflecting how products would appear in a
customer’s home.
in new metropolitan suburbs that provide a low
entry cost model as we build critical mass in
the area.
Full service branches, which are the mainstay
of the network, occupy 250-350 square
metres, showrooms take up 100 to 150
square metres and kiosks can operate from
25 square metres. In addition to a national
branch network, our investment in enhancing
our website continues to prove successful,
with around 70 per cent of new rental inquiries
coming from online and telephone and our
website recording over a million visits a year.
A robust and consistent marketing campaign
across the year ensures a strong level of
enquiries and national TV advertising remains
an important medium.
Improved logistics has also created the
flexibility to pursue expansion of ‘one person
branches’ in regional areas and ‘kiosks’ in malls
Rent, Try, $1Buy™ is an industry icon product,
with customers clearly demonstrating they
enjoy the benefits and flexibility of rental
along with the potential to obtain ownership.
In line with our “Responsible Rental Policy”, we
ensure customers are provided with product
that suits their needs and budget and that
they are not over committed. The poor state
of the economy combined with concern for
customers who are faced with undue financial
pressures led us to introduce a hardship
contract in the past year, which has been
helpful in assisting customers at a time of need
by giving them extended terms. This initiative
has been well received by customers along with
store staff who build solid relationships with
their customers and community.
*
7
Business reports
customers and products
Lifestyle direction and whole room packages
Apple added to the technology range
“Fair go“ credit policy appreciated by customers
over 40,000 items purchased annually by customers
Expanding the product range has had
many positive benefits – in how we present
ourselves to consumers, financial performance
and customer satisfaction. This is best
demonstrated by our fastest growing and
relatively new category of furniture, which
has enabled us to create a real lifestyle feel
8
and approach in store design and the way
we present products, including whole room
packages which are becoming very popular.
Customer trends towards larger capacity
washing machines and refrigerators have also
been positive contributors as we expand our
product selection. Whilst they are very new to
our range, Apple products, Smartphones and
tablets have been well received by customers
and this technology range along with PCs and
3D Smart TVs will be a strong contributor to
performance in the coming year.
The Thorn branded range of products has
also been expanded to include a variety of
whitegoods including refrigerators and there is
scope to expand this concept further which will
have a positive effect on margins.
We know from our surveys that our customers
are very positive about our expanded offerings
and most particularly appreciate our “fair go”
credit policy which enables them to access
goods that might not otherwise have been
available. Radio Rentals and Rentlo have some
100,000 customers nationally and around
40,000 items are purchased annually at the
completion of Rent, Try, $1Buy™ contracts,
which stands as strong testament to the value
and effectiveness of our offer.
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Reinventing and refining an icon
New contract types being developed
Expanding target demographic
Consumer demand for alternative ownership options
Within Thorn’s strategy of expanding its
footprint in financial services, there is also an
intention to refresh the icon brand that Radio
Rentals has become. In part, the evolution
has begun, as evidenced by our expanded
product offering and greater emphasis on
lifestyle living. However, to truly leverage
the capabilities and capacity of the business,
there is a need to appeal to a wider range of
customers in other demographic categories
which means a greater amount of change and
development needs to be considered. our
current demographic has served us well but
there is the opportunity to expand into new
demographic territory that could add some
$500 million to the size of the potential market
we could target.
our market research tells us that while
awareness of our products and brand is high,
consumers have an appetite for a wider
range of alternative options for accessing
products and obtaining ownership. New types
of contract under consideration include take
home layby, interest free, savings clubs and
extended length contracts. Longer term
contract initiatives are already in development,
with a 48 month contract expected to be
introduced in coming months which will assist
in catering for the growing demand for larger
size products and whole room packages.
A key enabler for this evolution will be
the launch of a new enterprise resource
planning system. This is a major investment
for the group but will facilitate significant
improvements in operational efficiencies across
all areas of the business. Responses among our
user Acceptance Team have been extremely
positive and a number of areas have been
identified that will benefit greatly, including
staff training and workflows.
An important aspect of the review will be
assessing the relevance of the business
name in relation to accessing new customer
demographics. While name recognition is high
for a brand that began in 1937, there is also
value in seeking a broader appeal beyond what
the name implies, bringing a more relevant
connection towards consumer leasing and a
wider product range. Throughout history, the
most successful businesses and brands have
maintained relevance through continuous
evolution and reinvention.
9
Business reports
10
Thorn Equipment Finance is a specialist
provider of innovative equipment finance
solutions for businesses. Products financed
over the past year include information
technology systems, telephony, point of sale
systems, printers, copiers and a range of
items across gaming, audio visual, kitchen,
industrial and commercial sectors. The key
target market is small to medium enterprises
and meeting funding requirements that are
generally below $100,000, which is an area we
consider underserviced by the major financial
institutions and consequently representing a
considerable opportunity for growth.
After investing in a specialist team to drive
growth and quality business, strategic alliances
with vendors and brokers have been expanded,
placing the business in a sound position
for growing clients and lifting its size to an
attractive level. We believe these relationships
are essential for new client introductions,
giving us the potential to boost our market
presence significantly. The focus of the
team is on business building, with the credit
approval process undertaken by specialist
underwriters. Just as the division has grown
through expanded relationships with business
introducers, we are also partnering with Capital
Finance, which is a leading non-bank provider
of equipment asset finance, as a broker,
enabling us to broaden our market offering and
garner an income stream from deals that are
outside of our key area of focus.
Financial performance has reflected Thorn’s
strong focus on this market, with the loan book
having grown to $36 million compared with
$12 million a year ago, boosted by originating
$33 million in new loans - an increase of
155 per cent. Earnings have also grown but
the contribution to group profit will be more
apparent as the receivables book grows
further to a milestone of $100 million. This
will be strongly aided by a new $50 million
securitised funding facility with Westpac.
Average deal size has been $22,000 and
arrears have been steady at 5 per cent of the
loan book which is a pleasing result and meets
our budget objectives.
At the same time attracting new clients,
we maintain our productive long standing
relationship with TABs to which we supply
technology equipment and provide
a high level of service support along
with the potential to upgrade.
Thorn Equipment Finance Loan book grown to $36m, up $24m New strategic alliances with vendors and brokers New securitised funding facility THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Expansion in financial services is a key
driver of Thorn’s business strategy, involving
the introduction of new products and
targeting new market segments which our
research shows are underserviced by other
financial institutions. The platform that makes
this expansion strategy viable is the success
of our cornerstone business, Cashfirst, which
provides unsecured term loans of $2,000
to $5,000. Cashfirst continued its strong
growth trajectory during the year with the
loan book exceeding $21 million by year-end,
compared with $17 million 12 months earlier,
representing growth of 26 per cent.
While advertising has proven to be the most
productive route to gaining new customers,
a noteworthy feature of the business is the
extent to which existing customers stay
with Cashfirst and take out new loans. The
customer retention rate increased to 27 per
cent this year, indicating a solid and growing
base of loyal customers.
The loan approval rate was maintained at
15-20 per cent of applications, with customer
arrears and bad debts remaining within budget
parameters, demonstrating Thorn’s ongoing
commitment to responsible lending practices.
As part of our ongoing review of the business,
we continue to analyse approval rates and
whether possible adjustment might improve
risk weighted returns, including consideration
of possible different products or whether some
customers could be referred to other providers
under an alliance arrangement.
Among initiatives being considered for
expanding Thorn Financial Services are higher
value unsecured and secured loans targeting
a broader demographic, specialist funding
such as legal disbursements and lower value
loans between $1,000 and $2,000. Also
under consideration are standalone branches
and store-in-store outlets in selected Radio
Rentals/Rentlo locations.
Another initiative currently being considered
and trialled is car leasing service Rent, Drive,
Buy, which offers customers an opportunity
to rent a quality vehicle on a fully maintained
basis, with the potential to obtain finance to
purchase after a year of continuous payments.
Initial results from the trial, which commenced
fully in February 2013, have been positive
and it is anticipated that it will move into the
next stage of development in the latter half
of calendar 2013, prior to a potential full scale
launch in 2014. Customer feedback has been
extremely positive and all performance metrics
are within projections.
We also believe that a considerable opportunity
exists in a ‘lease to own’ proposition directed at
rejected applicants for other finance products
offered through retailers. This proposition
is based on the “RAC Acceptance” model
in the uS which has a 50 per cent success
rate in being able to provide finance to these
applicants and is available through over
1,000 retailers who specialise in furniture
and consumer electronics. Research suggests
that some $400 million of credit applications
are rejected annually for products in these
segments in Australia and with a potential
50 per cent success rate, it could be a
significant opportunity.
Thorn’s unique ability to risk manage these
customers is the same as for Rent-A-Center in
the uS, where products are re-rented through
their core business network. This provides
an example of how we could leverage our
capability in the same way, using the Radio
Rentals/Rentlo network.
11
Thorn Financial Services Expansion program gaining momentum Cornerstone Cashfirst business loan book reaches $21m Low arrears and bad debts maintained Customer retention rate increased to 27% Rent Drive Buy trial underway Business reports
NCML
Lift in new clients, increasing business
Active again in purchasing debt ledgers
More positive year ahead
NCML is a leading national provider of
integrated receivables management services
and while it encountered a number of
challenges during the year, the business is now
positioned for strong future growth.
Financial year 2012 was particularly tough
for NCML, with the loss of the ATo contract
and lack of competitively priced Purchased
Debt Ledgers (PDLs). In financial year
2013, management took the opportunity
to restructure the business and invest in
new senior personnel. While this involved an
extensive review of the business, we kept
the focus on high quality and government
clients and consequently NCML has built
solid momentum for 2014. Evidence of
positive progress can be seen in the greater
variety of revenue sources for NCML, with
commercial and consumer debt recovery
areas as well as PDLs all gaining new business
opportunities which will contribute to 2014
year performance.
Major pieces of new business that are
projected to underpin an improved
performance in the coming year include two
streams of activity from the NSW government,
being in the areas of State Debt Recovery and
Roads and Maritime, along with a substantial
lift in local council work in South Australia,
where NCML has a dominant position. There
is also potential for similar work with the
Queensland and Victorian governments,
which reflects the positive response to work
undertaken in NSW.
In addition we are seeing a significant increase
in debt portfolio management work on behalf
of a number of major clients, including the
CBA and QBE. While the PDL market remains
competitive, we have become more active,
making a number of acquisitions, but ensuring
we retain a disciplined approach.
While NCML earnings were lower in financial
year 2013, these contract wins, restructuring
and new management team are laying the
foundation for improved performance in
2014. New contracts have been accompanied
with higher employment costs as we expand
the team and train new operators to take on
the additional workloads but indications for
resumption of growth from NCML are positive.
12
The future:
strengthening
and diversifying
Thorn is currently increasing the tempo of
its strategy of diversifying the group in financial
services. over the next two years, a number
of initiatives will have been implemented and
financial results from this investment should be
apparent. Thorn is focused on strengthening
and diversifying the group’s offerings by
developing in each area of the business. While
currently each division has a single product
we are reviewing the areas of opportunity to
expand and diversify within all of the divisions.
In addition to our own ideas and market
research among our target demographics,
we have also been influenced by researching
financial services businesses in other countries.
Relevant models have been identified in Rent-
A-Center in the uS and easyhome/easyfinancial
in Canada which are very similar to products
that we are currently developing. This serves
to reinforce the potential of our strategic
initiatives, enabling us to learn from their
experiences and benchmark our performance.
Right: our positively received Rent, Drive, Buy
trial initiative is is just one example of the way
Thorn will successfully increase the diversify of its
offering in the future.
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
13
our community
Corporate Social
Responsibility
Thorn recognises that it has many
responsibilities as an organisation,
encompassing shareholders, customers,
employees and the wider community and
environment. In all that it does, Thorn sets high
standards of ethical behaviour and is mindful
of how it can have a positive impact on the
surrounding world.
Thorn is committed to operating its
businesses honestly, efficiently and fairly with
high moral, ethical and legal standards. This
is enhanced by a strong “challenge” culture
where everyone within the organisation is
encouraged to create and advocate ideas that
can improve reputation and performance.
In addition, there is a philosophy of “Above
the Line” behaviour which focuses on taking
responsibility, accountability and ownership
for whatever we do. o ur Code of Conduct
sets clear expectations for all of our people
in their interactions with each other, with
customers and the wider community. In return
we provide our people with training, support
and opportunities to fulfil their potential. We
recognise and value the unique contribution
people can make because of their individual
background and different skills, experiences
and perspectives. This operates at all levels of
the organisation, with our Board of Directors
also reflecting our gender diversity policy.
A key part of Thorn’s philosophy is in providing
optimum service to customers to ensure
they get a “fair go”, particularly those people
who may have encountered difficulties in
their lives and need assistance to obtain basic
household items. our “Responsible Lending
& Rental Policy” is in place to ensure that we
provide customers with products that meet
their needs and financial capacity. This has
been an important component of building
our customer base and generating long term
customer loyalty. Another element is also our
“Mum Test” which staff are encouraged to
consider whenever dealing with a customer
who is experiencing difficulties. Put simply,
it is to treat the customer “as if they were
your mum” and do whatever is reasonable to
assist them. In addition, Radio Rentals/Rentlo
has introduced a specific ‘hardship contract’
that enables customers of good standing to
extend the balance of their contract at a lower
payment without any charges or penalties.
CoMMuNITY
We believe community involvement is a
component of good business practice.
Consequently, we are committed to
developing and maintaining long term strategic
partnerships with community organisations
where we can utilise our networks, resources
A key part of Thorn’s philosophy
is in providing optimum service
to customers to ensure they
get a “fair go”, particularly
those people who may have
encountered difficulties in their
lives and need assistance to
obtain basic household items.
and expertise to create mutual benefit. As
part of our commitment, staff are encouraged
to participate in community activities along
with Thorn providing direct financial support
including matching staff donations dollar for
dollar for approved activities.
Two of the major initiatives supported by
Thorn are the Children’s Tumour Foundation of
Australia and Project New Dawn.
14
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Right: The Melbourne
Radio Rentals team
slogged it out to raise
money for the Children’s
Tumour Foundation.
15
our community
CHILDREN’S TuMouR FouNDATIoN oF
AuSTRALIA
The Children’s Tumour Foundation and NF
Australia have as their objectives the funding
of research to find a cure for Neurofibromatosis
(NF) and the support of people affected by NF.
If you said “Neuro-what?” you are not alone.
Although NF affects one in every 3,000 births,
and more people/kids have NF than Cystic
Fibrosis, Duchenne Muscular Dystrophy,
Tay Sachs Disease and Huntington’s disease
combined – it is relatively unknown. In a
nutshell, NF is a genetic disorder that causes
tumours to grow on the nerves throughout
the body. Every nerve cell in a child’s body
has the potential to become a tumour causing
blindness, deafness, bone deformities, learning
disabilities and severe chronic pain. NF is a
lifetime condition, and there is no cure.
Radio Rentals/Rentlo is the major sponsor of
The Children’s Tumour Foundation and Thorn
Corporate along with other divisions are
lending their support. Importantly, sponsorship
activities are tangible and many involve direct
store and local community participation.
PRoJECT NEW DAWN
Radio Rentals/Rentlo is also proud to be a
founding partner in Project New Dawn which
was created as an enterprise that could offer
both jobs and accommodation to the homeless.
The core partners are The Salvation Army
(accommodation management and personal
coaching), Radio Rentals (white goods and
furniture), BP (rental guarantee, training and
employment opportunities), Clayton utz
(client funding) and Bunnings (employment
and housing). Participants selected for the
project receive 12-18 months of employment
and housing. With a stable source of income,
participants pay their own rent and utilities
which gives them a suitable rental history
acceptable to other landlords when they
graduate from the program.
The first house went live in 2008 in Melbourne
and there are now six houses across Australia;
three in Melbourne and one each in Newcastle,
Perth and Brisbane. Since 2008, 42 people
have been recruited nationally and roughly half
of those selected have stayed on or graduated
from the program. The project aims to have
30-40 properties Australia wide, giving 60-80
16
homeless men and women the opportunity to
get off the street and into regular employment.
According to Major Brendan Nottle of The
Salvation Army, it remains the only programme
of its kind in Australia.
NATuRAL DISASTER
When disaster strikes across Australia, such
as the Victorian Bushfires and Queensland
Floods or there is a worthwhile cause needing
assistance, then there is a good chance that
someone from Thorn will be there to assist
our customers and the community in general.
over the years assistance has been provided
in various forms, including the loan of bedding
and refrigerators for relief centres, three
month goodwill credits on customer accounts
and donation of products for fundraising.
ENVIRoNMENT
As an importer of product under the Thorn
brand, the Company is heavily focussed on
integrating environmental considerations
into our purchasing and supply strategies.
Thorn is also a member of the Australia
New Zealand Recycling Platform (ANZRP),
which has responsibility for recycling end of
life televisions.
HEALTH AND SAFETY
Thorn also recognises its responsibility to
provide a safe environment for our people, our
customers and others who come into contact
with our business. our Health and Safety
program is regularly reviewed and our Regional
Safety Teams provide two way feedback on
managing potential hazards and best practices.
goVERNMENT AND INDuSTRY
As a market leader, Thorn also believes it has
an important role to play in having a pro-active
relationship with government bodies in crafting
and reviewing legislation and regulations. Thorn
is an active member of the Australian Finance
Conference (AFC) and Australian Equipment
Leasing Association (AELA). Thorn has also
provided input and feedback to Federal
Treasury and ASIC in relation to a number of
matters including proposed enhancements to
the National Consumer Credit Protection Act
and enforcement of current regulations.
ultimately Thorn’s objective is to create
a positive working environment where
everyone can feel fulfilled about the work
they do and the contribution Thorn as a whole
is making to society.
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Providing
a Positive Working
environment for
our People
Providing
support for
the community
• Children’s
Tumour Foundation
Sponsorship
• Project New Dawn
• Local Activities
Providing
Optimum service
for our customers
• Responsible Lending &
Rental Policy
• The “Mum Test”
• New Hardship Policy
Health, safety and
environmental
Responsibility
contributing
to Legislative
and Regulatory
Improvement
17
Thorn’s 2013 Csr FoCus AreAs For the year ended 31 March 2013
Financial Summary
In thousands of AuD
Revenue
Profit before income tax
Income tax expense
Profit for the period
BALANCE SHEET
In thousands of AuD
assets
Cash and cash equivalents
Trade and other receivables
total current assets
Trade and other receivables
Deferred tax assets
Property, plant and equipment
Rental assets
Intangible assets
total non-current assets
total assets
Liabilities
Trade and other payables
Employee benefits and provisions
Income tax payable
total current liabilities
Loans and borrowings
Employee benefits and provisions
total non-current liabilities
total liabilities
Net assets
equity
Issued capital
Reserves
Retained earnings
total equity
2013
203,203
40,788
2012
188,351
40,191
(12,767)
(12,342)
28,021
27,849
2013
2012
4,871
58,463
63,334
67,139
2,898
7,163
52,929
27,893
5,870
45,540
51,410
44,759
5,525
5,398
48,478
29,719
158,022
221,356
133,879
185,289
26,117
5,221
4,520
35,858
28,900
1,225
30,125
65,983
23,415
4,923
1,260
29,598
14,000
1,480
15,480
45,078
155,373
140,211
95,483
2,769
57,121
93,898
2,557
43,756
155,373
140,211
Disclaimer: This financial summary is an edited extract from the 2013 financial statements and is provided for information purposes only. Complete audited financial
statements including all explanatory notes, are available in the Investor Centre section at www.thorn.com.au
18
For the year ended 31 March 2013
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
STATEMENTS oF CASH FLoWS
In thousands of AuD
cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest paid
Interest received
Income tax paid
Net cash from operating activities
cash flows from investing activities
Proceeds from sale of assets
Acquisition of property, plant and equipment and software
Acquisition of rental assets
Thorn Equipment Finance settlements
Net cash used in investing activities
cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from the issue of ordinary shares
Dividends paid
Net cash from / (used in) financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 April
cash and cash equivalents at 31 March
2013
2012
222,660
200,048
(120,612)
(114,363)
102,048
(1,807)
260
85,685
(1,587)
355
(7,173)
(12,695)
93,328
71,758
1,126
(3,658)
(60,463)
(33,161)
1,050
(3,335)
(54,834)
(12,916)
(96,156)
(70,035)
18,900
3,000
(4,000)
(25,000)
-
(13,071)
1,829
(999)
5,870
4,871
29,381
(12,272)
(4,891)
(3,168)
9,038
5,870
REMuNERATIoN SuMMARY
In AuD
Non-executive Directors
David carter
Peter Henley
Paul Lahiff
Joycelyn Morton
executive Directors
John Hughes
total directors
remuneration
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Short-term
Salary & fees
$
STI cash
bonus
$
Non-monetary
benefits
$
Total
$
Post-employment
Superannuation
benefits
$
Share-based
payments
options
and rights
$
147,500
117,538
72,577
74,654
77,346
72,154
89,539
34,615
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
147,500
117,538
13,275
10,578
72,577
74,654
77,346
72,154
89,539
34,615
6,532
6,719
6,961
6,494
8,059
3,115
–
–
–
–
–
–
–
–
Total
$
160,775
128,116
79,109
81,373
84,307
78,648
97,598
37,730
591,025 200,000
192,250
593,999
977,987 200,000
192,250
892,960
3,556
1,597
3,556
1,597
794,581
787,846
1,181,543
1,086,807
16,283
15,469
51,110
42,375
108,793
159,574
108,793
159,574
919,657
962,889
1,341,446
1,288,756
Disclaimer: This financial summary is an edited extract from the 2013 financial statements and is provided for information purposes only. Complete
audited financial statements including all explanatory notes, are available in the Investor Centre section at www.thorn.com.au
19
For the year ended 31 March 2013
Four year
performance summary
In thousands of AuD
Operating Performance
Total revenue
Normalised net profit (before significant items)
Significant items
Reported net profit
operating cash flow
Capital expenditure – rental assets
Balance sheet structure
Total assets
Capital employed
Equity
Net debt
Per share Performance
Number of shares
Weighted average number of shares – basic
Weighted average number of shares – diluted
Basic earnings per share
Diluted earnings per share
Share price at year end
Dividend per share
Dividend payout ratio
financial Ratios
Interest cover based on EBITA
Net debt to equity
Debt to equity
2013
2012
2011
2010
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
m
m
m
cents
cents
cents
cents
%
x
%
%
203.2
28.0
–
28.0
93.3
60.5
221.4
179.4
155.4
24.0
147.6
146.6
146.8
19.11
19.09
2.06
10.50
55
24.4
15.4
18.6
188.4
27.8
–
27.8
71.6
54.8
185.3
148.4
140.2
8.2
146.4
144.7
146.5
19.24
19.01
1.57
9.50
50
27.2
6.0
10.0
157.6
23.0
(1.0)
22.0
68.4
52.6
171.8
122.0
95.0
27.0
129.9
130.8
132.0
16.84
16.69
2.19
8.49
50
53.1
28.4
37.8
145.1
16.4
3.1
19.5
57.9
47.5
117.9
81.8
81.8
–
129.4
128.9
129.5
15.12
15.06
1.12
6.32
50
35.7
0.0
7.3
Disclaimer: This financial summary is an edited extract from the 2013 financial statements and is provided for information purposes only. Complete audited financial
statements including all explanatory notes, are available in the Investor Centre section at www.thorn.com.au
20
THoRN gRouP LIMITED 2013 SHAREHoLDER REVIEW
Corporate Directory
Directors
David Carter
Chairman
John Hughes
Managing Director
Paul Lahiff
Non-Executive Director
Peter Henley
Non-Executive Director
Joycelyn Morton
Non-Executive Director
company secretary
Peter Eaton
Registered office
Thorn group Limited
Level 1
47 Rickard Road
Bankstown NSW 2200
www.thorn.com.au
Telephone:
+61 2 9101 5000
Facsimile:
+61 2 9101 5033
auditor to thorn Group Limited
kPMg
10 Shelley Street
Sydney NSW 2000
Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000
Designed and produced by FCR
www.fcr.com.au
thorn.com.au
2013 FIN A NCI A L REPORT
MOMENTUM
FOR GROW TH
rentlo For the year ended 31 March 2013
Thorn Group Limited and its Controlled Entities
ACN 072 507 147
Directors’ report
Contents
01
21
22
23
24
25
26
52
53
55
56
Directors’ report
Lead auditor’s independence declaration
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
Additional ASX information
Corporate directory
Notice of meeting
Notice is hereby given that
the Annual General Meeting will
be held at Four Points by Sheraton,
161 Sussex Street Sydney on
22 August 2013, commencing
at 11:00am.
The directors present their report together with the financial
report of Thorn Group Limited (the ‘Company’) and its
controlled entities (together referred to as the ’consolidated
entity’) for the financial year ended 31 March 2013 and the
auditor’s report thereon.
Contents of directors’ report
Page Note
01
02
02
02
02
04
04
04
08
10
11
13
14
15
16
17
17
18
18
18
19
19
19
19
19
20
20
20
1 Directors
2 Company secretary
3 Directors’ meetings
4 Corporate governance statement
4.1 Board of directors
4.2 Remuneration and Nomination Committee
4.3 Remuneration report – audited
4.3.1 Principles of remuneration
4.3.2 Directors’ and executive officers’
remuneration – audited
4.3.3 Analysis of bonuses included
in remuneration – unaudited
4.3.4 Equity Instruments
4.4 Audit, Risk and Compliance Committee
4.5 Risk management
4.6 Ethical standards
4.7 Communication with shareholders
5
Principal activities
5.1 Operating and financial review
5.2 Shareholder returns
5.3 Review of financial information
6 Dividends
7
8
Events subsequent to reporting date
Likely developments
9 Directors’ interests
10 Performance rights
11
Indemnification and Insurance of Officers
and Auditors
12 Non-audit services
13 Lead auditor’s independence declaration
14 Rounding off
THORN GROUP LIMITED 2013 FINANCIAL REPORT
1. Directors
The directors of the Company at any time during or since the end of the financial year are:
Name and independence status
Experience, special responsibilities, qualifications and other directorships
David Carter
Chairperson
Independent
Non-Executive Director
Appointed:
3 November 2006
John Hughes
CEO and
Managing Director
Appointed:
3 November 2006
Peter Henley
Independent
Non-Executive Director
Appointed:
21 May 2007
Paul Lahiff
Independent
Non-Executive Director
Appointed:
21 May 2007
Joycelyn Morton
Independent
Non-Executive Director
Appointed:
1 October 2011
David Carter is a lawyer and corporate advisor who was previously a partner of a major
international law firm. David currently runs his own legal and corporate advisory practice. David
has significant experience in corporate governance, M&A, commercial and international law.
He has been a board member of a number of ASX listed companies and is currently a director
of Glutagen Pty Ltd an early stage biotech. David holds a Bachelor of Economics, Bachelor
of Law (Hons), Masters of Law, and a Bachelor of Civil Law (Oxon). David is a Member of the
Australian Institute of Company Directors. David was appointed Chairperson on 1 October 2011.
Prior to joining the Company, John was Managing Director of ASX listed Ruralco Holdings
Limited until its merger with Tasmanian based Roberts Limited in 2006. He was previously
Managing Director of Thorn EMI Rentals Australasia (“Thorn”) and led the reshaping of that
company into a highly successful consumer electronics and financial services organisation.
He was previously Managing Director of Dominos Pizza Australia and has over 35 years
experience as a senior executive in a number of leading Australian and international companies
including Sharp Corporation, Competitive Foods and Grace Bros. John holds a Bachelor of
Commerce degree from the University of New South Wales, is Chairman of NF Australia and
a Fellow of the Australian Institute of Company Directors.
Peter Henley has had a long and distinguished career in financial services generally and in
consumer and commercial finance in particular, having held senior management positions
with AGC, Nissan Finance and most recently GE Money. Peter is a non-executive director and
member of the Audit and Risk Committee of the ASX listed AP Eagers Limited (from 2006).
Peter is also non-executive director, deputy chairman of MTA Insurances Ltd and Chairman
of their investment committee. Peter is a Fellow of the Australian Institute of Management.
He has also been Chairman of GE Motor Solutions Australia and a director GE Money, Singapore
and Malaysia.
Paul Lahiff is Chairman of LIXI Pty Ltd, a Director of the Cancer Council NSW and operates his
own consultancy firm specialising in financial services strategy. He has over 30 years experience
in the financial services industry including roles as Managing Director of the ASX listed
Mortgage Choice (from 2003 to 2009), Permanent Trustee, Heritage Building Society and
WD Scott, as well as senior executive roles with Westpac Banking Corporation (in Sydney and
London) and the credit union sector.
Paul holds a Bachelor of Science Degree from University of Sydney and is a Fellow of the
Financial Services Institute of Australia (FINSIA) and is a member of the Australian Institute
of Company Directors (AICD).
Joycelyn Morton has extensive business experience in Australia and internationally, as well
as having held senior positions in the accounting profession. She is a non-executive director
of ASX listed companies Argo Investments Limited, Chair of Noni B Limited and unlisted
company Snowy Hydro Limited. Joycelyn has also been a Board Member of other ASX listed
companies. Joycelyn began her career with Coopers & Lybrand (now PwC), before joining
Woolworths Limited and later the Shell Group in Australia and the Netherlands.
Joycelyn is a director of the Divisional Board of the Business School of the University of Sydney.
She was Australia’s representative from 2005 – 2011 of the global professional body, the
International Federation of Accountants. Joycelyn holds a Bachelor of Economics Degree from
the University of Sydney, is a Life Member and Fellow of CPA Australia, a Fellow of the Institute
of Chartered Accountants in Australia, the Australian Institute of Company Directors and
Chartered Secretaries Australia.
1
Directors’ report for the year ended 31 March 2013 (continued)
2. Company Secretary
Peter Eaton joined the Company in 1999 and was the Company’s Finance Manager before assuming the role of Group Financial Controller
in 2005 and the positions of Chief Financial Officer and Company Secretary in August 2006. Peter has a detailed understanding of the
business and its drivers. Peter’s role encompasses Finance, Information Technology and Risk Management. Peter holds a Bachelor of
Commerce degree from the University of Western Sydney and is a member of CPA Australia.
3. Directors’ Meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the
directors of the Company during the financial year are detailed below.
Director
John Hughes
David Carter
Peter Henley
Paul Lahiff
Joycelyn Morton
Board Meetings
Audit Risk and Compliance
Committee Meetings
Remuneration and
Nomination Committee
Meetings
A
13
13
13
13
13
B
13
13
13
13
13
A
5
5
4
5
5
B
5
5
5
5
5
A
2
3
3
3
3
B
3
3
3
3
3
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
Mr Hughes was not a member of the Audit Risk and Compliance Committee or the Remuneration and Nomination Committee but
attended the meetings by invitation.
Ms Morton was not a member of the Remuneration and Nomination Committee but attended all meetings by invitation.
Mr Henley was not a member of the Audit Risk and Compliance Committee but attended the meetings by invitation.
4. Corporate Governance Statement
This statement outlines the main corporate governance practices in place throughout the financial year, which comply with the ASX
Corporate Governance Council recommendations, unless otherwise stated.
4.1 Board of Directors
Role of the Board
The Board’s primary role is the protection and enhancement of long-term shareholder value.
To fulfil this role, the Board is responsible for the overall corporate governance of the Company including formulating its strategic
direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for
directors and senior executives, establishing and monitoring the achievement of management’s goals and ensuring the integrity of risk
management, internal control, legal compliance and management information systems. It is also responsible for approving and monitoring
financial and other reporting.
In order to ensure that the Board functions and responsibilities are clearly identified, the Company has adopted a formal Board Charter.
A copy of the Board Charter is located on the Company’s website (www.thorn.com.au).
The Board has delegated responsibility for operation and administration of the Company to the Managing Director and executive
management. Responsibilities are delineated by formal authority delegations.
Board Processes
To assist in the execution of its responsibilities, the Board has established an Audit, Risk and Compliance Committee and a Remuneration
and Nomination Committee. These committees have written mandates and operating procedures, which are reviewed on a regular basis.
2
THORN GROUP LIMITED 2013 FINANCIAL REPORT
The Board has also established a framework for the management of the Company including a system of internal control, a business risk
management process and the establishment of appropriate ethical standards.
The full Board currently holds scheduled meetings each year, 10-14 per annum, plus strategy meetings and any extraordinary meetings
at such other times as may be necessary to address any specific significant matters that may arise. The Board Charter requires the full
Board to meet at least once per year to review the performance of the directors, committees, and senior executives, as well as, the
relationship between the Board and management and matters of general corporate governance.
The agenda for Board meetings is prepared in conjunction with the Chairperson, Managing Director and Company Secretary. Standing
items include the divisional report, finance report, strategic matters, governance and compliance. Submissions are circulated in advance.
Executives are regularly involved in Board discussions and directors have other opportunities, including visits to business operations,
for contact with a wider group of employees.
Director and Executive Education
The Company has a formal process to educate new directors about the nature of the business, current issues, the corporate strategy,
the culture and values of the Company, and the expectations of the Company concerning performance of directors. In addition, Directors
are also educated regarding meeting arrangements and director interaction with each other, senior executives and other stakeholders.
Directors also have the opportunity to visit the Company’s facilities and meet with management to gain a better understanding of
business operations. Directors are given access to continuing education opportunities to update and enhance their skills and knowledge.
The Company also has a formal process to educate new senior executives upon taking such positions. The induction program includes
reviewing the Company structure, strategy, operations, financial position and risk management policies. It also familiarises the individual
with the respective rights, duties, responsibilities and roles of the individual and the Board.
Independent Professional Advice and Access to Company Information
Each director has the right of access to all relevant Company information and to the Company’s executives and, subject to prior
consultation with the Chairperson, may seek independent professional advice from a suitably qualified adviser at the Company’s expense.
The director must consult with an advisor suitably qualified in the relevant field, and obtain the Chairperson’s approval of the fee payable
for the advice before proceeding with consultation. A copy of the advice received by the director is made available to all other members
of the Board.
Composition of the Board
The names of the directors of the Company in office at the date of this report, specifying which are independent, are set out on page 1
of this report. The composition of the Board is determined using the following principles:
– a minimum of three directors, with a broad range of expertise both nationally and internationally;
– a majority of independent non-executive directors;
– a majority of directors having extensive knowledge of the Company’s industries, and/or extensive expertise in significant aspects
of auditing and financial reporting, or risk management of large companies;
– a non-executive independent director as Chairperson;
– enough directors to serve on various committees without overburdening the directors or making it difficult for them to fully
discharge their responsibilities; and
– directors are subject to re-election every three years (except for the Managing Director).
The Board considers the mix of skills and diversity of Board members when assessing the composition of the Board. The Board assesses
existing and potential directors’ skills to ensure they have appropriate industry expertise in the Company’s operating segments.
The Board considers the diversity of existing and potential directors to ensure they are in line with the geographical and operational
segments of the Company. The Board’s policy is to seek a diverse range of directors who have a range of ages, genders and ethnicity
which mirrors the environment in which the Company operates.
An independent director is a director who is not a member of management (a non-executive director) and who:
1. holds less than five per cent of the voting shares of the Company and is not an officer of, or otherwise associated, directly
or indirectly, with a shareholder of more than five per cent of the voting shares of the Company;
2. has not within the last three years been employed in an executive capacity by the Company or a related body corporate or has
become a director within three years of ceasing to hold any such employment;
3
Directors’ report for the year ended 31 March 2013 (continued)
3. within the last three years has not been a principal of a material professional adviser or a material consultant to the Company
or another Company member or an employee materially associated with the service provided;
4.
is not a material supplier or customer of the Company or another member of the consolidated entity, or an officer of or otherwise
associated, directly or indirectly, with a material supplier or customer;
5. has no material contractual relationship with the Company or a related body corporate other than as a director of the Company; and
6.
is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere
with the director’s ability to act in the best interests of the Company.
The Board considers, ‘material’, in this context, to be where any director-related business relationship has represented, or is likely in
future to represent the lesser of at least ten per cent of the relevant segment’s or the director-related business’ revenue. The board
considered the nature of the relevant industries’ competition and the size and nature of each director-related business relationship,
in arriving at this threshold.
Applying these criteria, the Board is satisfied that David Carter, Paul Lahiff, Peter Henley and Joycelyn Morton are independent. In
accordance with the ASX Corporate Governance Guidelines, the Chairperson is an independent director, and the positions of Managing
Director and Chairperson are held by different directors.
4.2 Remuneration and Nomination Committee
The Remuneration and Nomination Committee has a documented charter, approved by the Board. All members are non-executive
directors with a majority being independent. The Remuneration and Nomination Committee assists the Board in its oversight
responsibilities by monitoring and advising on:
– remuneration packages of senior executives, non-executive directors and executive directors;
– share option schemes and incentive performance packages;
– executive contracts;
– recruitment, retention and termination policies relating to the Board and senior executives; and
– monitoring the size and composition of the Board.
The members of the Remuneration and Nomination Committee during the year were:
– David Carter (Chairperson) – Independent, Non-Executive
– Peter Henley – Independent, Non-Executive
– Paul Lahiff – Independent, Non-Executive
Joycelyn Morton, Independent Non-Executive Director, was invited to Remuneration and Nomination Committee meetings during the
year. Joycelyn Morton became a member of the Remuneration and Nomination Committee on 1 April 2013.
The Managing Director, John Hughes, is also invited to Remuneration and Nomination Committee meetings, as required, to discuss senior
executives’ performance and remuneration packages but does not attend meetings involving matters pertaining to him.
From time to time, the Committee takes advice from external consultants to identify potential candidates for the Board. The Committee
makes recommendations to the Board on the candidates, which votes on them. The Board then appoints the most suitable candidates.
Board candidates must stand for election at the general meeting of shareholders immediately following their appointment. No consultancy
fees were incurred in this regard during the financial year.
The terms and conditions of the appointment and retirement of non-executive directors are set out in a letter of appointment, including
expectations of attendance and preparation for all Board meetings, minimum hourly commitment, appointments to other boards, the
procedures for dealing with conflicts of interest and the availability of independent professional advice.
The Remuneration and Nomination Committee meets three times a year and as required. The Committee met three times during the year
and Committee members’ attendance record is disclosed in the table of directors’ meetings on page 2.
4.3 Remuneration Report – Audited
4.3.1 Principles of remuneration
Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and
the consolidated entity, including directors of the Company and other executives. Key management personnel comprise the directors
of the Company and executives for the Company and the consolidated entity.
4
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Remuneration levels for key management personnel and the secretary of the Company and the consolidated entity are competitively
set to attract and retain appropriately qualified and experienced directors and executives. Independent advice is obtained on the
appropriateness of remuneration packages of both the Company and the consolidated entity given trends in comparative companies
both locally and internationally and the objectives of the Company’s remuneration strategy.
The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic
objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account:
– the capability and experience of the key management personnel;
– the key management personnel’s ability to control the relevant performance; and
– the consolidated entity’s performance including:
–
–
–
the consolidated entity’s earnings;
the growth in share price and delivering constant returns on shareholder wealth; and
the amount of incentives within each key management person’s compensation.
Remuneration packages include a mix of fixed and variable remuneration and short and long-term performance-based incentives.
Fixed Remuneration
Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to
employee benefits including motor vehicles), as well as employer contributions to superannuation funds.
Remuneration levels are reviewed annually by the Remuneration and Nomination Committee through a process that considers individual
and overall performance of the consolidated entity. In addition external consultants provide analysis and advice to ensure the directors’
and senior executives’ remuneration is competitive in the market place. A senior executive’s remuneration is also reviewed on promotion.
Services From Remuneration Consultants
The Remuneration and Nomination Committee engaged Executive Research Services (ERC) as remuneration consultant to the Board
to review the amounts and elements of the key management personnel remuneration and provide recommendations in relation thereto.
Consultant fees incurred totalled $15,400 for the financial year.
The Board is satisfied that the remuneration recommendations were made by ERC free from undue influence by members of the key
management personnel about whom the recommendations may relate.
Performance Linked Remuneration
Performance linked remuneration includes both short-term incentives and long-term incentives and is designed to reward key
management personnel for meeting or exceeding their financial and personal objectives. The short-term incentive (STI) is an “at risk”
bonus provided in the form of cash, while the long-term incentive (LTI) is provided as performance rights over ordinary shares of Thorn
Group Limited under the rules of the Performance Rights Plan.
Short-Term Incentive
Each year, the Board sets key performance indicators (KPIs) for the key management personnel. The KPIs generally include measures
relating to the consolidated entity, the relevant segment, and the individual, and may include financial, people, customer, strategy and
risk measures. The measures are chosen as they directly align the individual’s reward to the KPIs of the consolidated entity and to its
strategy and performance.
The financial performance objective for 2013 is ‘profit after tax’ as compared to the budgeted amount. The non-financial objectives
vary with position and responsibility and include measures such as achieving strategic outcomes, safety, customer satisfaction and
staff development.
At the end of the financial year, the Remuneration and Nomination Committee assesses the actual performance of the consolidated
entity, and individual against the KPI’s set at the beginning of the financial year. In determining the bonus pool, a percentage of the
pre-determined maximum amount is awarded depending on results, between 30 percent for minimum performance and 100 percent
for stretch performance. The pre-determined maximum amount is the base salary at the balance date. Individual performance is then
assessed against KPI’s set at the beginning of the financial year to determine how much of the bonus pool is payable. The performance
evaluation in respect of the year ended 31 March 2013 has taken place in accordance with this process.
The Remuneration and Nomination Committee recommends the cash incentive to be paid to the individuals for approval by the Board.
The method of assessment was chosen as it provides the committee with an objective assessment of the individual’s performance.
5
Directors’ report for the year ended 31 March 2013 (continued)
Long-Term Incentive
The Company has a long-term incentive plan in the form of performance rights. The plan is directly linked to criteria that relate to the
performance of the Company, to ensure appropriate alignment to shareholder value over a specified time frame. Performance rights
provide the right to receive shares only if and when particular performance based hurdles are achieved. The holders of the performance
rights are entitled to receive one ordinary share per performance right.
Performance Rights Plan: 2010 Invitation Performance Hurdle
The performance hurdle for instruments granted under the long-term incentive plan 2010 invitation is the company’s total shareholder
return (“TSR”) performance measured against 20 comparable ASX listed securities.
Where the Company’s TSR performance is rated below the 50th percentile, no performance rights vest. Staggered vesting occurs if the
company is ranked at or above the 50th percentile until the 90th percentile, when 100% of the rights vest.
Performance Rights Plan: 2012 Invitation Performance Hurdles
There are two performance hurdles for the instruments granted under the long-term incentive plan 2012 invitation.
Performance hurdle 1
The average Return on Capital Employed (“ROCE”) for the measurement period must be equal to or greater than 20%. No performance
rights vest when ROCE is below 20%.
Performance hurdle 2
The company’s TSR performance measured against 30 comparable ASX listed securities.
Where the Company’s TSR performance is rated below the 50th percentile, no performance rights vest. Staggered vesting occurs if the
Company is ranked at or above the 50th percentile until the 90th percentile, when 100% of the rights vest.
In the event that a participant’s employment is terminated, any unvested performance rights will lapse.
The TSR performance criteria was chosen as it is widely accepted as one of the best indicators of shareholder wealth criterion as it
includes share price growth, dividends and other capital adjustments.
The ROCE performance criteria was chosen as it is a key indicator of the quality and efficiency of the returns the consolidated entity
is achieving and is aligned to shareholder wealth.
In assessing whether the performance criteria have been met, the Board will obtain performance data which provides the Company’s
and comparative companies’ TSR performance. The Board will use the audited ROCE for the measurement period.
Consequences of Performance on Shareholder’s Wealth
In considering the consolidated entity’s performance and benefits for shareholder’s wealth, the Board have regard to the following
indices in respect of the current financial year and the four previous financial years.
Profit attributable to owners of the Company
$28,021,000 $27,849,000 $22,038,000 $19,495,000 $12,320,000
Dividends paid
Change in share price
Return on capital employed1
$14,656,000 $12,272,000
$9,464,000
$7,059,000
$5,594,000
0.49
24.78%
(0.62)
30.34%
1.07
0.63
35.02%
30.72%
(0.06)
25.83%
2013
2012
2011
2010
2009
1 Calculated as total earnings before interest and tax divided by the average capital employed.
Profit is considered as one of the financial performance targets in setting the STI plan. Dividends and changes in share price are included
in the TSR calculation which is the key performance criteria assessed for the LTI plan. In addition, return on capital employed is used
as a key performance hurdle under the 2012 LTI invitation. The overall level of key management personnel’s compensation takes into
account the performance of the consolidated entity over several years.
In relation to share based payments offered as part of remuneration, the Company prohibits entering into arrangements to limit
exposure to losses that would result from share price decreases.
6
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Other Benefits
Key management personnel can receive additional non-cash benefits, as part of the terms and conditions of their appointment.
Non-cash benefits typically include motor vehicles, payment of telephone bills and similar benefits. The consolidated entity pays fringe
benefits tax on these benefits. The consolidated entity does not provide retirement benefits to any of the directors or executives, other
than statutory superannuation.
Service Contracts
John Hughes, Managing Director, has a contract of employment dated 15 May 2013 with the Company, with an expiry date
31 March 2015. The contract specifies the duties and obligations to be fulfilled by the Managing Director and provides that the Board
and Managing Director will early in each financial year, consult and agree objectives for achievement during that year.
At any time the service contract can be terminated either by the Company or John Hughes providing six months’ notice. The Company
may make a payment in lieu of notice of six months, equal to six months of base salary. On termination of John Hughes’ employment,
he is entitled to a termination payment of $300,000 and is subject to various non-compete obligations for a period of six months.
The Managing Director has no entitlement to a termination payment in the event of removal for misconduct.
This payment represents market practice at the time the terms were agreed.
Peter Eaton, Company Secretary, has a contract of employment dated 4 December 2006 with the Company, with no specific expiry
date. This contract is capable of termination on three months’ notice plus any amounts payable under the Company’s redundancy policy.
The Company Secretary has no entitlement to a termination payment in the event of removal for misconduct.
The consolidated entity has entered into service contracts with all other key management persons that are unlimited in term but
capable of termination on four to twelve weeks notice. The consolidated entity retains the right to terminate a contract immediately
by making payment equal to four weeks to twelve weeks pay in lieu of notice. The key management personnel are also entitled
to receive on termination of employment their statutory entitlements of accrued annual and long service leave, together with any
superannuation benefits.
The service contract outlines the components of remuneration paid to the key management person but does not prescribe how
remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost-of-living changes,
any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the
remuneration policy.
Non-Executive Directors
Total remuneration for all non-executive directors, last voted upon by shareholders at the 2010 AGM, is not to exceed $550,000
per annum and is set based on advice from external advisors with reference to fees paid to other non-executive directors of
comparable companies.
The Chairperson’s fee is presently $166,000 (2012: $140,000) and Directors’ fees are presently up to $83,000 per annum
(2012: $70,000). Fees presently cover all main Board and Committee activities. The Chairperson of the Audit, Risk and Compliance
Committee receives an additional fee of $15,000 per annum.
In 2012, Directors’ fees covered all main Board activities. Additional Committee fees were paid. $5,000 was paid to members of the
Audit Risk and Compliance Committee and $15,000 to the Chairperson. $2,500 was paid to members of the Remuneration and
Nomination Committee.
Non-executive directors do not receive performance-related remuneration and do not participate in employee share based
payment schemes.
7
Directors’ report for the year ended 31 March 2013 (continued)
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THORN GROUP LIMITED 2013 FINANCIAL REPORT
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Directors’ report for the year ended 31 March 2013 (continued)
1 The remuneration for Joycelyn Morton for 2012 reflects remuneration during the period from 1 October 2011, the date of her appointment.
2 The remuneration for Antoine Laval for 2012 reflects remuneration during the period from 9 May 2011, the date of his appointment.
3 The remuneration for Brenton Glaister for 2012 reflects the remuneration during the period from 15 March 2012, the date of his promotion.
4 The remuneration for Richard Shepherd for 2013 reflects remuneration during the period from 20 November 2012, the date of his appointment.
5 The remuneration for Andrea Rooke for 2013 reflects remuneration during the period to 27 July 2012, the date of her resignation.
Notes in relation to the Table of Directors’ and Executive Remuneration
A. The short term incentive bonus for 2013 is for performance during the financial year.
B. Non-monetary benefits as disclosed in both tables includes cost of providing a motor vehicle and any fringe benefits tax
attributable thereto.
C. The fair value of the performance rights is calculated at the date of grant using a Monte Carlo simulation model and allocated to
each reporting period evenly over the period from grant date to the expected vesting date. The value disclosed is the portion of
the fair value of the performance rights allocated to this reporting period. In valuing the performance rights, market conditions have
been taken into account. The following factors and assumptions were used in determining the fair value of performance rights at
grant date.
Grant Date
Initial Test Date Expiry Date
1 April 2010
15 Dec 2010
15 May 2013
1 April 2010
15 Dec 2011
15 May 2013
1 April 2010
15 Dec 2012
15 May 2013
7 Dec 2012
1 June 2015
31 Dec 2017
7 Dec 2012
1 June 2016
31 Dec 2017
7 Dec 2012
1 June 2017
31 Dec 2017
Fair Value Per
Performance
Right
Exercise
Price
Price of
Shares on
Grant Date
Expected
Volatility
Risk Free
Interest Rate
Dividend
Yield
$0.85
$0.77
$0.69
$1.40
$1.28
$1.15
Nil
Nil
Nil
Nil
Nil
Nil
$1.085
$1.085
$1.085
$1.910
$1.910
$1.910
48.4%
48.4%
48.4%
32.0%
32.0%
32.0%
5.2%
5.2%
5.2%
2.7%
2.7%
2.7%
8.2%
8.2%
8.2%
6.0%
6.0%
6.0%
4.3.3 Analysis of bonuses included in remuneration
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company and
key management personnel are detailed below.
Directors
John Hughes
Executives
Peter Eaton
James Marshall
Ian Scott
Antoine Laval
Brenton Glaister
Richard Shepherd
Short Term Incentive Bonus
Included In
Remuneration
$(a)
% Vested
In Year
% Forfeited
In Year(b)
200,000
105,000
93,000
72,000
31,000
25,000
28,000
32%
34%
33%
31%
15%
12%
12%
68%
66%
67%
69%
85%
88%
88%
(a) Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on achievement of personal
goals and satisfaction of specified performance criteria.
(b) The amounts forfeited are due to the performance or service criteria not being fully met in relation to the current year.
10
4.3.4 Equity Instruments
Performance rights granted as compensation in the year
Director
John Hughes
Executive
Peter Eaton
James Marshall
Ian Scott
Antoine Laval
Brenton Glaister
Performance Rights Granted
Number
Date
189,873
7 Dec 2012
189,873
7 Dec 2012
189,874
7 Dec 2012
63,291
7 Dec 2012
63,291
7 Dec 2012
63,291
7 Dec 2012
63,291
7 Dec 2012
63,291
7 Dec 2012
63,291
7 Dec 2012
37,975
7 Dec 2012
37,975
7 Dec 2012
37,974
7 Dec 2012
37,975
7 Dec 2012
37,975
7 Dec 2012
37,974
7 Dec 2012
37,975
7 Dec 2012
37,975
7 Dec 2012
37,974
7 Dec 2012
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Financial Years In
Which Grant Vests
Values Yet To Vest
$
Min(a)
Max(b)
2015 – 2018
2016 – 2018
2017 – 2018
2015 – 2018
2016 – 2018
2017 – 2018
2015 – 2018
2016 – 2018
2017 – 2018
2015 – 2018
2016 – 2018
2017 – 2018
2015 – 2018
2016 – 2018
2017 – 2018
2015 – 2018
2016 – 2018
2017 – 2018
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
11
Directors’ report for the year ended 31 March 2013 (continued)
Analysis of performance rights available for vesting
Details of the performance rights available for vesting to each director of the Company and other key management personnel are
detailed below:
Director
John Hughes
Executive
Peter Eaton
James Marshall
Performance Rights Granted
Values Yet To Vest $
Number
Date
% Vested In
Current Year
% Forfeited In
Year (c)
6,369
1 Apr 2010
101,912
1 Apr 2010
271,763
1 Apr 2010
2,123
1 Apr 2010
33,971
1 Apr 2010
90,588
1 Apr 2010
1,486
1 Apr 2010
23,780
1 Apr 2010
63,411
1 Apr 2010
68.8%
68.8%
68.8%
68.8%
68.8%
68.8%
68.8%
68.8%
68.8%
–
–
–
–
–
–
–
–
–
Financial Years
In Which Grant
Vests
2011 – 2014
2012 – 2014
2013 – 2014
2011 – 2014
2012 – 2014
2013 – 2014
2011 – 2014
2012 – 2014
2013 – 2014
Min(a)
Max(b)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(a) The minimum value of the performance rights to vest is nil as the performance rights criteria may not be met and consequently the performance
rights may not vest.
(b) The maximum value of the performance rights yet to vest is not determinable as it depends on the market price of shares of the Company on the
Australian Securities Exchange at the date the performance rights are exercised.
(c) No performance rights were forfeited in the period. The performance rights that did not vest will be retested at the next vesting date.
Analysis of Movements in Performance Rights
The movement during the reporting period, by value, of performance rights over ordinary shares in Thorn Group Limited held by each
Company director and key management personnel are detailed below:
Value of Performance Rights
John Hughes
Peter Eaton
James Marshall
Ian Scott
Antoine Laval
Brenton Glaister
Granted in year(a)
$
Exercised in year(b)
$
Forfeited in year(c)
$
727,215
242,405
242,405
145,443
145,443
145,443
519,947
173,317
121,320
–
–
–
1,648,354
814,584
–
–
–
–
–
–
–
(a) The fair value of the performance rights is calculated at the date of the grant based upon the Monte Carlo simulation model.
(b) The value of performance rights exercised during the year is calculated as the market price of shares of the Company as at close of trade on the date
the performance rights were exercised. The market price as at the close of trade on 24 December 2012 was $1.99, the date the performance rights
were exercised and ordinary shares were allotted.
(c) The value of the performance rights forfeited during the year is calculated as the market price of the share of the Company as at the close of trade on
the date the performance rights were forfeited.
12
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Performance Rights Over Equity Instruments Granted
The movement during the year in the number of performance rights over ordinary shares in Thorn Group Limited held directly, indirectly
or beneficially, by each key management person, including their related parties is as follows:
John Hughes
Peter Eaton
James Marshall
Ian Scott
Antoine Laval
Brenton Glaister
Held at 1 April
2012
Granted as
Compensation
380,044
126,682
88,677
–
–
–
569,620
189,873
189,873
113,924
113,924
113,924
Exercised
261,280
87,094
60,965
–
–
–
Lapsed during
the year
Held at 31
March 2013
Vested during
the year
–
–
–
–
–
–
688,384
229,461
217,585
113,924
113,924
113,924
261,280
87,094
60,965
–
–
–
4.4 Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee has a documented charter, approved by the Board. The charter is available on the Company’s
website. All members are non-executive directors with a majority being independent. The Chairperson may not be the Chairperson
of the Board. The Audit, Risk and Compliance Committee advises the Board on the establishment and maintenance of a framework
of internal control and appropriate ethical standards for the management of the Company.
The members of the Audit, Risk and Compliance Committee during the year were:
– Joycelyn Morton (Chairperson) – Independent, Non-Executive
– David Carter – Independent, Non-Executive
– Paul Lahiff – Independent, Non-Executive
Peter Henley, Independent Non-Executive Director, was invited to the Audit, Risk and Compliance Committee meetings during the year.
Peter Henley became a member of the Audit, Risk and Compliance Committee on 1 April 2013.
The Company Secretary, Peter Eaton, acts as Secretary to the Committee.
The internal and external auditors, the Managing Director and the Chief Financial Officer are invited to Audit, Risk and Compliance
Committee meetings at the discretion of the Committee. The Committee is required to meet at least twice during the year and
committee members’ attendance record is disclosed in the table of directors’ meetings on page 2.
The external auditor met with the Audit, Risk and Compliance Committee twice during the year without management being present.
The Managing Director and the Chief Financial Officer have declared in writing to the Board that the financial records of the Company
and the consolidated entity for the financial year have been properly maintained, the Company’s financial reports for the financial year
ended 31 March 2013 comply with accounting standards and present a true and fair view of the Company’s financial condition and
operational results. This statement is required annually.
The responsibilities of the Audit, Risk and Compliance Committee include:
– reviewing the annual and half year financial reports and other financial information distributed externally;
– assessing management processes supporting external reporting;
– assessing corporate risk assessment processes;
– assessing the performance and objectivity of the internal audit function;
– establishing procedures for selecting, appointing and if necessary, removing the external auditor;
– assessing whether non-audit services provided by the external auditor are consistent with maintaining the external auditor’s
independence. Each reporting period the external auditor provides an independence declaration in relation to the audit or review;
– providing advice to the Board in respect of whether the provision of the non-audit services by the external auditor is compatible
with the general standard of independence of auditors imposed by the Corporation Act 2001;
– assessing the adequacy of the internal control framework and the Company’s code of ethical standards; and
– organising, reviewing and reporting on any special reviews or investigations deemed necessary by the Board.
13
Directors’ report for the year ended 31 March 2013 (continued)
The Audit, Risk and Compliance Committee reviews the performance of the external auditors on an annual basis and meets with them
during the year to:
– discuss the external audit, identifying any significant changes in structure, operations, internal controls or accounting policies
likely to impact the financial statements and to review the fees proposed for the audit work to be performed;
– review the half-year and preliminary final report prior to lodgement with the ASX, and any significant adjustments required
as a result of the auditor’s findings, and to recommend Board approval of these documents, prior to announcement of results;
– review the draft annual and half-year financial report, and recommend Board approval of the financial report; and
– review the results and findings of the external audit, the adequacy of accounting and financial controls, and to monitor the
implementation of any recommendations made.
4.5 Risk Management
Oversight of the Risk Management System
The Board oversees the establishment, implementation and review of the Company’s Risk Management System. Management has
established and implemented the Risk Management System for assessing, monitoring and managing all risks, including material business
risks, for the consolidated entity (including sustainability risk). The Managing Director and the Chief Financial Officer have provided
assurance, in writing to the Board, that the financial reporting, risk management and associated compliance and controls have been
assessed and found to be operating effectively. The operational and other risk management compliance and controls have also been
assessed and found to be operating effectively.
Risk Profile
Management provide the risk profile on a six monthly basis to the Audit, Risk and Compliance Committee that outlines the material
business risks to the Company. Risk reporting includes the status of risks through integrated risk management programs aimed at
ensuring risks are identified, assessed and appropriately managed. The Audit, Risk and Compliance Committee reports the status
of material business risks to the Board on a regular basis.
Material business risks for the Company may arise from such matters as actions by competitors, government policy changes, the impact
of exchange rate movements on the price of products and sales, difficulties in sourcing supply of products, environment, workplace
health and safety, property, financial reporting and the purchase, development and use of information systems.
Risk Management and Compliance and Control
The Company strives to ensure that its products and services are of the highest standard. The Board is responsible for the overall
internal control framework, but recognises that no cost-effective internal control system will preclude errors and irregularities.
The Board’s policy on internal control is comprehensive.
Comprehensive practices have been established to ensure:
– capital expenditure and revenue commitments above a certain size obtain prior Board approval;
– financial exposures are controlled;
– workplace health and safety standards and management systems are monitored and reviewed to achieve high standards of
performance and compliance with regulations;
– business transactions are properly authorised and executed;
– the quality and integrity of personnel;
– financial reporting accuracy and compliance with the financial reporting regulatory framework; and
– environmental regulation compliance.
Quality and Integrity of Personnel
Formal appraisals are conducted at least annually for all employees. Training and development and appropriate remuneration and
incentives with regular performance reviews create an environment of cooperation and constructive dialogue with employees and
senior management. A formal succession plan is in place to ensure competent and knowledgeable employees fill senior positions when
retirements or resignations occur.
14
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Financial Reporting
The Managing Director and the Chief Financial Officer have provided assurance in writing to the Board that the Company’s financial
reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted
by the Board.
Monthly actual results are reported against budgets approved by the directors and revised forecasts for the year are prepared regularly.
Environmental Legislation
The consolidated entity’s operations are not subject to significant environmental regulations under either Commonwealth or State
legislation. The directors are of the belief that the consolidated entity has adequate systems in place for the management of its
environmental requirements and is not aware of any of those environmental requirements as they apply to the consolidated entity.
Internal Audit
The internal auditors assist the Board in ensuring compliance with internal controls and risk management programs by regularly reviewing
the effectiveness of the above mentioned compliance and control systems. The results of internal audits are reported on a monthly basis
to the Board.
4.6 Ethical Standards
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance
the reputation and performance of the Company and consolidated entity. In order to promote ethical and responsible decision making,
the Company has implemented a Code of Conduct to guide the directors and senior executives. Further, the Company has implemented
a formal Securities Trading policy in order to formalise the Company’s position on employees trading in the Company’s securities.
Every employee has a nominated supervisor to whom they may refer any issues arising from their employment. The Board reviews the
Code of Conduct and processes are in place to promote and communicate these policies. Both of these policies are available on the
Company’s website.
Conflict of Interest
Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company.
The Board has developed procedures to assist directors to disclose potential conflicts of interest.
Where the Board believes that a significant conflict exists for a director on a Board matter, the director concerned does not receive the
relevant Board papers and is not present at the meeting whilst the item is considered. Details of director-related entity transactions with
the Company and the consolidated entity are set out in note 29 to the financial statements.
Code of Conduct
The Company’s Code of Conduct aims to maintain appropriate core Company values and objectives. The Company has advised each
director, manager and employee that they must comply with the Code of Conduct.
The Company’s Code of Conduct covers issues such as delivering shareholder value, managing conflicts of interest, confidentiality,
fair and honest dealings, workplace health and safety, equal opportunity and compliance with laws. The Code encourages reporting
of unethical behaviour. The Company has a Whistleblower policy and a confidential whistleblowing service which provides its staff with
an avenue to report suspected unethical, illegal or improper behaviour.
Securities Trading Policy
The Company and the consolidated entity has a Securities Trading policy, which sets out the circumstances under which directors, senior
executives, and employees of the Company and the consolidated entity may deal in securities with the objective that no director, senior
executive or other employee will contravene the requirements of the Corporations Act 2001 or the ASX Listing Rules.
The policy outlines the restricted trading periods for the Company as the month immediately before the release of the Company’s half
yearly and yearly results.
The policy is reproduced in full on the Company’s website.
15
Directors’ report for the year ended 31 March 2013 (continued)
Diversity Policy
The Board is committed to having an appropriate blend of diversity on the Board and senior executive positions. The Board has
established a policy regarding gender, age, ethnic and cultural diversity.
The consolidated entity’s performance against the diversity policy objectives are as follows:
Gender Representation
Board Representation
Key Management Personnel Representation
Group Representation
2013
Male
80%
100%
52%
2013
Female
20%
-
48%
2012
Male
80%
83%
51%
2012
Female
20%
17%
49%
4.7 Communication with Shareholders The Board provides shareholders with information using a comprehensive Continuous Disclosure
policy which includes identifying matters that may have a material effect on the price of the Company’s securities, notifying them to the
ASX, posting them on the Company’s website and issuing media releases. The Continuous Disclosure policy is available on the Company’s
website.
In summary, the Continuous Disclosure policy operates as follows:
– the policy identifies information that needs to be disclosed;
– the Managing Director, the Chief Financial Officer and the Company Secretary are responsible for interpreting the Company’s policy
and where necessary informing the Board. The Company Secretary is responsible for all communications with the ASX;
– the full annual report provided via the Company’s website to all shareholders (unless a shareholder has specifically requested to
receive a physical copy or not to receive the document), including relevant information about the operations of the consolidated
entity during the year, changes in the state of affairs and details of future developments;
– the half-yearly report contains summarised financial information and a review of the operations of the consolidated entity during the
period. The half-year reviewed financial report is lodged with the Australian Securities and Investments Commission and the ASX;
– proposed major changes in the consolidated entity which may impact the share ownership rights are submitted to a vote
of shareholders;
– all announcements made to the market, and related information (including information provided to analysts or the media during
briefings), are placed on the Company’s website after they are released to the ASX;
– the full texts of notices of meetings and associated explanatory material are placed on the Company’s website; and
– the external auditor attends the Annual General Meetings to answer questions concerning the conduct of the audit, the preparation
and content of the auditor’s report, accounting policies adopted by the Company and the independence of the auditor in relation
to the conduct of the audit.
The Company does not have a formal shareholder communication policy, however it provides information to shareholders via the
Company’s website, which has links to recent Company announcements and past annual reports, results presentations and various ASX
pages, including the current share price.
The Board supports full participation of shareholders at the Annual General Meeting, to ensure a high level of accountability and
identification with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions.
The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options and shares
to directors, the Remuneration report and changes to the Constitution. Copies of the Constitution are available to any shareholder who
requests it.
16
THORN GROUP LIMITED 2013 FINANCIAL REPORT
5. Principal Activities
The principal activities of the consolidated entity during the course of the financial year were the leasing of household products, leasing
of motor vehicles, the provision of unsecured cash loans, equipment finance and the provision of receivables management services.
There were no other significant changes in the nature of the activities of the consolidated entity during the year.
5.1 Operating and Financial Review
Review of financial position
Increases were achieved in both revenue and profit for the 2013 financial year with total revenues growing from $188,351,000 to
$203,203,000, a 7.9% improvement.
Revenue in the Consumer Leasing segment grew 7.7%, from $157,817,000 to $170,020,000 due to increases in operating lease and
finance lease revenue. Operating lease revenue growth was primarily attributable to significant increases in furniture installations. Finance
lease revenue growth was driven by the introduction of a 24 month contract term, via which mobile phones and tablets were leased.
A decrease in revenue of $2,254,000, or 10.7% was incurred in the Credit Management segment. Collection revenue was lower than the
prior year due to the loss of the ATO contract and PDL revenue was impacted by the age of the portfolio.
Revenue for Thorn Equipment Finance grew 112.4%, from $2,885,000 to $6,129,000. The revenue growth is attributable to the
increase in settlements, which increased 156.7% from $12,916,000 to $33,161,000. Equipment financed during the year included IT,
telephony, poker machines, audio visual and industrial and commercial equipment.
An increase in revenue was achieved by Thorn Financial Services during the period of $1,818,000, or 29.8%. The revenue increase
was driven by a 25.6% increase in loan receivables, from $17,324,000 to $21,754,000.
Operating expenses increased due to salary and rent reviews, projects relating to tax and funding, and investment in new business resources.
This resulted in profit before income tax increasing 1.5%, from $40,191,000 to $40,788,000. Net profit after tax increased 0.6%, from
$27,849,000 to $28,021,000.
Cash Flows
Net cash from operating activities increased from $71,758,000 to $93,328,000 due to the growth in units on rent in the consumer
lease segment, the associated payments from customers and a decrease in tax paid due to a benefit relating to the acquisition of NCML.
Increases in net cash from operating activities were invested in Rental Assets, up 10.3% to $60,463,000 and Thorn Equipment Finance
settlements, up 156.7% to $33,161,000.
Funding
Debt facilities were renewed. The facility limit was increased to $50,000,000 and the term of the facility extended to 31 July 2016.
The consolidated entity also agreed to a $50,000,000 securitisation facility to enable continued expansion of Thorn Equipment Finance.
It is expected that funding on this facility will commence in June 2013. Establishment and legal fees were incurred.
The company paid dividends of $14,656,000 and introduced a Dividend Reinvestment Plan (DRP), resulting in the issue of 800,838 new
ordinary shares.
Legislative changes
The consolidated entity continued to be involved in discussions with the Federal Treasury in relation to the enhancements to the National
Consumer Credit Protection legislation, which primarily involves more disclosure around financial service products.
Likely developments in operations
New products are expected to be launched by Thorn Financial Services, including larger loans on a secured and unsecured basis. Within
Consumer Leasing, a new invigorated look and new offerings are expected to penetrate new demographics. These offerings are likely
to include extended length contracts, savings club, interest free and take home layby.
New client wins in the second half of FY13 and additional PDL purchases will positively impact the earnings of the Credit Management
segment in FY14. Thorn Equipment Finance will continue to focus on increasing settlements and maintaining impairment losses to
grow earnings.
The implementation of these new products, and the further expansion of each operating segment continues the consolidated entity’s
strategy of becoming a broader based financial services organisation.
17
Directors’ report for the year ended 31 March 2013 (continued)
5.2 Shareholder returns
2013
2012
2011
2010
2009
Profit attributable to owners of the Company
$28,021,000
$27,849,000
$22,038,000
$19,495,000
$12,320,000
Basic EPS
Dividends paid
Dividends per share
Change in share price
Return on capital employed1
19.11c
19.24c
16.84c
15.12c
9.61c
$14,656,000
$12,272,000
$9,464,000
$7,059,000
$5,594,000
10.00c
0.49
24.78%
8.95c
(0.62)
7.30c
1.07
6.32c
0.63
4.79c
(0.06)
30.34%
35.02%
30.72%
25.83%
1 Calculated as total earnings before interest and tax divided by the average capital employed.
5.3 Review of Financial Information
Capital structure and treasury policy
The Company introduced a DRP as part of the Company’s Capital Management Strategy. The DRP was active for the payment of the
Interim Dividend at a discount of 2.5%. On 17 January 2013, the Company issued 800,838 new ordinary shares at $2.01 per share
under the DRP.
Liquidity and funding
The consolidated entity renewed and extended its debt facility with Westpac Banking Corporation in December 2012. The facility was
renewed to 31 July 2016 and extended to $50,000,000. The consolidated entity has unused funding facilities as at 31 March 2013
of $21,100,000 and has sufficient funds available to finance its operations.
Net cash flows from operating activities were $93,328,000 as compared to $71,758,000 in the prior year.
Impact of Legislation and other external requirements
There has been no impact on the operations of the business from legislation changes.
6. Dividends
Dividends paid by the Company to members during the financial year were:
Final 2012
Interim 2013
Total amount
Cents per share
5.50
4.50
Total amount
$
8,050,614
6,605,287
14,655,901
Franked/unfranked
Date of payment
Franked
Franked
18 July 2012
17 January 2013
Franked dividends declared as paid during the year were fully franked at the corporate tax rate of 30%.
Declared after end of year
After balance date the following dividend was proposed by the directors. The dividend has not been provided and there are no income
tax consequences.
Final 2013
Total amount
Cents per share
6.00
Total amount
$
8,855,093
8,855,093
Franked/unfranked
Expected date
of payment
Franked
18 July 2013
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31 March 2013
and will be recognised in subsequent financial reports.
18
THORN GROUP LIMITED 2013 FINANCIAL REPORT
7. Events Subsequent To Reporting Date
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event
of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the
consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years.
8. Likely Developments
The consolidated entity will continue to pursue its policy of increasing the profitability and market share of its major business sectors
during the next financial year.
For further information about likely developments in the operations of the consolidated entity and the expected results of those
operations in future financial years, refer to section 5.1, the Operating and Financial Review on page 17.
9. Directors’ Interests
The relevant interest of each director in the shares and performance rights over shares as notified by the directors to the Australian
Stock Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows:
Thorn Group Limited
David Carter
John Hughes
Peter Henley
Paul Lahiff
Joycelyn Morton
Ordinary shares
Performance Rights
over ordinary shares
241,300
3,347,463
60,278
35,157
34,000
Nil
688,384
Nil
Nil
Nil
The Company has not granted any options over its shares.
10. Performance rights
Performance rights granted to directors and officers of the Company
During the financial year, the Company has granted performance rights over unissued ordinary shares in the Company to six officers
of the Company. Pages 11–13 provide the details of those performance rights which have not vested at the date of the report.
Unissued shares under options
At the date of this report there are no unissued ordinary shares of the Company under option.
11. Indemnification and Insurance of Officers and Auditors
Indemnification
The Company has agreed to indemnify the current, former and subsequent directors and officers of the Company, against all liabilities
to another person (other than the Company or a related body corporate) that may arise from their position as directors or officers of
the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement
stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.
19
Directors’ report for the year ended 31 March 2013 (continued)
Insurance Premiums
During the financial year the Company has paid insurance premiums of $43,884 in respect of directors’ and officers’ liability and legal
expenses’ insurance contracts, for current and former directors and officers, including senior executives of the Company and directors,
senior executives and secretaries of its controlled entities. The insurance premiums relate to:
– costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their
outcome; and
– other liabilities that may arise from their position, with the exception of conduct involving misconduct.
The insurance policies outlined above do not contain details of the premiums paid in respect of individual officers of the Company.
12. Non-Audit Services
During the year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those
non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements
of the Corporations Act 2001 for the following reasons:
– all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed
by the Audit Risk and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor;
– the non-audit services provided do not undermine the general principles relating to auditor independence; and
– as set out in APES110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly
sharing risks and rewards.
Details of the amounts paid to the auditor of the consolidated entity, KPMG, and its related practices for audit and non-audit services
provided during the year are set out in note 5.
13. Lead Auditor’s Independence Declaration
The Lead auditor’s independence declaration is set out on page 21 and forms part of the directors’ report for financial year ended
31 March 2013.
14. Rounding Off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts
in the financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.
This report is made in accordance with a resolution of the directors:
David Carter
Chairperson
Dated at Sydney
21 May 2013
20
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Lead auditor’s independence
declaration under Section 307C
of the Corporations Act 2001
To: the directors of Thorn Group Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 March 2013 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Greg Boydell
Partner
Dated at Sydney
21 May 2013
21
For the year ended 31 March 2013
Statement of comprehensive income
In thousands of AUD
Revenue
Employment benefits expense
Depreciation and amortisation expense
Finance lease cost of sales
Impairment losses on loans and receivables
Marketing expenses
Property expenses
Transport expenses
Communication and IT expenses
Finance expenses
Travel expenses
Other expenses
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Total comprehensive income for the year
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
2013
2012
3
4
203,203
188,351
(42,837)
(41,443)
(32,259)
(28,873)
(26,118)
(22,255)
(11,023)
(9,701)
(10,395)
(10,018)
(8,957)
(6,202)
(3,844)
(1,807)
(1,325)
(8,316)
(6,113)
(3,522)
(1,587)
(1,170)
(17,648)
(15,162)
40,788
40,191
6
(12,767)
(12,342)
28,021
27,849
–
–
28,021
27,849
21
21
19.11
19.09
19.24
19.01
The statement of comprehensive income is to be read in conjunction with the notes of the financial statements set out on pages 26 to 51.
22
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Statement of financial position
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Trade and other receivables
Deferred tax assets
Property, plant and equipment
Rental assets
Intangible assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Income tax payable
Provisions
Total current liabilities
Loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Note
2013
2012
7
8
8
11
12
13
14
15
17
10
18
16
17
18
4,871
58,463
63,334
67,139
2,898
7,163
52,929
27,893
5,870
45,540
51,410
44,759
5,525
5,398
48,478
29,719
158,022
221,356
133,879
185,289
26,117
23,415
4,719
4,520
502
35,858
28,900
338
887
30,125
65,983
4,790
1,260
133
29,598
14,000
339
1,141
15,480
45,078
155,373
140,211
95,483
2,769
57,121
93,898
2,557
43,756
155,373
140,211
The statement of financial position is to be read in conjunction with the notes of the financial statements set out on pages 26 to 51.
23
23
For the year ended 31 March 2013
Statement of changes in equity
In thousands of AUD
Balance at 1 April 2011
Total comprehensive income
Net profit for the year
Other comprehensive income
Issue of ordinary shares
Share based payments transactions
Dividends to shareholders
Balance at 31 March 2012
Balance at 1 April 2012
Total comprehensive income
Net profit for the year
Other comprehensive income
Issue of shares under dividend reinvestment plan
Share based payments transactions
Dividends to shareholders
Balance at 31 March 2013
Share capital
Equity
remuneration
reserve
Retained
earnings
Total equity
64,517
2,307
28,179
95,003
–
–
29,381
–
–
93,898
93,898
–
–
1,585
–
–
–
–
–
250
–
2,557
2,557
–
–
–
212
–
27,849
27,849
–
–
–
–
29,381
250
(12,272)
(12,272)
43,756
140,211
43,756
140,211
28,021
28,021
–
–
–
–
1,585
212
(14,656)
(14,656)
95,483
2,769
57,121
155,373
The statement of changes in equity is to be read in conjunction with the notes of the financial statements set out on pages 26 to 51.
24
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Statement of cash flows
In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest paid
Interest received on bank deposits
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of assets
Acquisition of property, plant and equipment and software
Acquisition of rental assets
Thorn Equipment Finance settlements
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from the issue of ordinary shares
Dividends paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 April
Cash and cash equivalents at 31 March
Note
2013
2012
222,660
200,048
(120,612)
(114,363)
102,048
(1,807)
260
85,685
(1,587)
355
(7,173)
(12,695)
27
93,328
71,758
1,126
(3,658)
1,050
(3,335)
(60,463)
(54,834)
(33,161)
(12,916)
(96,156)
(70,035)
18,900
3,000
(4,000)
(25,000)
-
29,381
(13,071)
(12,272)
1,829
(999)
5,870
4,871
(4,891)
(3,168)
9,038
5,870
7
The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 26 to 51.
25
For the year ended 31 March 2013
Notes to the consolidated financial
statements
1. Significant Accounting Policies
Thorn Group Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered office is Level 1,
47 Rickard Road, Bankstown, NSW, 2200. The consolidated financial statements of the Company as at and for the financial year ended
31 March 2013 comprises the Company and its subsidiaries (together referred to as the ‘consolidated entity’). The principal activities
of the consolidated entity were the leasing of household products, leasing of motor vehicles, the provision of unsecured cash loans,
equipment finance and the provision of receivables management services.
(a) Statement of Compliance
The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian
Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (”AASB”) and the Corporations Act 2001.
The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International
Accounting Standards Board (IASB).
The consolidated financial statements were approved by the Board of Directors on 21 May 2013.
(b) Basis of Preparation
The consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency.
The consolidated financial statements have been prepared on the historical cost basis except where assets are carried at fair value.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts
in the financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.
The preparation of the consolidated financial statements in conformity with Australian Accounting Standards requires management
to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These
accounting policies have been consistently applied by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
In particular, information about significant areas of estimation, uncertainties and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements include the following:
(i) Valuation of goodwill and other intangibles
Judgements are made with respect to identifying and valuing intangible assets on acquisition of new businesses.
(ii) Impairment of goodwill
Note 14 contains information about the assumptions and their risk factors relating to goodwill impairment. The consolidated entity
assesses whether goodwill is impaired at least annually. The calculations include an estimation of the recoverable amount of the cash
generating unit to which the goodwill is allocated.
(iii) Rent Try Buy™ asset depreciation
Where assets are installed on Rent Try Buy™ contracts and their standard estimated useful life is greater than the period at which
a similar item can be purchased for $1, an estimate of the number of assets expected to be purchased for $1 is made and additional
depreciation is expensed based on the average cost of assets installed.
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THORN GROUP LIMITED 2013 FINANCIAL REPORT
(iv) Impairment of finance lease receivables
Note 20 contains information about the credit risk associated with finance lease receivables. The consolidated entity assesses the
impairment of finance lease receivables monthly. The calculations include an assessment of the expected rates of disconnections and the
estimate of collateral.
(v) Purchased debt ledgers
Fair values of PDLs are determined using a discounted cash flow valuation technique. Cash flow forecasts are based on the estimated
future cash flows of the portfolio based on experience on similar portfolios, observed collections to date, payment arrangements and
other known factors.
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
(c) Basis of Consolidation
Subsidiaries
Subsidiaries are entities controlled by the consolidated entity. Control exists when the consolidated entity has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,
potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group
balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated
financial statements.
(d) Revenue
Revenues are measured at the fair value of the consideration received or receivable net of the amount of goods and services tax (GST)
payable to the taxation authority. The major components of revenue are recognised as follows:
Lease Rental Revenue
The consolidated entity derives revenue from finance and operating leases.
Finance leases arise where substantially all of the risks and benefits incidental to ownership of the leased asset pass to the lessee.
Finance lease sales revenue is recognised at the time the rental contract is entered into based on the fair value of the leased item, with
interest income recognised over the life of the lease.
Operating leases arise where substantially all of the risks and benefits incidental to ownership of the leased asset remain with the lessor.
Payments under operating leases are due and payable on a monthly basis in advance.
Operating lease rental revenue is recognised on a straight line basis over the lease term, net of discounts. Revenue also arises from
charges such as late fees, termination fees and damage liability reduction fees. These revenues are recognised when due and payable.
Collection Revenue
Revenue from collection services rendered is recognised upon delivery of the services to the customers.
Purchased Debt Ledgers Revenue
Revenue from purchased debt ledgers represents income derived from the application of the effective interest method net of any
changes in fair value. The effective interest rate is the implicit interest rate based on forecast collections derived at the time of
acquisition of an individual PDL. Fair value is determined based on the present value of expected future cashflows.
Interest
Interest revenue is calculated and charged on the average outstanding cash loan balance and recognised on an accrual basis using the
effective interest method.
27
27
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
1. Significant Accounting Policies (continued)
(e) Cost of Sales
Finance lease costs of sales comprise the cost of the item sold less any accumulated depreciation.
(f) Income Tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the profit or loss except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences:
initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable
that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be realised.
Tax consolidation
Thorn Group Limited and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 April 2003
and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Thorn Group Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the
tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group using the
group allocation approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each
entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head
entity in the tax-consolidated group and are recognised as amounts payable/(receivable) to/(from) other entities in the tax-consolidated
group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by
the Company as an equity contribution or distribution.
Thorn Group Limited recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that
it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the
probability of recoverability is recognised by the head entity only.
Nature of Tax Funding Arrangements and Tax Sharing Arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which
sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements
require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred
tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) equal in amount to
the tax liability (asset) assumed. The inter-entity receivable (payable) are at call. Contributions to fund the current tax liabilities are
payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities
to the relevant tax authorities. The head entity in conjunction with other members of the tax-consolidated group has also entered into
a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the
entities should the head entity default on its tax payment obligations.
(g) Finance expenses
Finance expenses comprise interest expense on borrowings, and the unwinding of the discount on provisions. All borrowing costs are
recognised in the profit or loss using the effective interest rate method.
28
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THORN GROUP LIMITED 2013 FINANCIAL REPORT
(h) Intangible Assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost
of the acquisition and the fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree.
Subsequent measurement
Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested
annually for impairment.
Other Intangibles
Other intangibles acquired as part of a business combination are recognised separately from goodwill. The assets are measured at fair
value at the date of acquisition.
Amortisation
Amortisation is provided on all intangible assets excluding goodwill. Amortisation is calculated on a straight line basis so as to write-off
the cost of each intangible asset over its estimated useful life. The estimated useful lives in the current and comparative periods are
as follows:
– Customer relationships
5 years
– Software
3 – 10 years
The residual value, the useful life and the amortisation method applied to an intangible asset are reassessed at least annually.
(i) Financial Instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade
and other payables.
Non-derivative financial instruments excluding financial assets at fair value through profit and loss are recognised initially at fair value
plus transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less
impairment losses.
A financial instrument is recognised if the consolidated entity becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the consolidated entity’s contractual rights to the cash flows from the financial assets expire or if the
consolidated entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of
the asset. Financial liabilities are derecognised if the consolidated entity’s obligation specified in the contract expire or are discharged
or cancelled.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the
consolidated entity has a legal right to offset the amounts and intends either to settle on a net basis or realise the asset and settle the
liability simultaneously.
The consolidated entity recognises its financial assets at either amortised cost or fair value, depending on its business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets. The classification of financial assets
that the consolidated entity held at the date of initial application was based on the facts and circumstances of the business model in
which the financial assets were held at that date.
Financial assets recognised at amortised cost are measured using the effective interest method, net of any impairment loss.
Financial assets other than those classified as financial assets recognised at amortised cost are measured at fair value with any changes
in fair value recognised in profit or loss. Financial assets designated at fair value comprise purchased debt ledgers.
(j) Trade and Other Receivables
Finance lease receivables are recognised at the present value of the minimum lease payments less impairment losses. The present value
is calculated by discounting the minimum lease payments due, at the interest rate implicit in the lease.
Trade and other receivables are stated at their amortised cost less impairment losses, with the exception of purchased debt ledgers
which are designated at fair value.
29
29
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
1. Significant Accounting Policies (continued)
(k) Loans and Borrowings
Loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, loans and
borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit or loss
over the period of the borrowings on an effective interest basis.
(l) Rental Assets
Recognition and Measurement
Rental assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset.
Gains and losses on disposal of an item of rental assets are determined by comparing the proceeds from disposal with the carrying
amount of the asset and are recognised net within “Other Income” or “Other Expenses” in profit or loss.
Depreciation
Depreciation is provided on rental assets and is calculated on a straight line basis so as to write-off the net cost of each asset over its
estimated useful life. Where assets are installed on Rent Try Buy™ contracts and their estimated useful life is greater than the period
at which a similar item can be purchased for $1, an estimate of the number of assets expected to be purchased for $1 is made and
additional depreciation expensed based on the average cost of assets installed.
The estimated useful lives in the current and comparative periods are 3 to 6 years.
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
(m) Property, Plant and Equipment
Recognition and Measurement
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with
the carrying amount of the asset and are recognised net within “Other Income” or “Other Expenses” in profit or loss.
Depreciation
Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated
on a straight line basis so as to write-off the net cost of each asset over its estimated useful life.
Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight
line method.
The estimated useful lives in the current and comparative periods are as follows:
– Freehold Buildings
20 years
– Leasehold Property
The lease term, to a maximum of 5 years
– Plant and Equipment
3 – 10 years
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
(n) Impairment
Non-Financial Assets
The carrying amounts of the consolidated entity’s assets, other than deferred tax assets are reviewed at each balance date to determine
whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill the
recoverable amount is estimated at each balance date.
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THORN GROUP LIMITED 2013 FINANCIAL REPORT
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets
are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or groups of assets (the “cash-generating units”). The goodwill acquired in a business combination,
for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of
the combination.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the profit or loss, unless an asset has previously been re-valued, in which case the impairment loss
is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group
of units) on a pro rata basis.
Financial Assets
The recoverable amount of the consolidated entity’s receivables carried at amortised cost is calculated as the present value of estimated
future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of
these financial assets).
Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Significant receivables
are individually assessed for impairment. Impairment testing of receivables that are not assessed as impaired individually is performed
by placing them into portfolios with similar risk profiles and undertaking a collective assessment of impairment, based on objective
evidence from historical experience adjusted for any effects of conditions existing at each balance date.
Reversals of Impairment
Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the impairment loss may no longer
exist and there has been a change in the estimate used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(o) Employee Benefits
(i) Defined Contribution Superannuation Funds
Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the profit or loss in the
periods during which services are rendered by employees.
(ii) Long Service Leave
The consolidated entity’s net obligation in respect of long-term service benefits is the amount of future benefit that employees
have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases
in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the
Commonwealth Government bonds at the balance date which have maturity dates approximating to the terms of the consolidated
entity’s obligations.
(iii) Wages, Salaries, Annual Leave and Non-Monetary Benefits
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting
date represent present obligations resulting from employees’ services provided up to reporting date, and are calculated at undiscounted
amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at the reporting date including
on-costs, such as workers compensation insurance and payroll tax.
31
31
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
1. Significant Accounting Policies (continued)
(iv) Share-based Payment Transactions
The Performance Rights Plan allows certain consolidated entity employees to receive shares of the Company. The fair value of
performance rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the employees become unconditionally entitled to the performance rights.
The fair value of the performance rights granted is measured using a Monte Carlo simulation model, taking into account the terms and
conditions upon which the performance rights were granted. The amount recognised as an expense is adjusted to reflect the actual
number of performance rights that vest except where the rights have not vested due to share prices not achieving the threshold
for vesting.
(v) Termination Benefits
Termination benefits are recognised as an expense when the consolidated entity is demonstrably committed, without realistic possibility
of withdrawal, to a formal detailed plan to terminate employment before the retirement date.
(p) Provisions
A provision is recognised in the statement of financial position when the consolidated entity has a present legal or constructive obligation
that can be measured reliably as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is
recognised as a finance cost.
Make good costs for leased property
A provision for make good costs for leased property is recognised when a make good obligation exists in the lease contracts.
The provision is the best estimate of the present value of the expenditure required to settle the make good obligation at the reporting
date. Future make good costs are reviewed annually and any changes are reflected in the present value of the make good provision at the
end of the reporting period. The unwinding of the discounting is recognised as a finance cost.
(q) Trade and Other Payables
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing.
(r) Lease Payments
Payments made under operating leases are recognised in the profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised in the profit or loss as an integral part of the total lease expense and spread over the lease term.
(s) Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition
of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO
is included as a current asset or liability in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and
financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
(t) Earnings Per Share
The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares
outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number
of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise performance rights granted
to employees.
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THORN GROUP LIMITED 2013 FINANCIAL REPORT
(u) Share Capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and performance rights are
recognised as a deduction from equity net of any tax effects.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
Dividend Reinvestment Plan
The consolidated entity has implemented a DRP during the financial year. An issue of shares under the dividend investment plan results
in an increase in issued capital. The DRP allows eligible shareholders to elect to invest dividends in ordinary shares which rank equally
to with the Company’s ordinary shares, which has been applied to dividends payable from January 2013. All holders of the Company
ordinary shares are eligible to participate in the plan.
The issue price for the shares acquired under the DRP will be a price derived from the arithmetic average of the daily volume weighted
average market price per Company shares during the five trading days commencing on the second trading day following the Record Date
for the relevant dividend, less any discount the directors may determine from time to time and announce to the Australian Stock Exchange.
(v) Segment Reporting
The consolidated entity determines and presents operating segments based on the information that internally is provided to the CEO,
who is the consolidated entity’s chief operating decision maker.
(w) New Standards and Interpretations Not Yet Adopted
The following standards, amendments to standards and interpretations have been identified as those which may impact the consolidated
entity in the period of initial application. The consolidated entity will apply the standards and amendments for the reporting periods
beginning on the operative dates set out below. An initial assessment of the financial impact of the standards and amendments has been
undertaken and they are not expected to have a material impact on the consolidated entity’s financial statements or accounting policies.
The consolidated entity does not plan to adopt these standards early.
– AASB 2010-7 Amendments to AASB 9 outlines that a financial asset is to be measured at amortised cost only if it is held within
business model whose objective is to collect contractual cash flows and the contractual terms of the asset give rise on specified
dates to cash flows that are payments solely of principal and interest (on the principal amount outstanding). All other financial
assets are to be measured at fair value. The amendments, which become mandatory for the consolidated entity’s 31 March 2014
financial statements, are not expected to have a significant impact on the financial statements.
– AASB 10 Consolidated Financial Statements and AASB 12 Disclosure of Interests in Other Entities changes the definition of control
and requires that it be applied to all entities to determine whether control exists. The new definition focuses on the need for
both power and exposure to variability of returns in order for control to be present and the new disclosure standard increases the
disclosure requirements for both consolidated and unconsolidated entities. The new standards, which become mandatory for the
consolidated entity’s 31 March 2014 financial statements, are not expected to have a material impact on the financial statements.
– AASB 13 Fair Value Measurement replaces existing guidance on fair value measurement in several standards with a single, unified
definition of fair value and a framework for measuring and disclosing fair values. AASB 13 applies to all assets and liabilities
measured at fair value, not just financial instruments. The new standards, which become mandatory for the consolidated entity’s
31 March 2014 financial statements, are not expected to have a material impact on the financial statements.
– AASB 119 Employee Benefits (2011) changes the definition of short-term and other long-term employee benefits to clarify the
distinction between the two. The consolidated entity may need to assess the impact of this change in relation to the Employee
Benefits Provision. The new standards, which become mandatory for the consolidated entity’s 31 March 2014 financial statements,
are not expected to have a material impact on the financial statements.
– AASB 2011-4 Amendments to Australian Accounting Standards amends AASB 124 ‘Related Party Disclosures’ by removing the
disclosure requirements for individual key management personnel. The adoption of these amendments will remove the duplication
of information in the notes to the financial statements and the Directors’ Report. As the aggregate disclosures are still required
by AASB 124 and during the transitional period the requirements may be included in the Corporations Act or other legislation,
it is expected that the amendments will not have a material impact on the financial statements. These amendments are mandatory
for the consolidated entity’s 31 March 2015 financial statements and early adoption of this standard is not available.
33
33
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
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C
Reconciliation of reportable segment profit or loss
In thousands of AUD
Profit before interest and tax for reportable segments
Unallocated amounts:
Other corporate expenses
Net financing costs
Profit before tax
Income tax expense
Profit after tax
Reconciliation of reportable revenue
In thousands of AUD
Revenue for reportable segments
Other revenue
Revenue
3. Revenue
In thousands of AUD
Operating leases
Finance lease sales
Interest
Collection revenue
PDL revenue1
Other income
1 PDL revenue
In thousands of AUD
PDL interest
Change in fair value
THORN GROUP LIMITED 2013 FINANCIAL REPORT
2013
2012
50,760
48,904
(8,425)
(1,547)
40,788
(7,481)
(1,232)
40,191
(12,767)
(12,342)
28,021
27,849
2013
2012
202,943
187,932
260
419
203,203
188,351
2013
2012
102,191
37,876
44,023
15,801
3,073
239
93,562
33,826
39,635
16,013
5,115
200
203,203
188,351
2013
2,964
109
3,073
2012
3,218
1,897
5,115
35
35
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
4. Employment Benefits
In thousands of AUD
Wages and salaries
Contributions to defined contribution superannuation funds
Increase in liability for annual leave
Increase in liability for long service leave
Termination benefits
Equity settled share-based payment transactions
5. Auditors’ Remuneration
In whole AUD
Audit services
KPMG Australia:
Audit and review of financial reports
Other services
KPMG Australia
Taxation services – compliance
Taxation services – advice
Other services
6. Income Tax Expense
Recognised in the Income Statement
In thousands of AUD
Current tax expense
Current year
Adjustment for prior years
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense in the income statement
Numerical reconciliation between tax expense and pre-tax accounting profit
In thousands of AUD
Profit before tax
Prima facie income tax using the domestic corporation tax rate of 30% (2012: 30%)
Change in income tax expense due to:
Non-deductible expenses
(Over)/Under provided in prior years
Income tax expense on pre-tax accounting profit
36
36
2013
2012
39,163
2,930
37,897
2,792
69
54
409
212
134
66
304
250
42,837
41,443
2013
2012
327,000
327,000
315,500
315,500
115,000
131,000
175,000
5,000
–
4,000
295,000
135,000
2013
2012
10,245
(105)
8,112
(305)
2,627
12,767
4,535
12,342
2013
2012
40,788
12,236
40,191
12,057
636
(105)
590
(305)
12,767
12,342
7. Cash and Cash Equivalents
In thousands of AUD
Bank balances
Call deposits
Cash and cash equivalents
8. Trade and Other Receivables
In thousands of AUD
Current
Trade receivables
Finance lease receivables
Loan receivables
Purchased debt ledgers
Lease deposits
Other receivables and prepayments
Non-current
Finance lease receivables
Loan receivables
Purchased debt ledgers
THORN GROUP LIMITED 2013 FINANCIAL REPORT
2013
4,761
110
4,871
2012
5,756
114
5,870
2013
2012
4,504
28,815
12,744
3,697
584
8,119
3,675
23,250
10,595
3,161
526
4,333
58,463
45,540
56,119
6,422
4,598
67,139
36,783
4,434
3,542
44,759
Trade receivables are shown net of provision for impairment losses amounting to $894,000 (2012: $903,000).
Finance lease receivables are shown net of provision for impairment losses amounting to $8,069,000 (2012: $6,270,000).
Loan receivables are shown net of provision for impairment losses amounting to $2,588,000 (2012: $2,295,000).
The consolidated entity’s exposure to credit risk and impairment losses related to trade and other receivables are disclosed in Note 20.
9. Purchased Debt Ledgers
In thousands of AUD
Current
Non-current
Total
2013
3,697
4,598
8,295
2012
3,161
3,542
6,703
Purchased Debt Ledgers (PDLs) are measured at fair value.
The following summarises the assumptions used in these calculations:
Input
Assumption and/or basis for assumption
Term which collections will be yielded
Maximum 72 months from start date of PDL acquisition
Effective interest rate
Forecast collections
Based on the effective interest rate for each PDL recognised at the time of acquisition
Forecasts are based on each PDLs collections to date, the performance of equivalent PDLs
and allowances for other known factors
37
37
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
10. Current Tax Liabilities
The current tax liability for the consolidated entity of $4,520,000 (2012: $1,260,000) represents the amount of income taxes payable
in respect of current and prior financial periods.
11. Deferred Tax Assets and Liabilities
Recognised Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities are attributable to the following:
In thousands of AUD
Rental assets
Property, plant and equipment
Trade, loan and other receivables
Finance lease receivables
Accruals
Provisions
PDL liability
Assets
Liabilities
Net
2013
2012
2013
2012
2013
2012
21,094
16,455
94
1,019
–
1,746
1,130
–
–
924
–
1,950
1,232
2,065
–
–
–
–
(34)
–
21,094
16,455
94
1,019
(34)
924
(22,086)
(17,067)
(22,086)
(17,067)
–
–
(99)
–
–
–
1,746
1,130
(99)
1,950
1,232
2,065
5,525
Tax assets/(liabilities)
25,083
22,626
(22,185)
(17,101)
2,898
12. Property, Plant and Equipment
In thousands of AUD
Cost
Balance at 1 April 2011
Additions
Disposals
Balance at 31 March 2012
Balance at 1 April 2012
Additions
Balance at 31 March 2013
Depreciation and Impairment Losses
Balance at 1 April 2011
Depreciation charge for the year
Disposals
Balance at 31 March 2012
Balance at 1 April 2012
Depreciation charge for the year
Balance at 31 March 2013
Carrying amounts
At 1 April 2011
At 31 March 2012
At 1 April 2012
At 31 March 2013
38
38
Land and
Buildings
Leasehold
Improvements
Plant and
Equipment
Total
70
–
–
70
70
–
70
48
2
–
50
50
2
52
22
20
20
18
6,930
938
(69)
7,799
7,799
1,203
9,002
4,778
936
(69)
5,645
5,645
883
6,528
2,152
2,154
2,154
2,474
8,186
2,397
(969)
9,614
9,614
2,347
11,961
6,428
926
(964)
6,390
6,390
900
7,290
1,758
3,224
3,224
4,671
15,186
3,335
(1,038)
17,483
17,483
3,550
21,033
11,254
1,864
(1,033)
12,085
12,085
1,785
13,870
3,932
5,398
5,398
7,163
13. Rental Assets
In thousands of AUD
Opening balance
Acquisitions
Disposals
Depreciation
Transfers to finance leases
Transfers from finance leases
Balance at 31 March
Carrying amounts
At 1 April 2011
At 31 March 2012
At 1 April 2012
At 31 March 2013
14.
Intangible Assets
In thousands of AUD
Cost
Balance at 1 April 2011
Balance at 31 March 2012
Balance at 1 April 2012
Additions
Balance at 31 March 2013
Amortisation and impairment losses
Balance at 1 April 2011
Amortisation charge for the year
Balance at 31 March 2012
Balance at 1 April 2012
Amortisation charge for the year
Balance at 31 March 2013
Carrying amounts
At 1 April 2011
At 31 March 2012
At 1 April 2012
At 31 March 2013
THORN GROUP LIMITED 2013 FINANCIAL REPORT
2013
2012
48,478
60,463
41,178
54,834
(2,908)
(2,442)
(28,540)
(25,037)
(26,328)
(22,182)
1,764
52,929
2,127
48,478
Total
41,178
48,478
48,478
52,929
Goodwill
Customer
Relationships
Software
Total
29,350
29,350
8,797
8,797
29,350
8,797
–
–
29,350
8,797
7,074
–
7,074
7,074
–
7,074
22,276
22,276
22,276
22,276
–
1,760
1,760
1,760
1,760
3,520
8,797
7,037
7,037
5,277
1,274
1,274
1,274
108
1,382
656
212
868
868
174
39,421
39,421
39,421
108
39,529
7,730
1,972
9,702
9,702
1,934
1,042
11,636
618
406
406
340
31,691
29,719
29,719
27,893
39
39
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
14. Intangible Assets (continued)
Impairment tests for Cash Generating Units (CGU) containing goodwill
The following units have significant carrying amounts of goodwill:
In thousands of AUD
Consumer Leasing
Credit Management
Total
2013
2012
15,604
6,672
22,276
15,604
6,672
22,276
The recoverable amount of the above CGU’s are determined based on a value-in-use calculation. Value-in-use is calculated based on the
present value of cash flow projections over a 5 year period and terminal value. The cash flow projections have been approved by the Board.
Key assumptions used for value-in-use calculations
Consumer Leasing
During the forecast period, revenue is assumed to grow at an average of 3% p.a. and the pre-tax Weighted Average Cost of Capital
(WACC) is assumed at 9.42% (2012: 12.88%). A terminal value is calculated using the cash flows for year 5 of the forecast period and
a long-term growth rate of 2%. The value in use calculation in 2013 was determined on a similar basis to the 2012 calculation.
Credit Management
During the forecast period, revenue is assumed to grow at an average of 3% p.a. and the pre-tax WACC is assumed at 9.42%
(2012: 12.25%). A terminal value is calculated using the cash flows for year 5 of the forecast period and a long-term growth rate of 2%.
The value in use calculation in 2013 was determined on a similar basis to the 2012 calculation.
The WACC in 2013 reduced to 9.42% due to:
– a reduction in the risk free rate in line with 10 year government bond rate;
– a reduction in the beta applied reflecting the Company’s share price stability; and
– a reduction in the cost of debt due to a lower base debt rates.
The recoverable amount of the CGU’s exceeds their carrying value at 31 March 2013.
Management believes that any reasonable change in the key assumptions on which the estimates and/or the WACC are based, including
increasing the WACC above the 2012 level, would not cause the carrying amount of the CGU to exceed its recoverable amount.
15. Trade and Other Payables
In thousands of AUD
Current
Trade payables
Other creditors and accruals
Deferred rental revenue
Property lease accrual
40
40
2013
2012
16,517
15,548
6,810
2,359
431
5,269
2,333
265
26,117
23,415
THORN GROUP LIMITED 2013 FINANCIAL REPORT
2013
2012
28,900
28,900
14,000
14,000
2013
2012
50,000
50,000
28,900
28,900
21,100
21,100
30,000
30,000
14,000
14,000
16,000
16,000
16.
Loans and Borrowings
In thousands of AUD
Non-current liabilities
Secured bank loans
Financing Facilities
In thousands of AUD
Bank facility available
Bank facility utilised at balance date
Bank facility not utilised at reporting date
Financing arrangements
Bank loans
Thorn Australia Pty Limited has a loan provided by the Westpac Banking Corporation. The loan is denominated in Australian dollars.
Security is provided to Westpac Banking Corporation by way of a fixed and floating charge over the assets of the consolidated entity.
On 10 December 2012, the consolidated entity refinanced the loan facility with Westpac Banking Corporation. The facility limit was
increased by $20,000,000 to $50,000,000 and the term extended to 31 July 2016.
For more information about the consolidated entity’s exposure to interest rate risk and liquidity risk see note 20.
17. Employee Benefits
In thousands of AUD
Current
Salaries and wages accrued
Liability for long service leave
Liability for annual leave
Non-Current
Liability for long service leave
2013
2012
1,079
1,437
2,203
4,719
338
338
1,274
1,382
2,134
4,790
339
339
Defined contribution superannuation funds
The consolidated entity makes contributions to a defined contribution superannuation fund. The amount recognised as expense was
$2,930,000 for the financial year ended 31 March 2013 (2012: $2,792,000).
41
41
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
18. Provisions
In thousands of AUD
Balance at 1 April 2012
Provisions made during the year
Provisions used during the year
Unwind of discount
Balance at 31 March 2013
Current
Non-current
Make Good
Make Good
1,274
189
(69)
(5)
Total
1,274
189
(69)
(5)
1,389
1,389
502
887
1,389
A provision for make good costs in respect of leased property is recognised when a make good obligation exists in the lease contracts.
The provision is initially recognised at the inception of the lease.
19. Capital and Reserves
Share Capital
In thousands of shares
On issue at the beginning of year
Issue of new shares on vesting of performance rights
Issue of ordinary shares
Issue of shares under dividend investment plan
On issue at the end of year
2013
2012
146,374
129,859
409
–
801
283
16,232
–
147,584
146,374
– Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at shareholder’s meetings.
– In the event of the winding up of the Company ordinary shareholders rank after all other shareholders and creditors and are fully
entitled to any proceeds of liquidation.
– The Company does not have authorised capital or par value in respect of its issued shares.
Reserves
Equity Remuneration Reserve
The equity remuneration reserve represents the value of performance rights issued under the Company’s long-term incentive plan.
42
42
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Dividends
Dividends recognised in the current year by the Company are:
2013
Final 2012
Interim 2013
Total amount
2012
Final 2011
Interim 2012
Total amount
Cents per
share
Total amount
$’000s
Franked/
unfranked
Date of payment
5.50
4.50
4.95
4.00
8,051
6,605
14,656
6,428
5,844
12,272
Franked
18 July 2012
Franked
17 January 2013
Franked
22 July 2011
Franked
20 January 2012
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Dividend Reinvestment Plan (DRP)
The Company implemented a DRP during the period. In accordance with the Company’s DRP, 800,838 new ordinary shares totalling
$1,609,000 were issued. Costs incurred in undertaking the DRP were $24,000. The net impact on Shareholder Equity was $1,585,000.
Details of the DRP are disclosed in Note 1.
After the balance sheet date, the following dividend was proposed by the directors.
Final ordinary
6.00
8,855,093
Franked
18 July 2013
Cents per
share
Total amount
Franked/
unfranked
Expected date of
payment
The financial effect of this dividend has not yet been brought to account in the financial statements for the year ended 31 March 2013
and will be recognised in subsequent financial reports. The impact on the dividend franking account of dividends proposed after the
balance date but not recognised as a liability is to reduce franking credits by $3,795,040 (2012: $3,450,261).
In thousands of AUD
Dividend franking account
2013
2012
30% franking credits available to shareholders of Thorn Group Limited for subsequent financial years
24,241
20,088
The above available amounts are based on the balance of the dividend franking account at year end adjusted for:
– franking credits that will arise from the payment of the current tax liabilities
– franking debits that will arise from the payment of dividends recognised as a liability at the year end; and
– franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
43
43
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
20. Financial Risk Management
(a) Financial Risk Management Objectives and Policies
The consolidated entity is exposed to financial risks through the normal course of its business operations. The key risks arising are credit
risk, liquidity risk and market risk.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has
established the Audit, Risk and Compliance Committee, which is responsible for developing and monitoring risk management policies. The
Committee reports regularly to the Board of Directors on its activities.
Risk management policies are established to identify and analyse the risks faced by the consolidated entity, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the consolidated entity’s activities. The consolidated entity, through their training and management
standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their
roles and obligations.
The Audit, Risk and Compliance Committee oversees how management monitors compliance with the consolidated entity’s risk
management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by
the consolidated entity.
Credit risk
Credit risk is the risk of financial loss to the consolidated entity if a customer fails to meet its contractual obligation, and arises principally
from the consolidated entity’s trade, loan and finance lease receivables from customers and purchased debt ledgers.
The consolidated entity’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The
demographics of the consolidated entity’s customer base, including the default risk of the industry also has an influence on credit risk.
The majority of the consolidated entity’s customer base are retail customers. Each of these customers are required to pay regular
fortnightly or monthly payments. These payments are small in nature, and therefore no concentration of credit risk to any individual
or business exists within the consolidated entity’s portfolio of customer accounts.
Liquidity risk
Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated
entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet is liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the consolidated
entity’s reputations.
The consolidated entity’s access to financing arrangements is disclosed in Note 16.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency that will affect the consolidated entity’s
income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters,
while optimising returns. The consolidated entity has foreign currency risk on the purchase of rental assets directly imported that are
denominated in USD. The consolidated entity manages its exposure to foreign currency risk by utilising forward exchange contracts
where appropriate. There is no foreign exchange risk as at the reporting date.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Board of Directors monitors the return on capital, which the consolidated entity defines as profit
before financing costs divided by total assets. The Board of Directors also monitors the level of dividends to ordinary shareholders. Refer
to Note 19 for quantitative data.
44
44
THORN GROUP LIMITED 2013 FINANCIAL REPORT
(b) Credit Risk
The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure. The consolidated entity’s
exposure to credit risk at the reporting date was:
In thousands of AUD
Trade receivables
Finance lease receivables
Loan receivables
Purchased debt ledgers
2013
2012
4,504
84,934
19,166
8,295
116,899
3,675
60,033
15,029
6,703
85,440
The consolidated entity operates in Australia. There is no exposure to other geographic regions.
Impairment losses
Trade receivables
The aging of the consolidated entity’s trade receivables at the reporting date was:
In thousands of AUD
Not past due
Past due 0 – 30 Days
Past due 31 – 180 Days
Gross
2013
Impairment
2013
Gross
2012
Impairment
2012
1,056
2,329
2,013
5,398
–
151
743
894
1,142
1,826
1,610
4,578
–
132
771
903
The net value of trade receivables as at 31 March 2013 was $4,504,000 (2012: $3,675,000)
The consolidated entity invoices its rental customers in advance of the rental period. The revenue is not recognised in the financial
statements until the due date of the invoice.
Finance lease receivables
Finance lease receivables that are past due are disclosed in the trade receivables above.
The provision for impairment losses as at 31 March 2013 is $8,069,000 (2012: $6,270,000). The provision reflects the risk to the
consolidated entity of the expected early return or loss of products throughout the life of the contract.
Collateral is held against the finance lease receivables in the form of the assets attached to the contract. In the event that the asset
is returned due to early termination of the contract, the asset is available for rental on other contracts or disposal via cash sale. The value
of this collateral as at 31 March 2013 is $63,000,000 (2012: $43,000,000).
Loan receivables
The ageing of the consolidated entity’s loan receivables at the reporting date was:
In thousands of AUD
Not past due
Past due 0 – 30 Days
Past due 31 – 180 Days
Gross
2013
Impairment
2013
Gross
2012
Impairment
2012
19,459
1,129
1,166
21,754
1,309
113
1,166
2,588
15,544
951
829
17,324
1,371
95
829
2,295
The net value of loan receivables as at 31 March 2013 was $19,166,000 (2012: $15,029,000)
45
45
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
20. Financial Risk Management (continued)
(c) Liquidity Risk
The following are the contractual maturities of the consolidated entity’s financial liabilities including, where applicable, future interest
payments as at 31 March 2013.
31 March 2013
In thousands of AUD
Bank loans
Trade and other payables
31 March 2012
In thousands of AUD
Bank loans
Trade and other payables
(d) Interest Rate Risk
Carrying
Amount
Contractual
Cash Flows
28,900
23,327
52,227
33,001
23,327
56,328
1 Year or Less
2-5 Years
5 Years or
More
1,745
31,256
23,327
25,072
–
31,256
–
–
–
Carrying
Amount
Contractual
Cash Flows
1 year or less
2–5 years
5 years or
more
14,000
20,817
34,817
16,523
20,817
37,340
1,237
20,817
22,054
15,286
–
15,286
–
–
–
At the reporting date the interest rate profile of the consolidated entity’s interest bearing financial instruments was:
Variable Rate Instruments
In thousands of AUD
Financial assets
Financial liabilities
Carrying Amount
2013
4,761
2012
5,756
(28,900)
(14,000)
A change of one percent in interest rates at the reporting date would have increased or decreased the consolidated entity’s equity
and profit or loss by $169,000 (2012: $58,000).
(e) Fair Values
The fair values of the Company’s and consolidated entity’s financial assets and liabilities as at the reporting date are considered
to approximate their carrying amounts.
(f) The Fair Value Hierarchy
Financial instruments carried at fair value require disclosure of the valuation method according to the following hierarchy:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the asset or liability that are not based on observable market data.
The consolidated entity’s only financial instruments that are measured and recognised at fair value are purchase debt ledgers.
They are classified as Level 3.
46
46
THORN GROUP LIMITED 2013 FINANCIAL REPORT
21. Earnings Per Share
Basic earnings per share
The calculation of basic earnings per share at 31 March 2013 was based on profit attributable to ordinary shareholders of $28,021,000
(2012: $27,849,000) and a weighted average number of ordinary shares during the year ended 31 March 2013 of 146,644,775 (2012:
144,722,948).
Diluted earnings per share
The calculation of diluted earnings per share at 31 March 2013 was based on profit attributable to ordinary shareholders of
$28,021,000 (2012: $27,849,000) and a weighted average number of ordinary shares during the year ended 31 March 2013
of 147,173,301 (2012: 146,488,310), which includes performance rights granted.
Profit attributable to ordinary shareholders (basic)
In thousands of AUD
Profit attributable to ordinary shareholders (basic and diluted)
Weighted average number of ordinary shares (basic)
In thousands of shares
Issued ordinary shares at 1 April
Effect of shares issued
Weighted average number of ordinary shares at 31 March
Weighted average number of ordinary shares (diluted)
In thousands of shares
Issued ordinary shares at 1 April
Effect of shares issued
Weighted average number of ordinary shares (diluted) at 31 March
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
2013
2012
28,021
27,849
146,375
129,860
270
14,863
146,645
144,723
146,488
130,737
324
15,751
146,812
146,488
19.11
19.09
19.24
19.01
47
47
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
22. Operating Leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
2013
8,141
13,207
21,348
2012
7,019
11,387
18,406
The consolidated entity leases all the store premises, and the corporate office under operating leases. The leases typically run for
a period of 3 years, with an option to renew the lease after that date. Most of the lease payments are increased every year to reflect
market rentals. None of the leases include contingent rentals.
The consolidated entity also leases vehicles under operating leases. The lease term for these vehicles normally runs for a period of
4 years. The lease payments are set at the commencement of the lease term for the term of the lease. None of the leases include
contingent rentals.
Leases as lessor
The consolidated entity leases out its rental assets under operating leases. The future minimum lease payments under non-cancellable
operating leases are as follows:
In thousands of AUD
Less than one year
Between one and five years
23. Finance Leases
Leases as lessor
2013
2012
37,671
8,549
46,220
36,091
9,205
45,296
The consolidated entity leases out its rental assets under finance lease, hire purchase and chattel mortgage contracts. The consolidated
entity classifies Rent Try Buy™ contracts as finance leases where the term of the contract is 24 months or 36 months. The asset rented
has an estimated useful life equal to the contract length. The future minimum lease payments under non-cancellable finance leases are
as follows:
In thousands of AUD
Less than one year
Between one and five years
2013
2012
67,597
74,631
55,133
49,742
142,228
104,875
Unearned finance income in relation to finance leases as at 31 March 2013 was $49,225,000 (2012: $38,572,000).
48
48
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Ownership interest
Country of
Incorporation
2013
2012
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
24. Consolidated Entities
Parent entity
Thorn Group Limited
Subsidiaries
Thorn Australia Pty Ltd
Eclipse Retail Rental Pty Ltd
Rent Try Buy Pty Ltd
CashFirst Pty Ltd
1st Cash Pty Ltd
Thorn Equipment Finance Pty Ltd
Thorn Finance Pty Ltd
Votraint No 1537 Pty Ltd
National Credit Management Limited
A.C.N 119211317 Pty Ltd
Hudson Legal Pty Ltd
25. Contingencies
The industry in which the consolidated entity operates is highly regulated. Documentation, marketing and sales activities (both written
and verbal) must comply with strict rules provided in the National Consumer Credit Protection Act and other legislation such as the Fair
Trading and door to door sales legislation. Breach of these rules can result in fines or civil penalties or damages or compensation or some
combination of these.
The consolidated entity has no reason to believe that a breach of these rules will occur or is likely to result in a material effect on the
profitability of the consolidated entity. No provision exists for any potential exposure in connection with such a breach.
The consolidated entity is aware (via the “mystery shop” process, where a person presents as a customer but is not a real customer)
that some verbal statements may have been made to some customers inaccurately describing the customer’s rights in relation to the
acquisition of similar products to those rented under its Rent Try Buy™ contracts. Under the National Consumer Credit Protection Act,
the amount at risk in relation to any affected contract is part of any deemed “interest” payable under that contract and/or any penalties
which could be imposed. No customer complaints have been received in this regard.
The consolidated entity has no reason to believe that this matter is likely to result in a material effect on the profitability of the
consolidated entity and no provision exists for any potential exposure in connection with this matter.
26. Deed of Cross Guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998 certain wholly owned subsidiaries are relieved from the
Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ reports.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect
of this is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries
under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only
be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the
event that the Company is wound up. The subsidiaries subject to the Deed are listed in Note 24.
The consolidated Statement of Comprehensive Income and consolidated Statement of Financial Position, comprising of entities which are
parties to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, at 31 March 2013, is the same
as the consolidated Statement of Comprehensive Income and consolidated Statement of Financial Position included in this financial report.
49
49
Notes to the consolidated financial statements for the year ended 31 March 2013 (continued)
27. Reconciliation of Cash Flows from Operating Activities
In thousands of AUD
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation and amortisation
Equity settled transactions
Disposal of rental assets
Thorn Equipment Finance settlements
Operating profit before changes in working capital and provisions
Changes in working capital and provisions, net of the effects of the purchase of subsidiaries
(Increase) in trade and other receivables
Decrease in deferred tax assets
Increase/(Decrease) in income tax liability
Increase/(Decrease) in trade and other payables
Increase in provisions and employee benefits
Net cash from operating activities
28. Parent Entity Disclosures
2013
2012
28,021
27,849
32,259
28,873
212
26,328
33,161
119,981
250
21,452
12,916
91,340
(35,303)
(14,357)
2,627
3,260
2,719
44
93,328
4,535
(4,888)
(5,430)
558
71,758
As at, and throughout, the financial year ending 31 March 2013 the parent entity of the consolidated entity was Thorn Group Limited.
In thousands of AUD
Result of Parent Entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent comprising of:
Share capital
Equity remuneration reserve
Total Equity
2013
2012
14,656
12,272
–
–
14,656
12,272
4,520
102,772
4,520
4,520
95,483
2,769
98,252
1,260
97,715
1,260
1,260
93,898
2,557
96,455
Parent entity guarantees in respect of the debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its
subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in Note 26.
50
50
29. Related Parties
Key management personnel remuneration
In AUD
Short-term employee benefits
Post-employment benefits
Long service leave benefits
Share based payments
Termination benefits
THORN GROUP LIMITED 2013 FINANCIAL REPORT
2013
2012
2,776,546
2,429,121
144,690
13,044
117,723
25,586
212,222
250,000
47,830
–
3,194,332
2,822,430
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation and some equity instruments disclosures as required by
Corporations Regulation 2M.3.03 is provided in the remuneration report section of the directors’ report on pages 8 to 10.
No director has entered into a material contract with the Company or the consolidated entity since the end of the previous financial
year and there were no material contracts involving directors’ interests existing at year end.
Movements in shares
The movement during the reporting period in the number of ordinary shares in Thorn Group Limited held, directly, indirectly,
or beneficially, by each key management person, including their related parties, is as follows:
Directors
David Carter
John Hughes
Peter Henley
Paul Lahiff
Joycelyn Morton
Executives
Peter Eaton
James Marshall
Directors
David Carter
John Hughes
Peter Henley
Paul Lahiff
Joycelyn Morton
Executives
Peter Eaton
James Marshall
Held at 1 April
2012
Purchases
Sales
Received upon
exercise of
performance
rights
Held at 31
March 2013
262,600
3,700
25,000
–
241,300
3,586,183
–
500,000
261,280
3,347,463
60,278
35,157
20,000
403,124
116,870
12,500
12,500
–
14,000
–
–
–
–
–
60,278
35,157
34,000
–
–
150,000
87,094
340,218
70,000
60,965
107,835
Held at 1 April
2011
Purchases
Sales
Received upon
exercise of
performance
rights
Held at 31
March 2012
221,000
41,600
3,405,715
37,580
31,250
N/A
–
22,698
3,907
20,000
304,860
38,108
74,761
–
–
–
–
–
–
–
–
–
262,600
180,468
3,586,183
–
–
–
60,278
35,157
20,000
60,156
42,109
403,124
116,870
51
51
For the year ended 31 March 2013
Directors’ declaration
1
In the opinion of the directors of Thorn Group Limited (the ‘Company’):
(a) the financial statements and notes that are set out on pages 26 to 51 and the remuneration disclosures that are contained in
section 4.3 of the Remuneration Report in the Directors’ report are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 March 2013 and of their performance,
for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a); and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2
There are reasonable grounds to believe that the Company and the consolidated entities identified in Note 24 will be able to meet
any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the
Company and the consolidated entities pursuant to ASIC Class Order 98/1418.
3
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director
and Chief Financial Officer for the financial year ended 31 March 2013.
Signed in accordance with a resolution of the directors:
David Carter
Chairperson
Dated at Sydney
21 May 2013
John Hughes
Managing Director
52
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Independent auditor’s report
Independent auditor’s report to the members of Thorn Group Limited
Report on the financial report
We have audited the accompanying financial report of Thorn Group Limited (the ‘Company’), which comprises the consolidated
statement of financial position as at 31 March 2013, and the consolidated statement of comprehensive income, consolidated statement
of changes in equity and consolidated cash flow statement for the year ended on that date, Notes 1 to 29 comprising a summary
of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising
the Company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial 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 is free from material misstatement, whether due to fraud or error.
In Note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements,
that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with
Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial
report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the
Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the
consolidated entity’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
53
Independent auditor’s report for the year ended 31 March 2013 (continued)
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
a.
the financial report of the consolidated entity is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 March 2013 and of its performance for the
year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
b.
the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
Report on the remuneration report
We have audited the Remuneration Report included in section 4.3 of the directors’ report for the year ended 31 March 2013.
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 auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Thorn Group Limited for the year ended 31 March 2013, complies with Section 300A of the
Corporations Act 2001.
KPMG
Greg Boydell
Partner
Dated at Sydney
21 May 2013
54
THORN GROUP LIMITED 2013 FINANCIAL REPORT
Additional ASX information
a. Distribution of shareholders
Category (size of holding)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
b. The number of shareholders in less than marketable parcels is 138.
c. The names of the substantial shareholders listed in the Company’s register as at 31 March 2013 are:
Shareholder
Perennial Value Management Limited
Vinva Investment Management Limited
Investors Mutual Limited
Kinetic Investment Partners Limited
d. Voting Rights
The Company only has ordinary shares on issue.
Number of ordinary
1,143
2,858
1,523
1,642
81
7,247
Number of ordinary
fully paid shares held
8,951,373
8,933,167
8,501,910
8,104,064
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote
on a show of hands.
e. 20 largest shareholders – ordinary shares
Name
1.
J.P.Morgan Nominees Australia Limited
2. National Nominees Limited
3. HSBC Custody Nominees (Australia) Limited
4.
RBC Investor Services Australia Nominees Pty Limited
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