Thorn Group Australia
Annual Report 2019
CHAIRMAN AND CEO REPORT
Dear shareholders,
Thorn Group’s FY19 results highlight the ongoing challenges to the business while continuing to deal with a
number of historical issues.
The FY19 results were disappointing and saw lower originations in Business Finance, a loss from the
Consumer Leasing division and heightened corporate costs while continuing to defend the class
action.
Revenue from continuing operations was down 5% to $221.9 million. This decrease was due to the loss in
the consumer leasing division, trigging a $10m impairment against assets, and the business finance division
making an $11.5m provision for a predicted non-recovery of debts. Revenue in consumer leasing was down
9% and equipment finance was up 11%. EBIT was down 99% to $200,000.
Net profit after tax fell to a loss of $14.9m (2018: $(2.2m)). In addition to the Company’s goodwill of $20.7
million write off during FY18, the Board resolved to write off an additional $10.0m pretax in relation to
software and fixed assets in FY20.
Business Finance continued to be constrained by capital availability, with originations declining 28% to
$150.5m compared to FY18. The net receivables still grew by 1% to $314.8m compared to FY18, and revenue
grew by 11% to $43.2m. However the segment performance was impacted as arrears increased as the book
continues to mature and was impacted by the $11.5m provision.
Consumer leasing’s performance was impacted by higher discounts and bad debts and lower interest income
and fees from a smaller book. Despite continued challenging conditions, the business maintained volumes
with a modest 1% increase in installations. During this time the business refurbished some stores, increased
the product offering and introduced wider lease terms ensuring that our customers have a broader range of
choices. The average price per unit increased from $971 in FY18 to $1,030 in FY 19 which drove lease
originations higher to $78.5m ($75m FY18).
The business continued to work on debt management. The Corporate facility was paid down to $15m from
$41m end FY18, and the securitized warehouse facility increased to $368m in August 2018 setting Business
Finance up for future growth. The corporate facility of $30m with a termination date of 30th November 2020
is now subject to a Draw-stop such that all new utilizations, other than rollover loans and those accessing the
overdraft and set-off components of the facility, require prior lender approval.
Due to the poor underlying financial loss, the Directors declared against paying any Dividend in the interests
of retaining cash for balance sheet flexibility.
On 22 May 2019, ASIC release a summary of compliance and remediation report after a comprehensive and
detailed review was conducted by Deloitte. To date ASIC has issued an interim and final compliance report.
The compliance report, shows that Thorns, systems, processes, polices and training procedures are all
compliant with our Australia Credit License and our general conduct and responsible lending obligations.
An additional interim report has been issued with regards to our remediation activities with the final report
on remediation to be issued by 30 August 2019.
The business is rapidly working to further reduce corporate costs, close or relocate underperforming stores
in the consumer leasing division, improve automation and speed to market, improve productivity and take
the necessary steps required to improve the capital position of the company.
The Company announced on 1 April 2019, that the Board had initiated a review of the Group’s Strategic
options in order to protect and maximize shareholder value. The review encompasses strategic options such as
alternative ownership considerations, operational practices, procedures and business profitability amongst
other scenarios. The Company has sought input from various stakeholders throughout the review process and
has engaged external advisers. The review is ongoing and has taken more time than first anticipated. However,
an update will be given to shareholders in the near future.
We appreciate the combined efforts of our people around the country and acknowledge the contribution
from the Board of Directors and the Management team under difficult circumstances.
DAVID FOSTER
Chairman and Non-Executive Director
TIM LUCE
CEO and Managing Director
Annual
Financial Report
31 March 2019
ACN 072 507 147
CONTENTS
Directors’ Report
Lead Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
2
20
21
22
23
24
26
56
57
Annual Report 2019 I 1
DIRECTORS’ REPORT
For the year ended 31 March 2019
The Directors present their report together with the financial report of Thorn Group Limited (the ‘Company’) and its controlled
entities (together referred to as ‘Thorn’, the ‘Group’ or the ’consolidated entity’) for the financial year ended 31 March 2019
and the auditor’s report thereon.
STRATEGIC REVIEW
The Company announced on 1 April 2019 that it had initiated a review of its strategic options. This review is ongoing and
further announcements will be made in due course.
One component of the review is an exploration of alternative ownership considerations which would include the potential sale
of various divisions of the Group or the Company as a whole (including all of the assets of the Company). There is no certainty
the strategic review will result in any offers for either the Company or a division thereof, or that if any offers are received they
will be on commercially acceptable terms.
Nonetheless, the directors are of the view that if a sale of the Company as a whole (including all of the assets of the Company)
or any division thereof were to occur, it is likely such a sale would be at a value (or implied value) lower than the Company’s
recorded net assets of $172.0m in these accounts which are presented as a going concern. This differential in value is also
reflected in the company’s market valuation. Factors giving rise to this include uncertainty over the company’s future cash
flows, the presence of the class action contingent liability, and a recognition that the value of assets realised in an immediate
sense may be lower than the value realised in the ordinary course of business.
OPERATING AND FINANCIAL REVIEW
Principal activities
Thorn is a diversified financial services group providing the leasing of household products to consumers, and commercial asset
finance to small and medium size enterprises. There were no other significant changes in the nature of the activities of the
consolidated entity during the year.
Financial performance
Revenue decreased in the year to $221.9m (2018: $234.3m), and net profit after tax fell to a loss of $(14.9m) (2018: $(2.2m)).
The profit and loss statements include non operating matters which have significantly affected the results. This year asset
impairments arose in the Consumer Leasing division as a result of lower reported operating profits and cash flows which
prompted the directors to review the carrying value of the assets in that division and to write them down. Last year, the
goodwill balance of $20.7m was written off and this year the software and fixed assets balances were written off to a value of
$10.0m pre tax. For the purpose only of better explaining the results, these two adjustments have been separated out into one
line in the table below.
This year a specific provision of $11.5m was taken in the Business Finance division against a group of receivables where the
individual lessees for a certain product, introduced via agency arrangements, had defaulted and challenged the enforceability
of the leases. There were also a number of accounting policy changes which are explained in the notes.
Segment performance
A$m
Segment revenue
Segment EBIT to PAT
Consumer Leasing
Business Finance
Corporate
Goodwill and asset impairments
Sub-total
Net interest expense
Profit before tax
Tax expense
Net loss after tax from continuing operations
Profit from discontinued businesses after tax
Net loss after tax
2 I Thorn Group
2019
178.7
43.2
-
-
221.9
2018
195.4
38.9
234.3
2019
(2.1)
16.1
(13.8)
(10.0)
(9.8)
(15.4)
(25.2)
7.1
(18.1)
3.2
(14.9)
2018
28.4
24.3
(14.8)
(20.7)
17.2
(15.8)
1.3
(6.4)
(5.0)
2.8
(2.2)
DIRECTORS’ REPORT
For the year ended 31 March 2019
Consumer Leasing
The Company’s consumer leasing division, Radio Rentals, continued to experience challenging trading conditions during the
year. Retail sales were slow, the consumer leasing industry was in the spotlight with the recent Senate Inquiry, there is
continuing publicity around the class action against the Company, the rise of unregulated buy now pay later financiers, and the
individual customer’s financial position has been impacted by persistent low income growth and rising household costs.
To respond to these challenges, the division refurbished stores and increased its marketing offers and promotions to customers
including offering new longer contract terms. These activities were successful in that they served to stabilise sales with 83,299
units being installed in the year which was 1% higher than last year’s 82,371.
Revenue for the 2019 financial year reduced by $16.8m to $178.6m (2018: $195.4m). Revenue is a combination of sales
revenue from installations under new contracts and the interest and fee income from past written contracts. While sales
revenue was up on last year it came with increased promotional and discounting costs. An accounting policy change was
enacted where gift cards and similar promotional activity offered upfront has been adjusted to be written off as an immediate
expense rather than being amortised over the effective life of the contract.
Interest income reduced as the net receivables book, which generates the interest income, fell to $136.2m (2018: $153.2m
post AASB 9 adoption). Other fees and charges reduced as legacy products wound off and the volume of other fees and charges
reduced.
The division’s costs (excluding intangible and asset impairments) increased by $13.8m to $180.8m (2018: $167.0m) due to
higher promotional costs and a significant increase in customer arrears in the second half leading to higher provisioning and
write off. The arrears position continues to be addressed and is trending down but remains elevated compared to prior periods.
Other than the above, all other expenses were in line with or lower than the prior year. The division continues to pursue
changes to its operating model with changes having been implemented in collections, servicing and warehousing. The resulting
EBIT before intangible and asset impairments was a loss of $(2.1m) (2018: profit of $28.4m) and a loss of $(12.1m).
Business Finance
Business Finance experienced a year of constrained growth as the availability of credit remained tight. While the new
warehouse mezzanine structure raised the gearing of the division, the Group’s declining profitability and cash flow limited the
capital availability for the junior notes component. Originations were therefore limited and ended 25% below the prior year at
$150.5m (2018: $208.9m). The net receivables book fell marginally to $318.3m (2018: $314.8m post AASB 9 adoption) mostly
as a result of the specific provision taken referred to previously.
Revenue rose 11% to $43.2m (2018: $38.9m). Arrears and consequent bad debt write offs remained in the acceptable range
except for the specific provision which was required to be taken for the industry wide issue where Thorn’s exposure was
provided for in full. With costs under control, EBIT before that matter would have been up 13% at $27.6m. After that specific
provision, EBIT was $16.1m (2018: $24.3m).
Corporate
Corporate expenses continue to be elevated due to the legal and compliance costs of the ASIC and class action matters but
overheads were cut resulting in the expenses of the corporate centre for the year reducing from $14.8m last year to $13.8m.
Interest expense
Net borrowing costs decreased by 3% from $15.8m to $15.4m. Borrowings increased during the year as growth in the Business
Finance book was funded predominantly by debt and with the introduction of a mezzanine financier into the warehouse from
August 2018. Borrowings in the warehouse rose to $288.6m (2018: $243.3m). The corporate facility balance was further
reduced during the year down to $15.0m (2018: $41.0m). The price of financing rose mostly because the mezzanine tranches in
the warehouse naturally come with higher credit spreads.
Tax expense
The Group generally pays corporation tax at or slightly above the 30% statutory rate as some expenses are not tax deductible.
Discontinued operations
Three business divisions were sold over the past two years to reduce debt. There were final payment adjustments and the
resolution of provisions set aside for warranty and other claims during this financial year which have given rise to a profit after
tax for discontinued businesses of $3.2m. As at the date of this report there are no balances held on the balance sheet in
relation to these sold entities and one limited exposure warranty remains in force.
Annual Report 2019 I 3
DIRECTORS’ REPORT
For the year ended 31 March 2019
Financial position
The balance sheet is presented below and has two versions. The first version excludes the securitised warehouse trust
borrowings for Business Finance along with those associated receivables (which are non-recourse funding for the warehouse)
leaving only the corporate bank debt facility, and the second is as per the statutory accounts format with all debt included.
Summarised financial position
31 March 2019
31 March 2018
$m
Cash at bank (i)
Receivables
Investment in unrated notes
Inventories and other assets
Intangible assets
Total Assets
Borrowings
Other liabilities
Total Liabilities
Total Equity
Gearing (net debt/equity) (ii)
EPS
Return on Equity (iii)
excl. Trust
incl. Trust
excl. Trust
incl. Trust
30.6
144.8
24.0
24.8
-
224.2
15.0
37.2
52.2
172.0
4.1%
30.6
457.4
-
24.8
-
512.8
303.6
37.2
340.8
172.0
171.9%
(9.3)
(8.0%)
28.2
187.0
58.7
18.1
5.7
297.7
41.0
57.0
98.0
199.7
16.3%
28.2
489.0
-
18.1
5.7
541.0
284.3
57.0
341.3
199.7
138.2%
(1.4)
(1.1%)
Cash at bank consists of free cash of $7.9m (2018: $8.4m) and restricted cash $22.7m (2018: $19.8m) relating to the operation of the securitised warehouse SPV.
(i)
(ii) Gearing is calculated as closing net debt (i.e. debt less free cash) divided by closing equity
(iii) ROE is calculated as PAT divided by the average of opening and closing equity and annualised. With goodwill and assets impairment excluded ROE would have been
(2.6)% (2018: 9.1%).
Cash at bank
The cash amount includes the free cash available to the Group for its usual working capital balance plus the tied cash held
within the securitised warehouse special purpose vehicle. At the year end free cash was $7.9m and tied cash $22.7m.
Receivables
Consumer leasing receivables reduced by $16.8m to $136.4m (2018: $153.2m post AASB 9 adoption). This was a combination
of existing receivables in the book amortising off faster than new volumes could replace them, additional bad debt write offs
being experienced, and higher provisioning as a result of the higher arrears and loss given default under AASB 9.
Business Finance receivables remained relatively flat at $318.3m (2018: $314.8m post AASB 9 adoption) as constrained
origination volumes grew the book but that increase was offset by the specific provision of $10.1m taken against the industry
wide matter referred to above.
Investment in unrated notes
This balance represents the equity notes held by the Group in the securitised warehouse. It has decreased since 31 March 2018
due to the introduction of the mezzanine investor into the warehouse who purchased 60% of the Group’s notes as part of that
transaction.
Borrowings
Borrowings rose to $303.6m (2018: $284.3m). The securitised warehouse funding grew $45.3m from $243.3m to $288.6m. The
corporate facility was reduced by $26.0m from $41.0m to $15.0m.
Other liabilities
Liabilities reduced as the regulatory remediation program proceeded and there were changes in the deferred tax position as a
result of the provisions taken and write downs made.
4 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
Funding
The Group has the following debt facility limits:
$m
Secured Corporate Loan Facilities A and B
Securitised Warehouse Facility
2019
30.0
368.0
2018
70.0
250.0
The Company continues to be funded in its corporate facility and the majority of its securitised warehouse facility by one
Australian major bank. That bank and the Company entered into facility variation agreements during the year which required
the Company to undertake progressive debt repayments and meet new covenants. Progressive repayments were made and the
outstanding balance at year end was $15.0m with a further $2.5m earmarked for bank guarantees given to landlords of retail
stores occupied by the Company. The consequent available facility headroom is therefore $12.5m but the facility presently has
a drawstop placed upon it such that $10.0m of further draw downs can only take place with the lender’s prior approval (the
difference is a $2.5m overdraft tranche which is unrestricted).
The corporate facilities terminate on 30 November 2020 with the bank having the right to a scheduled annual review of the
facility on 30 November 2019. The corporate facilities are secured by a fixed and floating charge over the assets of the
consolidated entity.
The securitised warehouse facility is a separate special purpose vehicle where the borrowings advanced by the bank and the
mezzanine financier are secured by the rentals and payments receivable from the underlying lease receivable contracts and is
non-recourse to the Group beyond Thorn’s subordinated notes in the warehouse. The facility is drawn to $288.6m leaving
$79.4m as the undrawn capacity which can be accessed providing the lease and loan receivables to be sold into the warehouse
meet the warehouse eligibility criteria and all other terms and conditions of that facility remain met.
The facility terminates in 10 August 2025 and the financiers have the right at 10 August 2019 to cease funding new originations
whereby the facility would go into run off and be repaid from the underlying cash flows. The facility received a credit rating
during the year.
DIVIDENDS PAID OR RECOMMENDED
There were no dividends declared or paid during the financial year:
Cents per share
Amount $'000
Franking
Date of payment
2019
Final 2018
Interim 2019
Total amount
2018
Final 2017
Interim 2018
Total amount
-
-
2.5
1.0
-
-
-
3,956
1,593
5,549
n/a
n/a
100%
100%
n/a
n/a
18-Jul-17
19-Jan-18
Directors have resolved that no final dividend be declared. This decision was taken after considering the need to retain cash to
provide balance sheet flexibility for the Company following the changes to its bank financing arrangements and the reported
loss for the year.
REGULATORY MATTERS
Thorn is complying with the Enforceable Undertaking agreed with ASIC on 23 January 2018. The remediation is substantially
completed in compliance with the requirements of the EU and the amounts remain provided for.
Deloitte was appointed as the Independent Expert on 12 February 2018 to provide a series of reports in accordance with the EU
to assess Thorn’s compliance with its obligations under its Australian Credit Licence and the progress of its consumer
remediation program for affected consumers. These reports are available on the ASIC website.
The group is not subject to any significant environmental regulation.
Annual Report 2019 I 5
DIRECTORS’ REPORT
For the year ended 31 March 2019
CONTINGENT LIABILITY
The Thorn subsidiary operating Radio Rentals remains a respondent to a class action proceeding commenced by one of its
customers in the Federal Court of Australia on 29 March 2017. The allegations relate to misleading and deceptive conduct,
unconscionable conduct, false representations and unfair contract terms.
The matter is being defended and no provision has been made in these accounts. The proceedings remain ongoing with a
hearing scheduled for October 2019. Furthermore, the applicant was successful in its application to join Thorn’s former
managing director James Marshall and Thorn’s insurer, AIG, to the proceedings. Legal fees continue to be incurred defending
the matter.
FINANCING AND GOING CONCERN BASIS FOR THE FINANCIAL REPORT
On 9 November 2018, the Group and its bank entered into a revised corporate facility with a tenor out to November 2020 and a
facility limit of $30m. In the present circumstances, with the Company announcing a substantial loss for the year, waivers on
financial convenants and a strategic review underway, on 29 March 2019 the bank implemented a draw stop to only permit
further drawings under the corporate facility with the bank’s prior approval. Accordingly $10m of the corporate facility
headroom of $12.5m at year end can only be accessed at the bank’s absolute discretion (the difference is a $2.5m overdraft
tranche which is unrestricted). The Group maintains a working relationship with its financier, despite the circumstances noted
above.
As referred to in Note 27 the Group is defending a class action and legal fees continue to be incurred in defending the matter.
The proceedings remain ongoing with the outcome of the matter uncertain as at the date of this report.
The continuing viability of the group and its ability to continue as a going concern is dependent upon the Group returning to
profitability, maintaining the support of its lender, and progressing the strategic review. In that regard, the Group also has the
ability to restrict its originations and cash outflows, including suspending originations, and retains the ability to raise funds via a
variety of asset realisation and funding options.
As a consequence of the above matters, a material uncertainty exists that may cast significant doubt as to whether Thorn will
be able to continue as a going concern and therefore whether Thorn will be able to realise its assets and extinguish its
liabilities, and contingent liabilities should they become non-contingent, in the normal course of business and for the amounts
recorded in this report.
However, the directors believe that there are reasonable grounds to determine that the going concern basis should be adopted
in preparing this financial report. The directors refer the reader to note 1 in the financial statements for further details.
This Financial Report does not include adjustments relating to the recoverability and classification of recorded asset amounts,
or the amounts and classification of liabilities, contingent or non-contingent, which might be necessary should the Group not
continue as a going concern.
OUTLOOK
Challenging trading conditions are expected to persist for Consumer Leasing although volumes are now stable; arrears, bad
debts and promotional discounts are all being brought down gradually; and a major competitor has given notice they are
exiting the market.
Business Finance is expected to perform similarly to this year (excluding a repeat of the specific provision) given similar capital
constraints. The corporate centre will continue to suffer ongoing legal and advisory fees for the class action and enforceable
undertaking.
The Group is expected to return to a trading profit in FY20.
6 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
DIRECTORS' INFORMATION
David Foster
Independent, Non-Executive
Appointed 1 December 2014
Appointed Board Chairman 1 February 2018
Qualifications
Bachelor of Applied Science
MBA, GAICD, SFFIN
Experience
David is an experienced Independent Non-Executive Director
across a range of industries. He has had an extensive career in
Financial Services spanning over 25 years.
His most recent executive role until December 2013 was CEO
of Suncorp Bank, a role he commenced in September 2008.
Prior to his role as CEO of Suncorp Bank, David led Suncorp’s
strategy function which included numerous merger and
acquisition activities including one of Australia’s largest
Financial Services transactions – Promina Limited.
Other current ASX directorships
G8 Education Limited, MotorCycle Holdings Limited
Genworth Mortgage Insurance Australia Limited
Former ASX directorships
Kina Securities Limited
Interests in shares and options
60,270 ordinary shares
Belinda Gibson
Independent, Non-Executive
Appointed 1 July 2016
Chairman of the Risk & Compliance Committee
Appointed 1 February 2018
Qualifications
Bachelor of Economics, LLB (Hons) (Sydney) and LLM (Hons)
(Cambridge), FAICD, FGIA
Experience
Belinda was a Commissioner and then Deputy Chairman of
the Australian Securities and Investments Commission (ASIC)
from 2007 until May 2013. From 1987 until joining ASIC she
was a corporate law partner at the law firm Mallesons
Stephen Jaques, specialising in transactional advice and also
corporate governance issues.
Other ASX current directorships
None
Former ASX directorships
Getswift Limited
Interests in shares and options
20,000 ordinary shares
Andrew Stevens
Independent, Non-Executive
Appointed 1 June 2015
Chairman of the Audit Committee
Appointed 1 February 2018
Qualifications
Master of Commerce
FCA
Experience
Andrew began his career at Price Waterhouse (now PwC) and
was a Partner of that firm for 12 years. He also performed a
range of senior management and global leadership roles at
IBM Corporation, most recently serving as the Managing
Director of IBM Australia and New Zealand from 2011-2014.
Other ASX current directorships
Stockland Corporation Limited
Former ASX directorships
MYOB Group Limited
Interests in shares and options
15,720 ordinary shares
Stephen Kulmar
Independent, Non-Executive
Appointed 15 April 2014
Chairman of the Remuneration & Nomination Committee
Appointed 15 April 2014
Experience
Stephen is the former Managing Director and Chairman of
IdeaWorks and is currently the Managing Director of Retail
Oasis, retail marketing and business consultancy.
Stephen has over 40 years’ experience in advertising and has
extensive experience in retail strategy, brand strategy,
channel to market strategy, digital and social strategy,
business re-engineering and new retail business
development.
Other ASX current directorships
Accent Group Ltd
Former ASX directorship
None
Interests in shares and options
68,000 ordinary shares
Annual Report 2019 I 7
Company Secretaries
David Lines is the Group’s General Counsel having joined the
company on 1 June 2017. Mr Lines is an experienced and
qualified solicitor with extensive legal and business
experience having practiced in England, Bermuda and
Australia. He was a partner of an international law firm and
advised clients in corporate law, corporate finance, corporate
structuring and general regulatory matters.
Peter Forsberg is the Group’s CFO having joined the company
on 28 September 2015. Mr Forsberg BSc Hons, FCA, F Fin,
GAICD, MFTA is an experienced and qualified CFO and senior
executive having worked in healthcare, manufacturing and
distribution, FMCG, professional services, and in publicly
listed, private equity owned and charitable companies
operating both in Australia and internationally.
DIRECTORS’ REPORT
For the year ended 31 March 2019
Tim Luce
Managing Director
Appointed 15 February 2018
Qualifications
Bachelor of Commerce
Experience
Tim has extensive executive experience working with retail
brands in Australia and Asia and joins Thorn Group after six
years with Courts Asia Ltd, an SGX listed retailer with over 90
stores selling household, technology, furniture, services and
consumer finance products, headquartered in Singapore
where he was Chief Operating Officer with P&L responsibility
for Singapore, Malaysia and Indonesia. Prior to Courts, Tim
held General Manager roles for Lovisa and Goldmark
Jewellers.
Other current ASX directorships
None
Former ASX directorships
None
Interests in shares and options
646,460 ordinary shares
1,187,947 performance rights over ordinary shares. 598,803
are sign on bonus performance rights and 589,144 are long
term incentive performance rights.
Joycelyn Morton
Independent, Non-Executive
Appointed 1 October 2011, resigned 31 May 2018
Board Chairman 26 August 2014 until 1 February 2018
Qualifications
Bachelor of Economics FCA, FCPA, FIPA, FGIA, FAICD
Experience
Joycelyn has more than 35 years’ experience in finance and
taxation having begun her career with Coopers & Lybrand
(now PwC), followed by senior management roles with
Woolworths Limited and global leadership roles in Australia
and internationally within the Shell Group of companies.
Joycelyn was National president of both CPA Australia and
Professions Australia, she has served on many committees
and councils in the private, government and not-for-profit
sectors.
Other ASX current directorships
Argo Investments Limited, Argo Global Listed Infrastructure
Limited, Beach Energy Limited
Former ASX directorships
InvoCare Limited, Crane Group Limited
Count Financial Limited, Noni B Limited
Interests in shares and options
95,119 ordinary shares
8 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
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
Board Meetings
Audit Committee Meetings
Risk & Compliance Committee
Meetings
Remuneration & Nomination
Committee Meetings
David Foster
Joycelyn Morton1
Belinda Gibson
Andrew Stevens
Stephen Kulmar
Tim Luce
A
7
1
7
7
7
7
B
7
1
7
7
7
7
A
5
2
5
5
5
B
5
2
5
5
5
A
4
-
4
4
4
B
4
-
4
4
4
A
3
-
3
3
3
B
3
-
3
3
3
n/a
n/a
n/a
n/a
n/a
n/a
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
1 Ms Morton resigned on 31 May 2018 before any Risk and Compliance Committee or Remuneration and Nomination
Committee meetings.
n/a – Mr Luce, as an executive director, attended Committee meetings but as an invitee only
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
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.
Insurance premiums
During the financial year the Company has paid insurance premiums of $416,426 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.
REMUNERATION REPORT
The Board of Thorn Group Limited presents the remuneration report which outlines key aspects of the remuneration policy and
framework and the remuneration awarded this year.
The information provided in this report has been prepared based on the requirements of the Corporations Act 2001 and the
applicable accounting standards and has been audited by Pwc.
The report is structured as follows:
1. Remuneration governance
2. Non-Executive Directors and Key Management Personnel
3. Non-Executive Director remuneration
4. Key Management Personnel remuneration
5. Alignment between remuneration and performance
6. Service contracts for KMP
7. Other statutory disclosures
Annual Report 2019 I 9
DIRECTORS’ REPORT
For the year ended 31 March 2019
1. REMUNERATION GOVERNANCE
The Company aims to deliver sustainable and superior returns to shareholders. The remuneration framework is designed to
ensure rewards are appropriate for the results achieved and are aligned to the Company’s strategic goals and shareholder
wealth creation.
The Board provides guidance and oversight to the remuneration strategy and has established a Remuneration & Nomination
Committee to ensure the remuneration strategy attracts and retains quality directors and executives, fairly and responsibly
rewards them, is equitable and aligned to shareholders’ interests, and complies with the law and high standards of governance.
The Committee is made up of independent non-executive directors and its charter is available on the Company website. The
Committee makes recommendations to the Board for its consideration and approval. The Committee Chairman will be
available at the Annual General Meeting to answer any questions from shareholders on this report. At the 2018 AGM, the
Remuneration Report received a vote of approval of 94% of the votes received.
The Committee can draw on independent experts where appropriate to provide advice on remuneration levels, trends and
structures. Where this occurs the consultants are instructed by and report directly to the Chairman of the Committee and are
thereby free of any undue influence by any KMP to whom their recommendations may relate.
2. NON-EXECUTIVE DIRECTORS AND KEY MANAGEMENT PERSONNEL - AUDITED
For the year ended 31 March 2019, the NEDs and KMP were:
Non-Executive Directors
Position
David Foster
Joycelyn Morton
Stephen Kulmar
Director
Board Chairman
Director
Director
Chairman of the Remuneration & Nomination Committee
Andrew Stevens
Director
Chairman of Audit Committee
Belinda Gibson
Director
Chairman of Risk & Compliance Committee
Executive KMP
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Position
CEO and Managing Director
Chief Financial Officer and Company Secretary
Chief Risk Officer
General Counsel and Company Secretary
Changes to KMP during the year
There were no changes in KMP during the year.
Director/Committee Chair
Term or Date
Full Year
Full Year
Until 31 May 2018
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Term or Date
Full Year
Full Year
Full Year
Full Year
10 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
3. NON-EXECUTIVE DIRECTOR REMUNERATION - AUDITED
Non-executive directors’ fees are determined within an aggregate directors’ fee pool as approved by shareholders from time to
time. Independent remuneration consultants are employed periodically to provide advice and, where an increase is
recommended, this is put to shareholders at the subsequent AGM. The current maximum aggregate fee pool is $650,000
inclusive of superannuation per annum and was last voted upon by shareholders at the 2013 AGM. Director’s individual fees
did not increase in 2018/19 and the Board does not intend to seek a change to the fee pool at the 2019 AGM.
The base annual fee for the Chairman is $187,223 per annum including superannuation. Base fees for other non-executive
directors are $93,611 per annum including superannuation. The Chairs of each of the committees receive an additional annual
fee of $10,950 inclusive of superannuation.
Non-executive directors do not receive performance-related remuneration. Non-executive directors are not entitled to any
additional remuneration upon retirement. Out-of-pocket expenses are reimbursed to directors upon the production of proper
documentation.
Name
David Foster
Stephen Kulmar
Andrew Stevens
Belinda Gibson
Joycelyn Morton
Total Non-Executive Director Remuneration
Year
2019
2018 (i)
2019
2018
2019
2018
2019
2018
2019 (i)
2018 (i)
2019
2018
Salary and fees
Superannuation
170,980
123,071
95,490
95,490
95,490
86,913
95,490
86,913
16,112
158,814
473,561
551,201
16,243
11,692
9,072
9,071
9,072
8,257
9,072
8,257
1,531
15,087
44,989
52,364
Total
187,223
134,763
104,562
104,561
104,562
95,170
104,562
95,170
17,642
173,901
518,550
603,565
(i) Ms Morton stepped down as Chairman and Mr Foster was elected Chairman on 1 February 2018. Ms Morton resigned on 31 May 2018.
4. EXECUTIVE KMP REMUNERATION - AUDITED
The Company’s approach to remuneration is framed by the strategy and operational demands of the business, the desire for
superior sustained shareholder returns, the complex and onerous regulatory environment and high standards of governance.
The remuneration structure has been designed to balance both shareholder and executive interests. It consists of a mix of fixed
and ‘at-risk’ pay where the at-risk element seeks to balance both short and long term performance.
The diagram below illustrates the link between the business’ objective and executive KMP remuneration.
The Company is committed to providing a ‘fair go’ for consumers and SMEs in a responsible manner while delivering shareholders sustainable and
increasing long term value.
Business objective
(cid:1113)
Remuneration strategy objectives
1.
Align executive remuneration to Company performance and
results delivered to shareholders through the short and long term
incentive plans being ‘at-risk’ based on business profit after tax
performance and returns to shareholders.
2.
Attract, motivate and retain executive talent in a competitive
market through a competitive rewards program which attracts
quality executives and incorporates a significant at-risk incentive
component.
(cid:1113)
Annual Report 2019 I 11
DIRECTORS’ REPORT
For the year ended 31 March 2019
Fixed
At-risk
Fixed remuneration
Short term incentive
Long term incentive
Base salary and benefits plus statutory
superannuation contributions
Annual cash payment with deferral mechanism
Rewards experience skills and capabilities
Rewards performance over a 12 month period
Fixed payment reviewed annually and any
increases applied from 1 April
Set with reference to comparable companies (in
terms of industry and size), the scope and
nature of the role, and the executive’s
qualifications, skills, and experience
At-risk wholly dependent upon achieving agreed
performance
(only paid if targets achieved)
Payment is determined by performance against
net profit after tax target and individual KPIs
Performance rights granted annually at the
Board’s discretion
Rewards achievement of the Company’s
shareholder return targets over a three year
period
At-risk wholly dependent upon achieving agreed
performance
Vesting is determined by performance against
targets which align to the Company’s long term
shareholder return objectives
Future remuneration intentions
The above described remuneration framework is intended to continue for the FY20 year with the STI now subject to an 85%
performance hurdle for EBIT whereon 25% of TFR becomes eligible and then a straight line apportionment up to 50% of the TFR
at 100% of EBIT and through to 100% the TFR at 110% of EBIT.
Directors advise that with a strategic review underway this may give rise to a requirement to amend the framework to achieve
specific company objectives. If necessary, a revised proposal for the LTI may be put to shareholders at the AGM.
Summary of executive KMP remuneration outcomes on a statutory basis – audited
Name
Year
Salary
Termination
STI
Other
remuneration (a)
Superannuation
Long
Service
Leave
Total
LTI(b)
Executive KMP
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Former KMP’s
Matt Ingram
James Marshall
Total KMP
Remuneration
Notes
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
704,580
67,784
424,967
591,480
329,580
329,676
329,580
210,702
-
-
427,279
1,788,707
2,008,577
- 181,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
110,000
-
60,000
-
60,000
-
-
-
-
-
- 181,250
230,000
339,581
-
-
20,411
5,012
20,411
19,563
20,411
19,563
20,411
10,024
-
19,563
-
13,220
81,644
86,945
-
-
-
-
-
-
-
-
736,226
1,642,467
88,173
180,358
111,347
115,488
55,552
102,249
87,792
160,969
735,736
722,390
525,479
404,791
512,240
308,518
-
-
(77,419)
663,381
-
-
2,893
(223,775)
219,617
- 1,134,321
3,415,922
2,893
41,670
2,479,666
381,656
339,581
a)
b)
Other incentives represents retention payments settled in cash
The LTI column represents the accounting charge recognised in the Company’s profit and loss account in respect of the long term incentive plan,
and also include retention payments settled in equity. The charge reflects the fair value of the performance rights calculated at the date of grant
using a Monte Carlo simulation model and allocated to each reporting period 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. Where grants lapse due to the failure
or anticipated failure to achieve non-market condition hurdles then the expense previously recognised can be reversed and result in a negative
entry in this column.
12 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
It includes benefits attributed to Mr Luce for his sign on bonus of $1m of performance rights at the 5 day VWAP before his joining date of 15
February 2018 in two tranches, one with a one year vesting period and one with a two year vesting period, plus recurring LTI performance rights
issues to KMP.
Retention payments
The KMP, with the exception of Mr Luce, received no pay rise or short term incentive in 2018 or 2019. The board recognised
that retaining the services of several of its key executives was essential to the ongoing success of the Group and accordingly
retention offers were made to those executives. Retention payment arrangements were paid in the year to 31 March 2019 to
Mr Forsberg, Ms Yip and Mr Lines as set out in the table above. Further arrangements have been entered into subsequent to
the year end for all KMP.
Remuneration mix
The table below represents the target remuneration mix for group executives in the current year:
KMP
Fixed remuneration
At risk
Fixed remuneration
Short term incentive
Long term incentive
50%
25%
25%
Fixed remuneration consists of a base salary and benefits plus statutory superannuation contributions. The fixed remuneration
is set with reference to the market, the scope and nature of the role, and the executive’s qualifications, skills, performance and
experience. In certain cases, the Board may determine that it is appropriate to stretch fixed annual compensation in order to
attract critical talent where necessary.
Fixed remuneration is reviewed annually and any increase applied from 1 April. The Board may also approve adjustments
during the year as recommended by the CEO such as those arising from promotion or the undertaking of additional duties.
The benchmark peer group against which the remuneration packages are compared consists of companies within the ASX300
with market characteristics of between 50% and 200% of that of Thorn Group. Independent expert advice may be sought by
the Remuneration & Nomination Committee to assist in that exercise.
Short term incentive
The short term incentive (“STI”) is an annual cash payment subject to achieving performance criteria based both on financial
and non-financial key performance indicators. There is a target level of payment with an additional stretch component
available for out-performance. The Board has 100% discretion in all matters.
Features
Purpose
Opportunity
Description
To motivate executives to achieve the short term performance targets.
KMP
50%
100%
Target (as % of Fixed)
Maximum (as % of Fixed)
Performance Period
12 months
Gateway and
performance metrics
The STI is subject to a Profit After Tax ‘PAT’ gateway below which no STI payments are made. The maximum STI that
can be earned is based on NPAT against budget as follows:
Company PAT against budget
STI that can be earned
<85%
85%
100%
110%
0%
42.5%
50%
100%
60% of the STI that can be earned (detailed in the table above) is eligible for payment as it is based upon the financial
performance against budgeted PAT with the remaining 40% dependent upon the individual’s performance against
their personal KPIs.
Annual Report 2019 I 13
DIRECTORS’ REPORT
For the year ended 31 March 2019
Features
Description
The personal KPIs are individual to the executive’s position and capacity to influence, pre-agreed with the Board, and
relate to strategically important initiatives and measures for customer satisfaction, systems, risk and staff
development.
Assessment, approval and
payment
At the end of the financial year, the Remuneration & Nomination Committee assesses actual financial performance
based on the Company’s audited financial statements, and each executive’s performance against their personal KPIs
to determine the value of each executive’s STI reward.
Deferral
The Board has 100% discretion with the STI outcome including the exercising of judgement with regard to any matter,
both positive and negative, that may have occurred during the financial period and to adjust the levels of achievement
accordingly.
Once approved, the STI rewards are paid in the month following the release of the Company’s results to the ASX.
A deferral mechanism is in place whereby 30% of the awarded STI is deferred for one year and subject to forfeiture
under two conditions only, first should a material misstatement or omission in the financial statements become
apparent, or second the executive acts in a manner unbecoming of the office held.
The deferred portion is subject to an election by the KMP as to its method of payment. It can be paid in cash one year
later, subject to the restrictions stated, and will earn interest at a suitable deposit rate for that period, or it can be
converted into performance share rights at a VWAP for the 5 days prior to the payment date of the initial tranche and
receive an uplift by a dividend equivalent for any dividends declared during the deferral period. The performance
rights will then be converted to shares on the due date and awarded to the KMP.
STI OUTCOMES FOR 2019 - AUDITED
The Company reported a loss after tax which did not meet the hurdle and accordingly no STI’s were awarded, except for a
payment to Mr Luce who was guaranteed an STI payment with no deferral under his employment contract.
STI for 2018-19
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Total
Target $
362,500
222,500
175,000
175,000
935,000
Earned %
Earned $
Forfeited %
Forfeited $
50%
0%
0%
0%
0%
181,250
-
-
-
181,250
50%
100%
100%
100%
100%
181,250
222,500
175,000
175,000
753,750
Long Term Incentive (LTI)
The Long Term Incentive is an annual performance rights plan to which executive KMP are invited to participate at the Board’s
discretion.
The Company currently has three active LTI plans running which share the same method but differ slightly in their hurdles and
vesting criteria detailed in the table below. All of the plans were granted in the form of performance rights directly linked to the
performance of the Company, the returns generated, and relative increases in shareholder wealth. This structure was used to
ensure appropriate alignment to shareholder value over a specified timeframe.
The following table sets out the key features of the plans with specific references to each of the 2016, 2017 and 2018 plans
where they differ.
Features
Instrument
Purpose
Opportunity
Description
Performance rights being a right to receive a share subject to performance and vesting conditions.
To motivate executives to achieve the long term performance targets.
50% of fixed remuneration
The number of performance rights issued is determined by dividing the dollar opportunity by the prevailing
share price of the Company at the date of issue.
Dividends or share issues
No dividends are paid or accrued on unvested awards.
14 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
Features
Description
Performance criteria
The plans use a Relative Total Shareholder Return (“RTSR”) performance hurdle and an Earnings Per Share
(“EPS”) hurdle in equal measure.
The company’s Relative Total Shareholder Return performance is measured against a comparator group of ASX
listed companies (available on the website at www.thorn.com.au).
RTSR was selected as an objective indicator of shareholder wealth criterion as it includes share price growth,
dividends and other capital adjustments.
Thorn Group Limited’s TSR Ranking
July 2016, July 2017 and July 2018 Grants
< 50th percentile
50th percentile
50th to 75th percentile
75th percentile or greater
Thorn Group Limited’s EPS Hurdle
July 2016, July 2017 and July 2018 Grants
< 5% compound annual growth rate
5%
>5% to <10%
= or > 10% CAGR
Percentage of Performance Rights subject to TSR
condition that qualify for vesting
0%
50%
Assessed on a straight line basis
100%
Percentage of Performance Rights subject to EPS
condition that qualify for vesting
0%
50%
Assessed on straight line basis
100%
Performance period
and vesting dates
(cid:121)
(cid:121)
(cid:121)
July 2016: 3 years (1 July 2016 to 30 June 2019). Vesting date is 1 September 2019.
July 2017: 3 years (1 July 2017 to 30 June 2020). Vesting date is 1 September 2020.
July 2018 : 3 years (1 July 2018 to 30 June 2021). Vesting date is 1 September 2021.
Assessment, approval
and payment
At the end of each performance period, the Remuneration & Nomination Committee assesses the relevant
performance measures and determines the extent to which the awards should vest.
Change of control
Termination
Claw back provisions
Payment is made by the issuing or transfer of shares.
If a change of control occurs prior to the vesting of an award, then the Board may determine in its absolute
discretion whether all or some of a participant’s unvested award vest, lapse, is forfeited, or continues.
Unvested performance rights will lapse if performance conditions are not met. Performance rights will be
forfeited on cessation of employment unless the Board determines at its absolute discretion otherwise.
There are no specific provisions providing the capacity to clawback a component of remuneration in the event of
a matter of significant concern.
Calculation of the value of performance rights in the remuneration tables
The value of performance rights issued to executives and included in the remuneration tables is a mathematical model
calculation designed to show an intrinsic value. This is necessary to show the benefit attributable to the KMP in the year of
issue but before that benefit is actually received by the KMP.
The number of performance rights to be issued is derived from the relevant percentage of the executive’s fixed remuneration
at the time of the grant divided by the share price at that time. This number of performance rights is then input into a Monte
Carlo simulation model by an independent expert and which works out the intrinsic value of the performance rights using the
expected volatility of the shares, the time period to testing date, and a number of other monetary factors as set out in the table
below.
The end result is an intrinsic value for each of the performance rights which is recorded in the books of the Company by
allocating the expense to each reporting period evenly over the period from grant date to the vesting date.
The table below outlines the factors and assumptions used in determining the fair value of performance rights at grant date.
Annual Report 2019 I 15
DIRECTORS’ REPORT
For the year ended 31 March 2019
Grant date
Initial Test date
Expiry
Date
Fair Value Per
Performance
Right
Exercise
Price
Price of Shares
on Grant Date
Expected
Volatility
Risk Free
Interest Rate
Dividend
Yield
1 July 2016
1 July 2017
1 July 2018
1 September 2019
31 October 2019
1 September 2020
31 October 2020
1 September 2021
31 October 2021
$0.97
$1.00
$0.46
Nil
Nil
Nil
$1.45
$1.42
$0.60
33.0%
37.0%
44.0%
1.4%
1.9%
2.1%
5.9%
5.3%
2.8%
Long term incentive outcomes for FY19
The 2015 plan was tested at 1 June 2018, failed the performance criteria, and all performance rights attaching to it lapsed and
were adjusted for in the prior year.
Performance rights granted as compensation in the year
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Performance Rights Granted
Number
589,144
361,928
284,414
284,414
Date
1 July 2018
1 July 2018
1 July 2018
1 July 2018
Financial Year in which Grants Vest
(ended 31 March)
Values Yet to Vest $
Min (a)
Max (b)
2022
2022
2022
2022
Nil
Nil
Nil
Nil
-
-
-
-
a)
b)
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.
The maximum value of the performance rights yet to vest is not accurately 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. The share price as at 31 March 2019 was $0.46.
5. ALIGNMENT BETWEEN REMUNERATION AND PERFORMANCE – AUDITED
In considering the consolidated entity’s performance and benefits for shareholders’ wealth, the Board have regard to the
following indices in respect of the current financial year and the four previous financial years.
Year ending 31 March
Profit After Tax (AUD millions)
Earnings per share (cents)
Dividends per share (cents)
Share price at year end ($)
Return on capital employed %
Return on equity %
2019
(14.9)
(9.3)
0.0
0.46
n/a
n/a
2018
(2.(cid:1006))
(1.(cid:1008))
1.0
0.62
n/a
n/a
2017
25.3
16.2
8.0
1.31
11.0
12.4
2016
2015*
20.1
13.1
11.5
1.82
11.1
10.4
30.6
20.3
11.75
2.67
18.5
16.9
Return on capital employed is calculated as EBIT divided by average capital employed (net debt plus book equity). Return on equity is calculated as
NPAT divided by the average book equity.
* Opening share price of 2015 was $2.15.
16 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
6. SERVICE CONTRACTS FOR EXECUTIVE KMP - AUDITED
The present contractual arrangements with executive KMPs are:
Component
Contract duration
Notice by individual or company
CEO
Ongoing
6 months
Senior executives
Ongoing
Range between 3 and 6 months
Termination without cause
Entitlement to pro-rata STI for the year.
Termination with cause
STI is not awarded and all unvested LTI will lapse
Vested and exercised LTI can be exercised within a period of 30 days from termination
Unvested LTI is forfeited unless the board decide at its absolute discretion otherwise.
Board has discretion to award a greater or lesser amount.
7. OTHER STATUTORY DISCLOSURES - AUDITED
LTI and Other performance rights available for vesting
Details of the LTI and other performance rights available for vesting are detailed below:
Initial Grant
Type
Number
Date
Financial
Years in
Which
Grant
Vests
(ending
31
March)
Remaining
Unvested
Values Yet
to Vest $
2018 Movements
on original grant
Number
Min (a)
Max (b)
Vested
Forfeited Unvested
Tim Luce
Sign-on
598,803
15 Feb 2018
2019
Peter Forsberg
Wendy Yip
David Lines
Sign-on
598,803
15 Feb 2018
2020
LTI
LTI*
LTI*
589,144
1 July 2018
2022
143,346
1 July 2016
2020
233,476
1 July 2017
2021
Retention
298,855
1 Dec 2017
2019
LTI
LTI*
LTI*
361,928
1 July 2018
2022
115,180
1 July 2016
2020
126,692
1 July 2017
2021
Retention
173,913
1 Dec 2017
2019
LTI
LTI*
284,414
1 July 2018
2022
126,692
1 July 2017
2021
Retention
173,913
1 Dec 2017
2019
-
598,803
589,144
143,346
233,476
-
361,928
115,180
126,692
-
284,414
126,692
-
LTI
284,414
1 July 2018
2022
284,414
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
-
-
-
-
-
-
-
-
-
-
-
100%
-
-
-
100%
-
-
100%
-
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
100%
100%
-
100%
100%
100%
-
100%
100%
-
100%
a.
b.
*
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.
The maximum value of the performance rights yet to vest is not accurately 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. However, for the purposes of this disclosure as
the value of the shares at vesting date is not known, the maximum has not been disclosed and shown as ‘-’.
Management have determined that the EPS hurdle of this tranche may not be met.
Annual Report 2019 I 17
DIRECTORS’ REPORT
For the year ended 31 March 2019
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:
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Held at
1 April 2018
Granted as
Compensation
Vested during
the year
Lapsed
Forfeited Held at 31 March
2019
1,197,606
675,677
415,785
300,605
589,144
361,928
284,414
284,414
(598,803)
(298,855)
(173,913)
(173,913)
-
-
-
-
-
-
-
-
1,187,947
738,750
526,286
411,106
Shareholdings of the directors and executive KMP
2019
Name
David Foster
Joycelyn Morton
Stephen Kulmar
Andrew Stevens
Belinda Gibson
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Balance at the
start of the year
Received on vesting
of incentives
Other changes
(bought and sold)
Balance at the
end of the year
60,270
95,119
68,000
15,720
20,000
-
35,000
10,000
-
-
-
-
-
-
598,803
298,855
173,913
173,913
-
-
-
-
-
47,657
-
-
-
60,270
95,119
68,000
15,720
20,000
646,460
333,855
183,913
173,913
Other transactions with Directors or Executive KMP
There were no loans made or outstanding to Directors or executive KMP during or at the end of the year.
A director, Stephen Kulmar, is the founder of the retail consultancy Retail Oasis, which has the Company as one of its clients.
During the year there were no engagements nor fees billed. Accordingly Mr Kulmar is considered an independent director.
UNISSUED SHARES UNDER OPTIONS
At the date of this report there are no unissued ordinary shares of the Company under option.
NON-AUDIT SERVICES
During the year the Company changed auditors from KPMG to PwC.
PwC performed certain other services in addition to their statutory duties.The Board based on advice from the Audit
Committee has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of
those non-audit services is compatible with, and did not compromise, the auditor independence requirements of the
Corporations Act 2001 for the following reasons:
(cid:121) all non-audit services were subject to the corporate governance procedures adopted by the Company to ensure they do
not impact the integrity and objectivity of the auditor;
(cid:121) the non-audit services provided do not undermine the general principles relating to auditor independence; and
(cid:121) as set out in APES110 Code of Ethics for Professional Accountants, 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, PwC, and its related practices for audit and non-audit
services provided during the year are set out in note 26.
18 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2019
ROUNDING OF FINANCIAL AMOUNTS
The Company is of a kind referred to in ASIC Instrument 2016/191 issued by the Australian Securities and Investments
Commission and in accordance with that Instrument, amounts in the financial report and directors’ report have been rounded
off to the nearest thousand dollars, unless otherwise stated.
CORPORATE GOVERNANCE STATEMENT
This statement outlines the main corporate governance practices in place throughout the financial year and can be referred to
on Thorn Group website http://www.thorn.com.au/irm/content/corporate-governance.aspx?RID=303.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s independence declaration is set out on page 20 and forms part of the directors’ report for financial year ended 31
March 2019.
This report is made in accordance with a resolution of the directors:
David Foster
Chairman
Dated at Sydney
30 May 2019
Annual Report 2019 I 19
Auditor’s Independence Declaration
As lead auditor for the audit of Thorn Group Limited for the year ended 31 March 2019, I declare that
to the best of my knowledge and belief, there have been:
(a)(cid:3)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)(cid:3)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Thorn Group Limited and the entities it controlled during the period.
Marcus Laithwaite
Partner
PricewaterhouseCoopers
Sydney
30 May 2019
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
(cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:47)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:3)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2019
$’000 AUD
Continuing operations
Revenue
Finance lease cost of sales
Employee benefit expense
Impairment losses on loans and receivables
Marketing expenses
Property expenses
Transport expenses
Communication & IT expenses
Travel expenses
Printing, stationery and postage
Other expenses
Depreciation & amortisation
Impairment of property, plant and equipment
Impairment of intangibles
Total operating expenses
Earnings before interest and tax ("EBIT")
Finance expenses
(Loss)/Profit before income tax
Income tax
(Loss)/profit after tax from continuing operations*
Discontinued operations
Profit from discontinued operations, net of tax
(Loss)/profit after tax for the year
Other comprehensive income - items that may be reclassified
subsequently to profit or loss
Movement in fair value of cash flow hedges
Income tax
Other comprehensive income for the year
Total comprehensive loss
Earnings per share - continuing operations
Basic earnings per share (cents)
Diluted earnings per share (cents)
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
Notes
2019
2018 Restated
3
23
9
8
10
22
17
17
17
17
221,857
234,277
(66,695)
(53,268)
(47,852)
(9,220)
(10,666)
(5,519)
(7,502)
(1,127)
(2,051)
(14,568)
(3,248)
(4,767)
(5,210)
(231,693)
(9,836)
(15,392)
(25,228)
7,106
(18,122)
3,182
(14,940)
(2,784)
835
(1,949)
(59,357)
(50,062)
(30,017)
(11,226)
(10,566)
(5,611)
(6,080)
(1,450)
(2,272)
(16,601)
(3,218)
-
(20,658)
(217,118)
17,159
(15,827)
1,332
(6,381)
(5,049)
2,839
(2,210)
276
(83)
193
(16,889)
(2,017)
(11.3)
(11.3)
(9.3)
(9.3)
(3.2)
(3.2)
(1.4)
(1.4)
* Restated to adjust certain line items to enable comparison with 31 March 2019 disclosures. For further details see note 1 (k)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes.
Annual Report 2019 I 21
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2019
$’000 AUD
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments and other assets
Inventories
Income tax receivable
Total current assets
Non-current assets
Trade and other receivables
Deferred tax assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payables
Income tax payable
Other payables
Loans and borrowings
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Employee benefits
Derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Note
2019
2018* Restated
1 April 2017*
Restated
4
5
6
5
10
9
8
15
14
15
10
12
14
30,627
167,847
4,352
13,638
1,293
217,757
289,547
5,541
-
-
295,088
512,845
10,764
-
13,974
122,490
4,777
2,767
154,772
28,227
14,681
173,200
170,484
3,168
11,376
-
5,678
9,472
8,741
215,971
209,056
315,829
307,397
-
3,463
5,702
-
5,058
24,322
324,994
336,777
540,965
545,833
10,377
12,011
407
19,758
77,348
5,050
7,459
-
22,315
46,904
5,414
9,037
120,399
95,681
181,154
206,960
229,559
-
518
3,326
1,035
186,033
340,805
172,040
120,932
(1,424)
52,532
172,040
12,421
13,010
481
542
487
309
807
847
220,891
244,532
341,290
340,213
199,675
205,620
119,951
118,189
181
130
79,543
87,301
199,675
205,620
* Restated to adjust certain line items to enable comparison with 31 March 2019 disclosures. For further details see note 1 (j) and (k)
The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.
22 I Thorn Group
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019
$’000 AUD
Share capital
Reserves
Retained earnings
Total Equity*
Balance at 1 April 2017
Net loss for the period
118,189
130
-
-
87,301
(2,210)
Other comprehensive income
-
193
-
Issue of shares under dividend reinvestment plan
1,762
-
-
Share based payments transactions
-
(142)
-
Dividends to shareholders
Balance at 31 March 2018
Balance at 1 April 2018
Changes on initial application of AASB 9 (see note 1)
Net loss for the period
Other comprehensive income
Issue of shares under dividend reinvestment plan
Share based payments transactions
Dividends to shareholders
Balance at 31 March 2019
-
-
119,951
119,951
-
-
-
-
981
-
181
181
-
-
(1,949)
-
344
-
(5,548)
79,543
79,543
(12,071)
(14,940)
-
-
-
-
205,620
(2,210)
193
1,762
(142)
(5,548)
199,675
199,675
(12,071)
(14,940)
(1,949)
-
1,325
-
120,932
(1,424)
52,532
172,040
* Restated to adjust certain line items to enable comparison with 31 March 2019 disclosures. For further details see note 1 (j) and (k)
The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.
Annual Report 2019 I 23
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2019
$’000 AUD
Note
2019
2018
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Acquisition of inventories
Equipment finance originations
Cash generated from operations
Net borrowing costs
Income tax refund / (paid)
Net cash used in operating activities
Cash flows from investing activities
369,154
(134,028)
784,696
(544,664)
(70,825)
(54,194)
(155,447)
(208,827)
8,854
(22,989)
(15,168)
(6,563)
(15,681)
803
(12,877)
(37,867)
Acquisition of property, plant and equipment and software
(4,060)
(3,895)
Net cash received on sale of subsidiaries
22
-
51,249
Net cash from investing activities
(4,060)
47,354
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at April 1
Cash and cash equivalents at 31 March
192,898
189,458
(173,561)
(181,612)
-
(3,787)
19,337
2,400
28,227
30,627
4,059
13,546
14,681
28,227
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.
24 I Thorn Group
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2019
Reconciliation of cash flows from operating activities
$’000 AUD
Profit after tax
Adjustments for:
Depreciation, amortisation, asset and goodwill impairment
Equity settled transactions
(Profit)/loss before tax on sale of subsidiary
Loss on disposal of inventories
Operating profit before changes in working capital and provisions
Changes in working capital and provisions, net of the effects of the sale of subsidiaries
(Increase) in trade and other receivables
(Increase) in prepayments and other assets
(Increase) in inventories
(Decrease)/increase in deferred tax liability
Decrease/(increase) in income tax receivables
(Decrease) in trade and other payables
(Decrease)/increase in provisions and employee benefits
Net cash from operating activities
2019
2018*
(14,940)
(2,210)
13,225
1,326
-
(389)
14,389
(1,184)
(2,262)
(11,953)
(1,700)
(5,397)
(4,381)
(12,877)
24,064
(142)
(512)
98
21,298
(60,876)
2,510
(1,904)
(991)
9,148
(3,936)
(3,116)
(37,867)
* Restated to adjust certain line items to enable comparison with 31 March 2019 disclosures. For further details see note 1 (k)
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.
Annual Report 2019 I 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
SIGNIFICANT ACCOUNTING POLICIES
1.
Thorn Group Limited (the ‘Company’) is a for profit company
domiciled in Australia. The address of the Company’s
registered office is Level 1, 62 Hume Highway, Chullora, NSW,
2190. The consolidated financial statements of the Company
as at and for the financial year ended 31 March 2019
comprise the Company and its subsidiaries (together referred
to as the ‘consolidated entity’). Thorn is a diversified financial
services group providing the leasing of household products to
consumers, and commercial asset finance to small and
medium size enterprises.
(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 30 May 2019.
(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 except for derivative financial instruments
which are measured at fair value.
The Company is of a kind referred to in ASIC Instrument
2016/191 issued by the Australian Securities and Investments
Commission and in accordance with that Instrument, 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.
26 I Thorn Group
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. See note 8.
Impairment of property, plant and equipment. See note
(ii)
9.
(iii) Determination of expected credit losses of receivables.
See note 13.
The notes include information which is required to understand
the financial statements and is material and relevant to the
operations, financial position and performance of the Group.
Information is considered material and relevant if:
(i) The amount is significant because of its size or nature;
(iv) It is important for understanding the results of the Group
(v)
or changes in the Group’s business; and
It relates to an aspect of the Group’s operations that is
important to its future operations.
Financing and going concern basis for the financial report
The Group incurred a loss before income tax from continuing
operations of $25.2m (2018: $1.3m profit) for the year ended
31 March 2019 and net cash used in operating activities
during the same period amounted to a $12.9m (2018:
$37.9m) out flow.
On 9 November 2018, the Group and its bank entered into a
revised corporate facility with a tenor out to November 2020
and a facility limit of $30m. Given the present circumstances,
with the Company announcing a loss for the year, waivers on
financial covenants and a strategic review underway, on 29
March 2019 the bank implemented a draw stop to only
permit further drawings under the corporate facility with the
bank’s prior approval. Accordingly $10m of the corporate
facility headroom of $12.5m at year end can only be accessed
at the bank’s absolute discretion (the difference is a $2.5m
overdraft tranche which is unrestricted).
The Group maintains a working relationship with its financier,
despite the circumstances noted above.
As referred to in Note 27 the Group is defending a class action
and legal fees continue to be incurred in defending the
matter. The proceedings remain ongoing with the outcome of
the matter uncertain as at the date of this report.
The continuing viability of the group and its ability to continue
as a going concern is dependent upon the Group:
returning to profitability,
-
- maintaining the support of its lender, and
-
progressing the strategic review.
The Group also:
-
has the ability to restrict its originations and cash
outflows, including suspending originations, and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
-
retains the ability to raise funds via a variety of asset
realisation and funding options.
As a consequence of the above matters, a material
uncertainty exists that may cast significant doubt as to
whether Thorn will be able to continue as a going concern and
therefore whether Thorn will be able to realise its assets and
extinguish its liabilities, and contingent liabilities should they
become non-contingent, in the normal course of business and
for the amounts recorded in this report.
However, the directors are confident of being successful in
the above matters and accordingly, the directors are satisfied
that the going concern basis should be adopted in preparing
this financial report.
This Financial Report does not include adjustments relating to
the recoverability and classification of recorded asset
amounts, or the amounts and classification of liabilities,
contingent or non-contingent, which might be necessary
should the Group not continue as a going concern.
Accounting Policies
Accounting policies have been included within the underlying
notes with which they relate where possible. The balance of
accounting policies are detailed below:
(c) Cost of Sales
Finance lease costs of sales comprise the cost of the item sold.
(d) Finance expenses
Finance expenses comprise interest expense on borrowings,
interest rate hedge costs and the amortisation of deferred
borrowing costs. All borrowing costs are recognised in the
profit or loss using the effective interest rate method.
(e)
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..
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 assets 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.
(f) 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.
(g) Changes in Accounting Policy
All new Accounting Standards and Interpretations applicable
to annual reporting periods commencing on or before 1 April
2018 have been applied to the consolidated entity effective
from their required date of application. Note 1(h) explains the
impact of the adoption of AASB 9 Financial Instruments and
AASB 15 Revenue from Contracts with Customers and Note
1(i) explains the impact of AASB 16 Leases on the Group's
financial statements.
(h) New Standards and Interpretations Adopted
The following standards, amendments to standards and
interpretations have been applied by the consolidated entity
for the first time for their annual reporting period
commencing 1 April 2018:
1. AASB 9 Financial Instruments
2. AASB 15 Revenue from Contracts with Customers
The financial impact of applying these new standards is
detailed below.
Annual Report 2019 I 27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
AASB 9 Financial Instruments
AASB 9 was issued in December 2014. This standard replaced
AASB 139 Financial Instruments: Recognition and
Measurement (AASB 139) and includes requirements for
impairment, classification and measurement and general
hedge accounting.
AASB 9 had a date of initial application for the consolidated
entity of 1 April 2018.
The classification and measurement, and impairment
requirements were applied retrospectively by adjusting the
opening balance sheet at the date of initial application, with
no requirement to restate comparative periods. The
consolidated entity did not restate comparatives.
AASB 9 provides an accounting policy choice to continue with
AASB 139 Hedge Accounting given the International
Accounting Standards Board’s ongoing project on macro
hedge accounting. The Group will continue to apply the
hedge accounting requirements of AASB 139.
permitted for entities that also adopt AASB 15 Revenue from
contracts with customers. The Consolidated entity is assessing
the potential impact on its financial statements resulting from
the application of AASB 16.
Determining whether an arrangement contains a lease
The Consolidated entity has an arrangement that was not in
the legal form of a lease, for which it concluded that the
arrangement contains a lease of equipment under AASB 17.
On transition to AASB 16, the Consolidated entity can choose
whether to:
– apply the AASB 16 definition of a lease to all its contracts; or
– apply a practical expedient and not reassess whether a
contract is, or contains, a lease.
The Consolidated entity plans to apply the practical expedient
to grandfather the definition of a lease on transition. This
means that it will apply AASB 16 to all contracts entered into
before 1 January 2019 and identified as leases in accordance
with IAS 17 and AASB 17.
The financial impact of the adoption of AASB 9 is detailed in
Note 1(l).
Transition
As a lessee, the Group can either apply the standard using a:
AASB 15 Revenue from Contracts with Customers
The new standard establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition guidance,
including AASB 18 Revenue. AASB 15 has been implemented.
The accounting policies for the group’s revenue for contracts
with customers are explained in Note 3. Significant estimates
and judgements have been made in the adoption of AASB 15.
(i) New Standards and Interpretations Not Yet Adopted
Certain new accounting standards and interpretations have
been published that are not mandatory for 31 March 2019
reporting periods and have not been early adopted by the
group. The group’s assessment of the impact of these new
standards and interpretations is set out below.
AASB 16 Leases
AASB 16 replaces existing leases guidance, including AASB 17
Leases.
The standard is effective from 1 April 2019 and the
consolidated entity is not early adopting this standard.
AASB 16 Leases removes the lease classification test and
requires all leases (including operating leases) to be brought
onto the balance sheet. The definition of a lease is also
amended and is now the new on/off balance sheet test for
lessees. AASB 16 is effective for annual reporting periods
beginning on or after 1 January 2019. Early adoption will be
Consolidated entity’s lease portfolio at that date, the
Consolidated entity’s latest assessment of whether it will
exercise any lease renewal options and the extent to which
the Consolidated entity chooses to use practical expedients
28 I Thorn Group
– retrospective approach; or
– modified retrospective approach with optional practical
expedients.
The lessee applies the election consistently to all of its leases.
The Consolidated entity plans to apply AASB 16 initially on 1
April 2019, using the modified retrospective approach.
Therefore, the cumulative effect of adopting AASB 16 will be
recognised as an adjustment to the opening balance of
retained earnings at 1 April 2019, with no restatement of
comparative information.
When applying the modified retrospective approach to leases
previously classified as operating leases under AASB 117, the
lessee can elect, on a lease-by-lease basis, whether to apply a
number of practical expedients on transition. The
consolidated entity is assessing the potential impact of using
these practical expedients.
The Consolidated entity is not required to make any
adjustments for leases in which it is a lessor except where it is
an intermediate lessor in a sub-lease.
The Consolidated entity has completed an initial assessment
of the potential impact on its consolidated financial
statements but has not yet completed its detailed
assessment.
The actual impact of applying AASB 16 on the financial
statements in the period of initial application will depend on
future economic conditions, including the Consolidated
entity’s borrowing rate at 1 April 2019, the composition of the
and recognition exemptions. So far, the most significant
impact identified is that the consolidated entity will recognise
new assets and liabilities for its operating leases of warehouse
and factory facilities. As at 31 March 2019, the consolidated
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
entity’s future minimum lease payments under non-
cancellable operating leases amounted to $19,684,000 on an
undiscounted basis (see note 7). Under AASB16, the Group
would recognise a right of use asset and lease liability in the
range of $11,000,000 to $18,000,000. The right of use asset
will be subject to further impairment consideration yet to be
undertaken.
In addition, the nature of expenses related to those leases will
now change as AASB 16 replaces the straight-line operating
lease expense with a depreciation charge for right-of-use
assets and interest expense on lease liabilities. No significant
impact is expected for the consolidated entity’s finance
leases.
(j) Classification and measurement
The measurement category and the carrying amount of the financial assets and liabilities in accordance with AASB 139 and
AASB 9 at 1 April 2018 are compared as follows:
AASB 139
AASB 9
Measurement
Category
Carrying Amount
$’000 AUD
Measurement
Category
Carrying Amount
$’000 AUD
Amortised cost
Amortised cost
28,227
489,235
Amortised cost
Amortised cost
FVTPL
542
FVTPL
Amortised cost
284,308
Amortised cost
28,227
471,990
542
284,308
Financial Assets
Cash and cash equivalents
Trade and other receivables
Financial Liabilities
Derivatives
Loans and borrowings
There are three measurement classifications under AASB 9: Amortised cost, fair value through profit or loss (‘FVTPL’) and fair
value through other comprehensive income (‘FVOCI’). Financial assets are classified into these measurement classifications
taking into account the business model within which they are managed, and their contractual cash flow characteristics.
The classification and measurement requirements for financial liabilities under AASB 9 are largely consistent with AASB 139
with the exception that for financial liabilities designated as measured at fair value, gains or losses relating to changes in the
consolidated entity’s own credit risk are included in other comprehensive income.
(k) Reclassification of comparative financial information
During the period, the classification of transactions were reviewed and certain reclassifications were made to financial
statement line items to enhance presentation. The comparative information in the statement of profit or loss and other
comprehensive income, statement of financial position, segment note and statement of cash flow have been reclassified
consistent with the presentation adopted in the 31 March 2019 financial statements.
-
-
-
Stock on hand had been accounted for as rental assets. This classification has now been adjusted to inventory which
resulted in an increase in the value of stock on hand or inventory from $6,979,000 to $11,376,000, an increase in cost
of sales of $4,628,000 and a reduction in rental asset depreciation from $6,204,000 to zero. Opening retained
earnings increased by $2,822,000. As result of this change we removed the rental asset note and operating lease as
lessor note.
Software balances under development, worth $923,000 have been reclassified from property, plant and equipment to
intangible assets. This change has been reflected in the comparative of the Statement of financial position and the
note 8 Intangible assets.
Payments arising from the strategic alliance with Cashflow IT of $923,000 has been reclassified from other expenses
to revenue, as this better reflects the substance of the payments under the terms of the alliance. This change has
been reflected in the comparative of the Statement of profit and loss and other comprehensive income and the note 2
Operating Segments.
Annual Report 2019 I 29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
-
-
-
-
-
Derivative financial instruments have been grossed up for tax with the tax impact of $163,000 recognised in deferred
tax liabilities in the Statement of financial position. The derivative financial instruments has also been reclassified from
other payables to its own caption, and to shifted to a non-current classification, reflecting the term of the underlying
instrument.
Thorn Business Finance customer accounts contain some credits which have been netted against the outstanding
receivable to better reflect the net outstanding principal balance, resulting in a reduction of $3,065,000 to Trade and
other receivables, and were previously disclosed in other payables. This has also impacted Note 2 operating segments.
The segment note has been adjusted to place finance expenses and the balance of the securitised warehouse facility
against Business Finance as they relate to that division. This has resulted in an interest expense of $9,941,000 and the
facility liability balance of $243,308,000 being reallocated to Business Finance from Corporate.
Past issues of shares totalling $2,849,000 have been reclassified from reserves to share capital in the opening
Statement of Financial Position and the opening Statement of Changes in Equity.
Radio Rentals had accounted for rent free incentive periods by capitalising these amounts and amortising against
other comprehensive revenue in the statement of comprehensive income. It is now being expensed upfront against
sales revenue. Other comprehensive revenue has been adjusted by eliminating amortisation of $5,564,000 and
including a reduction in sales revenue of $4,452,000. The rent free deferred cost of $8,682,000 has been reduced
against opening retained earnings. This has also impacted Note 2 operating segments.
- Where Radio Rentals had replaced or repaired an item on rent that was damaged due to fault of the customer, the
replacement good value or repaired costs was charged over a lease term agreed with the customer in addition to the
original amounts owing. This had been recognised on a cash basis with no receivable taken up. Other revenue has
been increased by $117,000 and a receivable balance of $412,000 included in lease receivable. This has also impacted
Note 2 operating segments.
-
-
-
-
-
-
-
Establishment fees had previously been included in other revenue up front rather than amortised over the period of
the lease. Other comprehensive income has been reduced by $185,000 and lease receivables have been reduced by
$1,217,000. This has also impacted Note 2 operating segments.
Promotional customer gift cards had been capitalised and amortised as an offset to other revenue over the average
lease duration. This has now been adjusted as an immediate write off to finance lease cost of sales that resulted in an
additional $597,800 expense. Prepayments and other assets reduced by $597,800.
Radio Rentals at times will forgive of customer arrears in order to retain their custom. This had been included as a
reduction to other revenue. This has now been expensed to impairment losses on loans and receivables. Other
revenue and impairment expenses have both increased by $838,400.
Costs of $1,156,000 incurred as part of customers changing the finance lease model their contract is under, have been
reclassified from impairment losses on loans and receivables to Revenue in the Statement of Profit and Loss and Other
Comprehensive Income and note 2 Operating segments as these changes do not relate to impairment losses.
Prepayments and other assets of $3,168,000 have been reclassified into its own line in the face of the balance sheet.
This have also impacted Note 5 trade and other receivables.
Radio Rental had accounted for supplier rebates as other revenue, this has been adjusted to reduce other revenue by
$1,513,000 and finance lease cost of goods sold decreased by $1,513,000.
Early termination fees charged on disconnection of leases prior to the expiry of the contracted lease term were
accounted for as a charge against revenue. An amount of $360,000 has been transferred as a recovery to impairment
expense.
30 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Statement of Financial Position
(extract)
Assets
Trade and other receivables
Prepayments and other assets
Inventories
Total current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Other payables
Income tax payable
Total current liabilities
Deferred tax liabilities
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
31 March 2018
$’000 AUD
Increase/(Decrease)
$’000 AUD
31 March 2018 Restated
$’000 AUD
173,257
-
6,979
208,463
330,978
4,386
4,779
340,143
548,606
23,202
3,099
126,535
11,265
-
219,193
345,728
202,878
117,102
3,030
82,746
202,878
(57)
3,168
4,397
7,508
(15,149)
(923)
923
(15,149)
(7,641)
(3,444)
(2,692)
(6,136)
1,156
542
1,698
(4,438)
(3,203)
2,849
(2,849)
(3,203)
(3,203)
173,200
3,168
11,376
215,971
315,829
3,463
5,702
324,994
540,965
19,758
407
120,399
12,421
542
220,891
341,290
199,675
119,951
181
79,543
199,675
Statement of Profit or Loss and Other Comprehensive
income (extract) 2018
31 March 2018
$’000 AUD
Profit Increase/(Decrease)
$’000 AUD
31 March 2018
Restated
$’000 AUD
Continuing operations
Revenue
Finance lease cost of sales
Impairment losses on loans and receivables
Depreciation & amortisation
Other expenses
Total operating expenses
Earnings before interest and tax ("EBIT")
Finance expenses
Profit before income tax
Income tax
(Loss)/profit after tax from continuing operations
(Loss)/profit after tax for the year
236,193
(1,916)
234,277
(55,635)
(30,695)
(9,422)
(17,524)
(221,201)
14,992
(15,681)
(689)
(5,774)
(6,463)
(3,624)
(3,722)
678
6,204
923
4,083
2,167
(146)
2,021
(607)
1,414
1,414
(59,357)
(30,017)
(3,218)
(16,601)
(217,118)
17,159
(15,827)
1,332
(6,381)
(5,049)
(2,210)
Annual Report 2019 I 31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
(l)
Impact on the financial statements of adoption of AASB 9
As a result of the changes in the entity’s accounting policies, prior year financial statements had to be restated. As explained
below, AASB 9 was generally adopted without restating comparative information and the Consolidated entity has elected to
continue to adopt AASB 139 in relation to aspects of hedge accounting. The reclassifications and the adjustments arising from
the new impairment rules are therefore not reflected in the restated balance sheet as at 31 March 2018, but are recognised in
the opening balance sheet on 1 April 2018.
The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the
changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers
provided. The adjustments are explained in more detail by standard below.
Statement of Financial Position (extract)
31 March 2018 Restated
$’000 AUD
AASB 9
$’000 AUD
1 April 2018 Restated
$’000 AUD
173,200
215,971
315,829
324,994
540,965
12,421
220,891
341,290
199,675
79,543
199,675
(7,911)
(7,911)
(9,335)
(9,335)
(17,246)
(5,175)
(5,175)
(5,175)
(12,071)
(12,071)
(12,071)
165,289
208,060
306,494
315,659
523,719
7,246
215,716
336,115
187,604
67,472
187,604
Assets
Trade and other receivables
Total current assets
Trade and other receivables
Total non-current assets
Total assets
Liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Retained earnings
Total equity
32 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
2.
SEGMENT REPORTING
The Board and CEO (the chief operating decision maker) monitor the operating results of the two reportable segments which
are the Consumer Leasing division which leases household products and the Equipment Finance division which provides
financial products to small and medium enterprises including equipment leasing.
Segment performance is evaluated based on operating profit or loss. Interest on the corporate facility and income tax expense
are not allocated to operating segments, as this type of activity is managed on a group basis.
The Trade & Debtor Finance and Consumer Finance businesses were sold in 2018.
2019
$’000 AUD
Sales Revenue
Interest Revenue
Other
Total Segment revenue
Operating expenses
EBITDA
Depreciation and amortisation
Impairment
EBIT
Finance expense
Profit before tax
Segment assets
Segment liabilities
2018
$’000 AUD
Sales Revenue
Interest Revenue
Other
Segment revenue
Operating expenses
EBITDA
Depreciation and amortisation
Impairment
EBIT
Finance Expense
Profit before tax
Segment assets
Segment liabilities
Consumer Leasing
Equipment Finance
Discontinued
operations
Corporate
Consolidated
78,512
85,838
14,262
178,612
(179,790)
(1,178)
(1,018)
(9,977)
(12,173)
-
(12,173)
161,099
(37,161)
-
42,373
872
43,245
(27,030)
16,215
(108)
-
16,107
(13,688)
2,419
336,966
(288,644)
-
-
-
-
3,197
3,197
-
-
3,197
-
3,197
-
-
-
-
-
-
(11,648)
(11,648)
(2,122)
-
(13,770)
(1,704)
(15,474)
14,780
(15,000)
78,512
128,211
15,134
221,857
(215,271)
6,586
(3,248)
(9,977)
(6,639)
(15,392)
(22,031)
512,845
(340,805)
Consumer Leasing Equipment Finance
Discontinued
operations
Corporate
Consolidated
75,023
96,860
23,524
195,407
(165,930)
29,477
(1,074)
-
28,403
-
28,403
-
37,097
1,773
38,870
(14,354)
24,516
(242)
-
24,274
(9,941)
14,333
-
-
13,510
13,510
(9,266)
4,244
(188)
-
4,056
-
4,056
-
-
-
-
(12,958)
(12,958)
(1,902)
(20,658)
(35,518)
(5,886)
(41,404)
186,491
(44,154)
346,092
(243,308)
-
-
8,382
(53,828)
75,023
133,957
38,807
247,787
(203,020)
44,767
(3,406)
(20,658)
20,703
(15,827)
4,876
540,965
(341,290)
Annual Report 2019 I 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Reconciliations of reportable segment to IFRS measures
$’000 AUD
Revenue
Total revenue for reportable segments
Elimination of discontinued operations
Consolidated Revenue
Profit before tax
Total profit before tax for reportable segments
Elimination of discontinued operations
Consolidated profit before tax from continuing operations
3. REVENUE
$’000 AUD
Interest
Finance lease sales
Other
Total Rev
2019
2018
221,857
-
221,857
(22,031)
(3,197)
(25,228)
2019
128,211
78,512
10,630
221,857
247,787
(13,510)
234,277
5,388
(4,056)
1,332
2018
133,957
75,023
25,846
234,277
The major components of revenue are recognised as follows:
(cid:121) 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 or if lower, the present value of the lease
payments discounted using a market rate of interest.
(cid:121) Interest revenue is calculated and charged on the average outstanding loan or lease balance and recognised on an
accrual basis using the effective and implicit interest rate method respectively.
(cid:121) Other revenue includes late fees, establishment fees, termination fees and other non-lease related income.
4. CASH AND CASH EQUIVALENTS
$’000 AUD
Bank balances
Call deposits
Cash and cash equivalents
2019
30,627
-
30,627
2018
28,227
-
28,227
Included in cash is an amount of $22,681,000 (2018: $19,845,000) held as part of the consolidated entity’s funding arrangements that are not available
to the consolidated entity. This cash is held within the funding warehouse trust and as such is under the control of the Trustee. Free cash is therefore
$7,947,000 (2018: $8,382,000).
34 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
5. TRADE AND OTHER RECEIVABLES
$’000 AUD
Current
Trade receivables
Finance lease receivables
Loan receivables
Non-current
Finance lease receivables
Loan receivables
2019
2018
11,711
128,128
28,008
167,847
238,855
50,692
289,547
4,675
142,901
25,624
173,200
261,295
54,534
315,829
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 receivables and loan receivables are stated at their amortised cost less impairment losses. The consolidated entity’s
exposure to credit risk and impairment losses related to trade and other receivables is disclosed in note 13.
6.
INVENTORIES
$’000 AUD
Stock held for lease
2019
13,638
2018
11,376
Inventories represent purchased consumer goods held in stores. The costs of individual items of inventory are determined
using weighted average costs less volume rebates received. Inventory is valued at the lower of cost or net realisable value.
7.
LEASES
Finance leases as lessor
The consolidated entity has finance lease, hire purchase agreements and chattel mortgage contracts. The consolidated entity
classifies Consumer Leasing contracts as finance leases where the term of the contract over 24 months. The future minimum
lease receipts under non-cancellable finance leases are as follows:
$’000 AUD
Lease receivables - less than one year
Lease receivables - between one and five years
Total Lease receivables
Unearned interest income on finance leases - less than one year
Unearned interest income on finance leases - between one and five years
Total unearned interest income on finance leases
Impairment provisioning
Net Lease receivables
2019
250,173
334,767
585,940
(91,360)
(76,934)
(168,294)
(49,663)
366,983
2018
251,257
353,379
604,636
(97,341)
(78,015)
(175,356)
(25,084)
404,196
Annual Report 2019 I 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Operating leases as lessee
Non-cancellable operating lease rentals are payable as follows:
$’000 AUD
Less than one year
Between one and five years
2019
9,154
10,530
19,684
2018
8,968
13,809
22,777
The consolidated entity leases all store and office premises under operating leases. The leases typically run for a period of 3-5
years, with an option to renew the lease after that date. The majority of the lease payments are increased every year to reflect
market 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 for the term of the lease. The lease agreements for
vehicles do not include contingent rentals.
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.
Operating lease rental expenditure for the year ended 31 March 2019 was $10,714,000 (2018: $11,302,000).
8.
INTANGIBLE ASSETS
$’000 AUD
Year ended 31 March 2018
Opening net carrying amount
Additions
Amortisation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2018
Cost
Amortisation
Impairment
Net book amount
$’000 AUD
Year ended 31 March 2019
Opening net carrying amount
Additions
Amortisation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2019
Cost
Amortisation
Impairment
Net book amount
36 I Thorn Group
Goodwill
Software
20,658
-
(20,658)
3,664
3,301
-1,263
-
Total
24,322
3,301
-1,263
-20,658
-
5,702
5,702
-
15,709
15,709
-
(10,007)
(10,007)
-
5,702
-
Goodwill
Software
-
-
-
-
-
-
-
5,702
1,205
(1,697)
(5,210)
-
16,914
(11,704)
(5,210)
-
-
5,702
Total
5,702
1,205
(1,697)
(5,210)
-
16,914
(11,704)
(5,210)
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
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 of the acquired business.
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 for software in the current
and comparative periods are 3 – 8 years.
The residual value, the useful life and the amortisation method applied to an intangible asset are reassessed at least annually.
Impairment tests for Cash Generating Units (CGU) containing goodwill
Valuation of goodwill and other intangibles
Judgements are made with respect to identifying and valuing intangible assets on acquisition of new businesses.
The recoverable amount of the above CGU’s are determined based on a fair value less cost of sale calculation. The fair value
measurement was categorised as a Level 3 fair value based on the inputs of the valuation techniques used. This is calculated
based on the present value of cash flow projections over a 5 year period plus a terminal value and includes certain future
strategic initiatives. The cash flow projections have been approved by the Board.
Key assumptions used for fair value less cost of sale calculations
Consumer Leasing
Testing using a fair value less cost of disposal revealed the carrying amount of the CGU exceeded its recoverable amount. An
impairment charge for the total value of the intangible of the CGU of $5,210,000 has been recognised in the income statement
for the year ended 31 March 2019. The circumstances that led to this impairment included lower than expected business
performance including origination and collections since the previous year end which prompted a downgrade to the future
outlook in terms of both growth and cash flows.
The key assumptions used in the estimation of recoverable amount are set out as follows. Testing included a terminal value
calculated using the cash flows for year 5 of the forecast period and a long-term growth rate of 2.0%. During the forecast
period, revenue was assumed to grow at an average 4.6% which included installation growth of 13% between 2019 and 2022.
Volume related costs have increased according to the increased volume during the testing period. Other costs have been
either increased by CPI or contracted arrangements, or where reasonable kept flat with productivity savings assumption. The
post-tax discount rate is assumed at 9.5% (2018: 9.5% post-tax).
9. PROPERTY, PLANT AND EQUIPMENT
$’000 AUD
Year ended 31 March 2018
Opening net carrying amount
Additions
Depreciation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2018
Cost
Accumulated depreciation
Impairment
Net book amount
Total
5,058
360
(1,955)
-
3,463
31,333
(27,870)
-
3,463
Annual Report 2019 I 37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
$’000 AUD
Year ended 31 March 2019
Opening net carrying amount
Additions
Depreciation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2019
Cost
Accumulated depreciation
Impairment
Net book amount
Property plant and equipment
Total
3,463
2,855
(1,551)
(4,767)
-
34,188
(29,421)
(4,767)
-
Property plant and equipment consist of furniture, fittings, and physical computer equipment.
Impairment
Testing using a fair value less cost of disposal revealed the carrying amount of the CGU exceeded its recoverable amount and
the entire balance of property, plant and equipment was impaired. Refer to note 8 for details.
10.
INCOME TAX EXPENSE
Recognised in the Income Statement
$’000 AUD
Current tax expense
Current year
Adjustment for prior year
Deferred tax expense
Origination and reversal of temporary differences*
Tax on discontinued operations
Total income tax (benefit)/ expense in income statement
Numerical reconciliation between tax expense and pre-tax accounting profit
$’000 AUD
Profit before tax
Prima facie income tax using the domestic corporation tax rate of 30% (2018: 30%)
Change in income tax expense due to:
Non-deductible expenses
(Over) / Under provided in prior years
Income tax (benefit)/ expense on pre-tax accounting profit
2019
5,612
(919)
2018
9,412
(542)
(11,784)
(1,272)
(15)
(7,106)
(1,217)
6,381
2019
(25,228)
(7,568)
1,380
(919)
(7,106)
2018
1,332
400
6,523
(542)
6,381
38 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
11. DEFERRED TAX ASSETS & LIABILITIES
Recognised deferred tax assets and liabilities
$’000 AUD
Inventories
Property, plant and equipment
Trade, loan and other receivables
Finance lease receivables*
Accruals
Provisions
Financial derivative
Tax assets / (liabilities)
Assets
Liabilities
Net
2019
2018
2019
2018
2019
2018
69,663
69,846
4,049
698
-
-
-
-
2,640
3,613
1,342
1,417
998
163
-
-
(2,641)
-
69,663
69,846
-
(617)
4,049
(2,641)
698
(617)
(70,510)
(87,541)
(70,510)
(87,541)
-
-
-
-
-
-
2,640
1,342
998
3,613
1,417
163
78,692
75,737
(72,153)
(88,158)
5,541
(12,421)
* Movement from 2018 to 2019 includes adoption of AASB 9 $5,174,000 DTA on the 1st April 2018.
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 are 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
Annual Report 2019 I 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
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.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-
measured to their fair value at the end of each reporting period. The full fair value of a hedging derivative is classified as a non-
current liability as the remaining maturity of the hedged item is more than 12 months from 31 March 2019.
The fair value of derivatives are classified as level 2 instruments as they are not traded in an active market and are determined
using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and
rely as little as possible on entity specific estimates.
The interest rate swap creates a cash flow hedge against the variable interest payments on the securitised warehouse facility.
This hedge is taken out so that the fixed interest rates committed to at the origination of a Business Finance lease or loan
contract are matched by fixing the base lease interest rate on the borrowings in the securitised warehouse. The movement in
the fair value of the interest rate swap is recognised through Other Comprehensive Income and reserves in the Statement of
Changes in Equity.
$’000 AUD
Interest rate swap liability
2019
3,326
2018
542
13. FINANCIAL RISK MANAGEMENT
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 Risk & 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
training and management standards and procedures, aims to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.
The Risk & 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 loss that arises when a customer or third party fails to pay an amount owing to the Company and is the
most significant risk to the group. The maximum exposure to credit risk is represented by the carrying amount receivables and
loans. The Group leases products to consumers (as well as consumer loans that are in run off) and provides business finance to
SME’s pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk with any
particular individual, company or other entity. The Group is subject to a higher level of credit risk due to the credit constrained
nature of many of the Company’s customers.
40 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
The Group maintains a provision for receivable losses. The process for establishing the provision for losses is critical to the
Group’s results of operations and financial condition.
Credit risk grew in-line with the growth of the loan and lease receivables in all segments.
Expected credit loss measurement
Under AASB 9, a three-stage approach is applied to measuring expected credit losses (‘ECL’) based on credit migration between
the stages as follows:
Stage 1: At initial recognition, a provision equivalent to 12 months ECL is recognised.
Stage 2: Where there has been a significant increase in credit risk since initial recognition, a provision equivalent to full lifetime
ECL is required.
Stage 3: Lifetime ECL is recognised for loans where there is objective evidence of impairment.
ECL are probability weighted and determined by evaluating a range of possible outcomes, taking into account the time value of
money, past events, current conditions and forecasts of future economic conditions.
Significant increase in credit risk (SICR)
The Group considers a financial instrument to have experienced a significant increase in credit risk based on quantitative
information to identify this on an asset level. Each financial asset will be assessed at the reporting date for significant
deterioration where the financial asset is more than 30 days past due. When an account is cured from default status it retains
an adjusted and higher probability of default within the impairment model for 6 months.
Macroeconomic Scenarios
The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed
historical analysis and identified the key economic variables impacting credit risk and expected credit losses for Consumer
Leasing and Business Finance.
Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the financial instrument.
The Group has a process for developing the forward looking economic scenarios and probability weightings to determine the
ECL. The Group prepares a base, best and worst case scenario based on economic variables relevant to Consumer Leasing and
Business Finance. The final ECL will be based on the probability weighted caculation based on these three scenarios.
Loss allowance
The loss allowance recognised in the period is impacted by a variety of factors, as described below:
The following table explains the changes in the loss allowance between the beginning and the end of the annual period due to
these factors:
Consumer Leasing lease receivables
Lease receivables
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
Model risk
reserve
$’000 AUD
Total
$’000 AUD
Loss allowance as at 1 April 2018
10,924
5,724
3,724
6,111
26,483
Movements with P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs
Changes to model assumptions and methodologies
Write-offs
Total net P&L charge during the period
(865)
(304)
369
-
85
-
2,063
(282)
-
(1,793)
(728)
3,514
-
(1,573)
(345)
-
133
996
(413)
-
(2,429)
(117)
-
2,509
-
487
(604)
(313)
1,109
(37)
-
(2,643)
509
-
-
-
-
-
-
-
-
-
-
-
2,648
2,204
(1,205)
142
(518)
(180)
4,168
(732)
-
(6,865)
(337)
Annual Report 2019 I 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
The following table further explains changes in the gross carrying amount of the loans and receivables to help explain their
significance to the changes in the loss allowance as discussed above:
Lease receivables
Stage 1
Stage 2
Stage 3
Total
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
$’000 AUD
Gross carrying amount as at 1 April 2018
161,054
13,656
4,306
179,017
Movements with P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs
Changes to model assumptions and methodologies
Write-offs
Total net change during the period
Business finance loan and lease receivables
Loan and lease receivables
(9,107)
(3,304)
2,438
-
383
-
29,881
(18,489)
-
(21,153)
(19,351)
8,084
-
(3,338)
(738)
-
218
2,135
(1,320)
-
(5,447)
(405)
-
3,107
-
603
(698)
(362)
1,374
(32)
-
(3,056)
936
(1,023)
(196)
(900)
(135)
(315)
(143)
33,390
(19,841)
-
(29,655)
(18,820)
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
Model risk and
seasoning
reserves
$’000 AUD
Total
$’000 AUD
Loss allowance as at 1 April 2018
4,754
1,059
3,137
7,725
16,676
Movements with P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs
Changes to model assumptions and methodologies
Write-offs
Total net P&L charge during the period
(90)
(286)
76
-
54
-
2,121
(573)
-
(640)
662
696
-
(390)
(367)
-
17
296
(10)
-
(260)
(17)
-
3,447
-
508
(282)
(40)
339
(139)
-
(1,917)
1,915
-
-
-
-
-
-
-
-
(2,460)
-
(2,460)
606
3,161
(314)
141
(228)
(22)
2,756
(722)
(2,460)
(2,817)
100
The following table further explains changes in the gross carrying amount of the loans and receivables to help explain their
significance to the changes in the loss allowance as discussed above:
42 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Loan and lease receivables
Stage 1
Stage 2
Stage 3
Total
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
$’000 AUD
Gross carrying amount as at 1 April 2018
325,029
4,040
7,256
336,326
Movements with P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs
Changes to model assumptions and methodologies
Write-offs
Total net change during the period
(4,112)
(10,664)
1,060
-
413
-
130,467
(76,138)
-
(43,934)
(2,907)
3,016
-
(1,547)
(1,328)
-
51
1,214
(49)
-
(1,006)
352
-
9,249
-
1,363
(652)
(92)
909
(41)
-
(4,434)
6,302
(1,096)
(1,415)
(487)
35
(239)
(41)
132,590
(76,227)
-
(49,374)
3,747
The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure. The consolidated
entity’s net exposure to credit risk at the reporting date was:
$’000 AUD
Trade receivables
Consumer Leasing lease receivables
Business Finance lease receivables
Loan receivables
Write-off policy
2019
11,711
129,652
237,331
78,700
457,394
2018
4,675
155,239
248,957
80,158
489,029
The Group writes off financial assets in whole or in part, when it has exhausted all practical recovery efforts and has concluded
there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include (i)
ceasing enforcement activity and (ii) where the Group’s recovery method is foreclosing on collateral and the value of the
collateral such that there is no reasonable expectation of full recovery. Default is defined as 60 days for Radio Rentals and 90
days for Business Finance.
Modification of financial assets
The Group sometimes modifies the terms of leases provided to customers due to commercial renegotiations, or for distressed
leases, with a view to maximising recovery.
Such restructuring activities include extended payment term arrangements, payment holidays, and payment forgiveness.
Restructuring policies an practices are based on indicators or criteria which, in the judgement of management, indicate that
payment will most likely continue. These policies are kept under continuous review.
Impairment losses
Consumer Leasing lease receivables
$’000 AUD
Stage 1
Stage 2
Stage 3
Gross 2019
Impairment 2019
144,947
13,210
5,228
163,385
(14,040)
(7,612)
(5,228)
(26,881)
Annual Report 2019 I 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
The Group applies the AASB 9 three-stage approach to measuring expected credit losses which uses a twelve month loss for
lease receivables in stage one and lifetime expected loss for lease receivables in stages 2 and 3. To measure the expected credit
losses, lease receivables have been grouped based on shared credit risk characteristics and the days past due.
The expected loss rates are based on the payment profiles of lease receivables over a period of 36 months before 1 April 2018
respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted
to reflect current and forwardlooking information on macroeconomic factors affecting the ability of the customers to settle the
receivables. The group has identified the GDP and the unemployment rate to be the most relevant factors, and accordingly
adjusts the historical loss rates based on expected changes in these factors.
The net value of consumer finance lease and trade receivables at 31 March 2019 was $136,504,000. The provision reflects the
risk to the consolidated entity of the expected credit loss.
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 book value of this collateral as at 31 March 2019 is $81,647,000.
Business Finance lease receivables
$’000 AUD
Stage 1
Stage 2
Stage 3
Gross
2019
240,638
3,344
20,362
264,344
The net value of commercial finance lease receivables as at 31 March 2019 was $241,540,000.
Loan receivables (Business Finance and remaining consumer solar loans)
$’000 AUD
Stage 1
Stage 2
Stage 3
Gross
2019
79,334
998
3,108
83,440
Impairment 2019
(5,353)
(1,190)
(16,261)
(22,804)
Impairment 2019
(2,066)
(329)
(1,697)
(4,092)
The net value of loan receivables as at 31 March 2019 was $79,348,000.
Liquidity risk
Liquidity risk is the risk that the Group’s financial condition is adversely affected by an inability to meet its liabilities and support
its business growth. The Company manages its capital to maintain its ability to continue as a going concern and to provide
adequate returns to shareholders.
The capital structure of the Group consists of external debt and shareholders’ equity. The Group manages its capital structure
and makes adjustments to it in light of economic conditions and the Group’s individual situation. The Group’s debt facilities
must be renewed on a periodic basis. These facilities contain restrictions on the Group’s ability to, among other things, pay
dividends, sell or transfer assets, incur additional debt, repay other debt, make certain investments or acquisitions, repurchase
or redeem shares and engage in alternate business activities. The facilities also contain a number of financial and non-financial
covenants. Failure to meet any of these covenants could result in an event of default under these facilities which could, in turn,
allow the lender to declare all amounts outstanding to be immediately due and payable or the inability to draw down further.
In such a case, the financial condition, liquidity and results of operations of the Group could materially suffer.
The Group has been successful in renewing and expanding its debt facilities in the past to meet the needs of its growing finance
business. If the Group were unable to renew these facilities or unable to renew on acceptable terms when they became due,
there could be a material adverse effect on the Group’s financial condition, liquidity and results of operations.
Liquidity risk is managed through the adequate provision of funding and effective capital management policies.
44 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
The following are the contractual maturities of the consolidated entity’s financial liabilities including, where applicable, future
interest payments as at 31 March 2019.
31 March 2019 ($’000 AUD)
Secured loan facilities
Trade and other payables
31 March 2018 ($’000 AUD)
Secured loan facilities
Trade and other payables
Carrying
amount
303,644
24,738
328,382
Contractual
Cash flows
336,977
24,738
361,715
1 year or less
1-5 years
119,923
24,738
144,661
217,054
-
217,054
Carrying
Amount
Contractual
Cash flows
284,308
321,195
30,135
314,443
30,135
351,330
1 year or less
1-5 years
89,810
30,135
231,385
-
-
119,945
231,385
-
5 years
or more
-
-
-
5 years
or more
-
The consolidated entity’s access to financing arrangements is disclosed in note 15.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency, will affect the consolidated
entity’s income and cash flow. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters.
Foreign currency risk
The Group is also subject to currency risk related to the direct acquisition of inventories from overseas suppliers. To mitigate
this risk the group operates a foreign exchange risk policy. Group has historically been able to price its lease transactions to
compensate for the impact of foreign currency fluctuations on its purchases. However, in periods of rapid change in an
exchange rate, the Company may not be able to pass on such changes in the cost of purchased products to its customers which
may negatively impact the Company’s financial performance. The Company currently does not actively hedge foreign currency
risk and transacts in foreign currencies on a spot basis.
Interest rate risk
Interest rate risk is the risk the consolidated entity incurs a financial loss due to adverse movement in interest rates. The
consolidated entity is subject to interest rate risk on both its senior debt facility and the securitised warehouse.
The consolidated entity purchases interest rate hedges to effectively fix the securitised warehouse liabilities which have a
known term and predictable cash flows. No interest rate hedges have been purchased on the corporate senior debt facility.
At the reporting date the interest rate profile of the consolidated entity’s floating interest bearing financial instruments was:
$’000 AUD
Free cash
Borrowings
2019
7,947
2018
8,382
(303,644)
(284,308)
A change of one percent in interest rates at the reporting date would have increased or decreased the consolidated entity’s
equity and other comprehensive income by $2,070,000 (2018: $1,931,000), net of tax.
Financial instruments
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 equity, which the consolidated entity
defines as net profit after tax divided by the average of opening and closing equity. The Board of Directors also monitors the
level of dividends to ordinary shareholders. Refer to note 16 for quantitative data.
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.
Annual Report 2019 I 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
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. Thorn does not apply netting.
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.
Fair values
Fair value reflects the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing
parties in an arm’s length transaction. Quoted prices or rates are used to determine fair value where an active market exists. If
the market for a financial instrument is not active, fair values are estimated using present value or other valuation techniques,
using inputs based on market conditions prevailing on the measurement date
Uncertainty currently exists in regards to the fair value of the Group's financial assets and liabilities due to the ongoing strategic
review.
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 financial instrument is measured at fair value. The Group’s only Level 2 instrument is the interest rate
derivative.
14. PROVISIONS
2019
$’000 AUD
Opening balance
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Provisions reclassified to accruals
Current
Non-current
46 I Thorn Group
Business Finance
restitution
Regulatory
Make good
Total
-
1,420
-
-
-
1,420
1,420
-
1,420
6,138
-
(3,237)
-
(2,194)
707
707
-
707
1,808
75
(208)
-
-
1,675
640
1,035
1,675
7,946
1,495
(3,445)
-
(2,194)
3,802
2,767
1,035
3,802
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
2018
$’000 AUD
Opening balance
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Provisions reclassified to accruals
Current
Non-current
Business Finance restitution
Business Finance
restitution
Regulatory
Make good
Total
-
-
-
-
-
-
-
-
-
8,100
450
1,784
9,884
596
1,046
-
(481)
-
(91)
-
(481)
(91)
(2,412)
1,808
7,946
1,321
487
7,459
487
6,138
1,808
7,946
(2,412)
6,138
6,138
-
A large specific provision of $10.1m was taken up to provide in full for the receivable for the industry wide matter of a group of
customers for a specific product who were challenging the enforceability of their leases. The Australian Financial Complaints
Authority has issued an initial advice in favour of the customers and setting out terms of further restitution beyond the writing
off of their payable balance. This provision is for that purpose.
Regulatory
Regulatory provision represents amounts set aside in the Consumer Leasing division for potential customer remediation,
penalties and administration costs. During the year $2,194,000 was reclassified to accruals and represents actual or specific
amounts known to be payable rather than estimated.
Make good on leased premises
Make good provision represent expected costs of returning leased office, showroom or warehouse premises to the condition
specified in the individual lease contracts upon termination of the lease.
15. LOANS AND BORROWINGS
$’000 AUD
Current liabilities
Secured loans
Non-Current liabilities
Secured loans
2019
2018
122,490
77,348
181,154
206,960
303,645
284,308
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, 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.
Annual Report 2019 I 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Financing loan facilities
$’000 AUD
Secured corporate loan facility A (Maturity 30 November 2020)
Utilised
Available headroom
Secured corporate loan facility B (Maturity 30 November 2020)
Utilised
Available headroom
Securitised warehouse facility
Utilised
Available headroom
Total loan facilities
Utilised
Secured loan facilities not utilised at reporting date
2019
25,000
(15,000)
10,000
5,000
(2,146)
2,854
2018
65,000
(41,000)
24,000
5,000
(2,100)
2,900
368,000
250,000
(288,644)
(243,308)
79,356
6,692
398,000
(305,790)
92,210
320,000
(286,408)
33,592
The Group continues to be funded by one Australian major bank. That bank and the Company entered into a revised corporate
facility in November 2018 with a $30m limit and a two year tenor.
The corporate facilities terminate on 30 November 2020. Progressive repayments were made and the outstanding balance at
year end was $15.0m with a further $2.5m earmarked for bank guarantees given to landlords of retail stores occupied by the
Company. The consequent available facility headroom is therefore $12.5m but the facility presently has a drawstop placed
upon it such that $10.0m of further draw downs can only take place with the lender’s prior approval (the difference is a $2.5m
overdraft tranche which is unrestricted).The corporate facilities are secured by a fixed and floating charge over the assets of the
consolidated entity.
The warehouse facility is secured by rentals and payments receivable from the underlying lease receivable contracts and is non-
recourse to the Group. The amounts due and payable on the warehouse loan facility in the next 12 months are disclosed as
current. At maturity no further leases are able to be sold down into the facility and the portfolio will amortise off for as long as
the underlying leases are payable. The warehouse facility has been extended from $250m to $368m and has an availability
period to 10 August 2019 and a final maturity date of 10 August 2025. In order for the Group to utilise the available headroom
in the Warehouse facility, the Group, as the holder of the residual interest, needs to fund a minimum percentage of the value
of receivables sold down into the warehouse facility. For more information about the consolidated entity’s exposure to interest
rate risk and liquidity risk see note 13.
16. CAPITAL AND RESERVES
Number of shares
On issue at the beginning of year
Issue of new shares on vesting of performance rights
Issue of shares under dividend investment plan
2019
2018
159,929,582
158,246,851
1,245,484
-
-
1,682,731
161,175,066
159,929,582
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.
(cid:121) 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.
(cid:121)
(cid:121)
48 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Reserves
The reserves consist of the equity remuneration reserve and the cash flow hedge reserve. The equity remuneration reserve
represents the value of performance rights issued. The cash flow hedge reserve consists of the fair value of cash flow hedges
after tax.
Dividends
Dividends are recognised as a liability in the period in which they are declared. Dividends recognised in the current year by the
Company are:
Cents per
Share
Amount
$’000 AUDs
Franking
%
Date of
payment
2019
Final 2018
Interim 2019
Total amount
2018
Final 2017
Interim 2018
Total amount
-
-
2.5
1.0
-
-
-
3,956
1,593
5,549
-
-
n/a
n/a
100%
100%
18 July 2017
19 January 2018
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
There was no dividend declared after the balance date.
Dividend franking account
$’000 AUD
30% franking credits available to shareholders of Thorn Group Limited
2019
39,608
2018
38,767
The above available amounts are based on the balance of the dividend franking account at year end adjusted for:
(cid:121)
(cid:121)
(cid:121)
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.
17. EARNINGS PER SHARE
The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares.
Basic earnings per share
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.
The calculation of basic earnings per share at 31 March 2019 was based on the loss attributable to ordinary shareholders of
$14,940,000 (2018: loss of $2,210,000) and a weighted average number of ordinary shares during the year ended 31 March
2019 of 160,160,631 (2018: 159,094,096).
Diluted earnings per share
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.
The weighted average number of ordinary shares during the year ended 31 March 2019 is 165,042,055 (2018: 160,214,741).
The weighted average number of performance rights of 1,908,000 (2018: 1,455,000) was not included because they were anti-
dilutive.
Annual Report 2019 I 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
$’000 AUD
Earnings per share
Profit attributable to ordinary shareholders (basic) $’000 AUD
Profit attributable to ordinary shareholders (basic) - continuing operations
Profit attributable to ordinary shareholders (basic and diluted) - discontinued operations
Profit attributable to ordinary shareholders (basic)
Weighted average number of ordinary shares (basic) ‘000’s
Issued ordinary shares at 1 April
Effect of shares issued
Weighted average number of ordinary shares for the year
Weighted average number of ordinary shares (diluted) ‘000’s
Issued ordinary shares at 1 April
Effect of shares issued
Weighted average number of ordinary shares for the year
Earnings per share - continuing operations
Basic earnings per share (cents)
Diluted earnings per share (cents)
Earnings per share - discontinued operations
Basic earnings per share (cents)
Diluted earnings per share (cents)
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
2019
2018
(18,122)
3,182
(14,940)
159,930
231
160,161
163,134
1,908
165,042
(11.3)
(11.3)
2.0
1.9
(9.3)
(9.3)
(5,049)
2,839
(2,210)
158,247
847
159,094
158,760
1,455
160,215
(3.2)
(3.2)
1.8
1.8
(1.4)
(1.4)
18. CONSOLIDATED ENTITIES
Parent entity
Thorn Group Limited
Subsidiaries
Thorn Australia Pty Ltd
Eclipse Retail Rental Pty Ltd
Rent Try Buy Pty Ltd
Thorn Equipment Finance Pty Ltd
Thorn Finance Pty Ltd
Thorn ABS Warehouse Trust No. 1
50 I Thorn Group
Country of
Incorporation
Ownership Interest
2019
2018
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
Basis of consolidation
Subsidiaries
Subsidiaries are entities (including special purpose entities) controlled by the consolidated entity. The consolidated entity
controls an entity when is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. 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.
The consolidated entity has established a special purpose entity (SPE), Thorn ABS Warehouse Trust No.1, for the purpose of
securitising finance lease receivables acquired and other receivables it intends to originate. The SPE entity is wholly owned by
the consolidated entity and included in the consolidated financial statements, based on the evaluation of the substance of its
relationship with the consolidated entity and the SPE’s risks and rewards.
The following circumstances indicate a relationship in which the consolidated entity controls and subsequently consolidates the
SPE:
(cid:121) The activities of the SPE are being conducted on behalf of the consolidated entity according to its specific business needs
so that the consolidated entity obtains benefits from the SPE’s operation.
(cid:121) The consolidated entity has the decision making powers to obtain the majority of the benefits of the activities of the SPE.
(cid:121) The consolidated entity retains the majority of the residual of ownership risks of the SPE or its asset in order to obtain
benefits from its activities.
19. DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations Instrument 2016/914 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 Corporates Instrument 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 18 (excluding Thorn ABS Warehouse Trust No. 1).
The consolidated Statement of Comprehensive Income comprising of entities which are parties to the Deed, after eliminating
all transactions between parties to the Deed of Cross Guarantee, at 31 March 2019, is the same as the consolidated Statement
of Comprehensive Income in this financial report. The consolidated Statement of Financial Position in this financial report
includes the assets and liabilities of Thorn ABS Warehouse Trust No. 1. Excluding the Thorn ABS Warehouse Trust No. 1, cash
and cash equivalents would decrease by $22,681,000 and trade and other payables would decrease by $22,681,000,
Receivables would decrease by $288,644,000 and loans payable would decrease by $288,644,000.
Annual Report 2019 I 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
20. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 31 March 2019 the parent entity of the consolidated entity was Thorn Group
Limited.
$’000 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
Share capital
Equity remuneration reserve
Total Equity
2019
-
-
-
1,293
127,377
-
5,541
120,932
904
121,836
2018
5,549
-
5,549
-
133,339
407
12,828
119,951
560
120,511
The parent entity has entered into a Deed of Cross Guarantee with the subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 18 and note 19.
21. SPECIAL PURPOSE ENTITY
The Group sells receivables to a warehouse financing facility through its special purpose entity. The SPE is consolidated as set
out in note 18 as the Group is exposed or has rights to variable returns and has the ability to affect its returns through its power
over the special purpose vehicle. The table below presents assets and the underlying borrowings attributable to the SPE to
external funders.
$’000 AUD
Receivables
Cash held by Trust
Total
Borrowings related to receivables
2019
313,744
22,681
336,425
288,644
2018
304,135
19,845
323,980
243,308
The Group provide additionl support to the special purpose entity including a liquidity facility of $3.3m (2018: $5.3m) and a bill
and collect facility of $2.2m (2018: Nil).
52 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
22. DISPOSAL OF SUBSIDIARY
Three business divisions were sold over the past two years to reduce debt. There were final payment adjustments, tax
finalisation and the resolution of provisions set aside for warranty and other claims during this financial year which have given
rise to a profit after tax for discontinued businesses of $3.2m.
(a) Result of discontinued operations
$’000 AUD
Revenue
Expenses
Results from operating activities
Income tax
Results from operating activities, net of tax
Gain/(loss) on sale of discontinued operation
Income tax on sale of discontinued operation
Profit (loss) from discontinued operations, net of tax
(b) Cash flow from /(used in) discontinued operation
$’000 AUD
Net cash used in operating activities
Net cash from investing activities
Net cash flows for the year
(c) Effect of disposal on the financial position of the Group
$’000 AUD
Cash and cash equivalents
Trade and other receivables
Deferred tax asset
Property, plant and equipment
Trade and other payables
Employee benefits
Provisions
Net assets and liabilities
Consideration received, satisfied in cash
Cash and cash equivalents disposed of
Net cash inflows
23. EMPLOYMENT BENEFITS EXPENSE
$’000 AUD
Wages and salaries
Contributions to defined contribution superannuation funds
Termination benefits
Equity settled share-based payment transactions
2019
2018
-
-
-
-
-
3,197
(15)
3,182
2019
-
-
-
13,510
(9,966)
3,544
(1,063)
2,481
512
(154)
2,839
2018
(463)
51,249
50,786
2019
2018
-
-
-
-
-
-
-
-
-
-
-
-
(49,587)
(323)
(97)
255
38
(1,023)
(50,737)
51,249
-
51,249
2019
2018
47,823
46,303
3,422
3,474
697
494
1,326
(209)
53,268
50,062
Annual Report 2019 I 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
24. RELATED PARTIES
Key management personnel remuneration
$
Short-term employee benefits
Post-employment benefits
Long-term employee benefits
Share based payments
2019
2,528,221
126,632
-
1,134,321
3,789,174
2018
2,930,197
478,890
2,893
(328,749)
3,083,231
Individual directors and executives compensation disclosures
Information regarding individual director’s and executive’s 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.
There were no loans made or outstanding to Directors or executive KMP during or at the end of the year.
A director, Stephen Kulmar, is the founder of the retail consultancy Retail Oasis, which has the Company as one of its clients.
During the year there were no engagements nor fees billed for services rendered . Accordingly Mr Kulmar is considered an
independent director. No other 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.
25. SHARE BASED PAYMENTS
The aggregate transactions and outstanding balances relating to share based payments were as follows:
Performance rights granted as compensation in the year
Performance rights
Performance Rights Granted
Number
2,671,908
Date
1 July 2018
Financial Year in which Grants Vest
(ended 31 March)
2022
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 the employees is as follows:
Held at
1 April 2018
Granted as
Compensation
Vested during
the year
Lapsed
Forfeited Held at 31 March
2019
Performance rights
3,206,317
2,671,908
(1,245,484)
-
(242,891)
4,389,850
54 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019
26. AUDITORS’ REMUNERATION
In whole AUD
Audit services
Audit and review of financial reports
Disposal of subsidiary related audit services
Total Audit Services
Other services
Taxation services – compliance and advice
Risk consulting services
Compliance assurance services
Other services
Total other services
Total auditor’s remuneration
27. CONTINGENT LIABILITY
2019
PwC
Australia
660,240
-
660,240
-
-
140,879
-
140,879
801,119
2018
KPMG
Australia
574,650
15,000
589,650
234,380
127,285
26,500
109,397
497,562
1,087,212
The Thorn subsidiary operating Radio Rentals remains a respondent to a class action proceeding commenced by one of its
customers in the Federal Court of Australia on 29 March 2017. The allegations relate to misleading and deceptive conduct,
unconscionable conduct, false representations and unfair contract terms.
The matter is being defended and no provision has been made in these accounts. The proceedings remain ongoing with a
hearing scheduled for October 2019. Furthermore, the applicant was successful in its application to join Thorn’s former
managing director, James Marshall, and Thorn’s insurer, AIG, to the proceedings. Legal fees continue to be incurred defending
the matter.
28. SUBSEQUENT EVENTS
The Company announced on 1 April 2019 that it had initiated a review of its strategic options. This review is ongoing and
further announcements will be made in due course.
One component of the review is an exploration of alternative ownership considerations which would include the potential sale
of various divisions of the Group or the Company as a whole (including all of the assets of the Company). There is no certainty
the strategic review will result in any offers for either the Company or a division thereof, or that if any offers are received they
will be on commercially acceptable terms.
Nonetheless, the directors are of the view that if a sale of the Company as a whole (including all of the assets of the Company)
or any division thereof were to occur, there is a material probability such a sale will be at a value (or implied value) lower than
the Company’s recorded net assets of $172.0m in these accounts presented as a going concern. This differential in value is also
reflected in the company’s market valuation. Factors giving rise to this include uncertainty over the company’s future cash
flows, the presence of the class action contingent liability, and a recognition that the value of assets realised in an immediate
sense may be lower than the value realised in the ordinary course of business.
Annual Report 2019 I 55
DIRECTORS’ DECLARATION
For the year ended 31 March 2019
Directors’ declaration
In the opinion of the directors of Thorn Group Limited (the ‘Company’):
1. (a) the financial statements and notes that are set out on pages 21 to 55 and the remuneration disclosures that are
contained in 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 2019 and of its 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 15 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 Corporations Instrument 2016/914.
3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief
Executive Officer and Chief Financial Officer for the financial year ended 31 March 2019.
Signed in accordance with a resolution of the directors.
David Foster
Chairman
Dated at Sydney
30 May 2019
56 I Thorn Group
Independent auditor’s report
To the members of Thorn Group Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Thorn Group Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)(cid:3)
giving a true and fair view of the Group's financial position as at 31 March 2019 and of its
financial performance for the year then ended
(b)(cid:3)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
the consolidated statement of financial position as at 31 March 2019
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
(cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:47)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
Material uncertainty related to going concern
We draw attention to Note 1(b) in the financial report, which indicates that the Group incurred a loss
before income tax from continuing operations of $25.2m for the year ended 31 March 2019 and net
cash used in operating activities during the same period amounted to $12.9m. As a result the Group is
dependent upon returning to profitability, maintaining support from its financiers and progressing the
strategic review. These conditions, along with other matters set forth in Note 1, indicate that a material
uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Emphasis of matter: uncertainty regarding outcome of litigation
We draw your attention to Note 27 in the financial report which describes the uncertainty related to
the outcome of the class action filed against the Group. Our opinion is not modified in respect of this
matter.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
(cid:120)(cid:3)
For the purpose of our audit
we used overall Group
materiality of $1,009,000,
which represents
approximately 4% of the
Group’s loss before income tax
from continuing operations.
(cid:120)(cid:3) Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
(cid:120)(cid:3) We applied this threshold,
(cid:120)(cid:3)
together with qualitative
The Group is principally
involved in providing leases to
(cid:120)(cid:3) Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
Committee:
(cid:16)(cid:3) Valuation of intangible assets
and property, plant and
equipment
(cid:16)(cid:3) Recoverability of trade and
consumers and to businesses
in Australia, through its two
key divisions, Radio Rentals
and Thorn Business Finance,
respectively.
(cid:120)(cid:3)
The accounting processes are
structured around a central
Group finance function at the
Group's head office in Sydney.
other receivables
(cid:120)(cid:3)
(cid:16)(cid:3) Recognition of revenue
These are further described in
the Key audit matters section of
our report, except for the matter
which is described in the
Material uncertainty related to
going concern section.
considerations, to determine
the scope of our audit and the
nature, timing and extent of
our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
(cid:120)(cid:3) We chose Group loss before
income tax from continuing
operations because, in our
view, it is the benchmark
against which the performance
of the Group is most
commonly measured.
(cid:120)(cid:3) We utilised a 4% threshold
based on our professional
judgement, noting it is within
the range of commonly
acceptable thresholds.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
In addition to the matter described in the Material uncertainty related to going concern section, we
have determined the matters described below to be the key audit matters to be communicated in our
report.
Key audit matter
How our audit addressed the key audit matter
Valuation of intangible assets and property,
plant and equipment
(Refer to notes 8 and 9)
We inspected the Group’s impairment analysis for
Radio Rentals CGU, as disclosed in Note 8 and 9 and
developed an understanding of the process by which
they were developed.
This was a key audit matter because of the level of
judgement required in assessing the Group’s assets for
impairment.
We considered whether the cash flows were based on
supportable assumptions by:
The recoverable amount of the Intangible assets and
Property, plant and equipment was determined
through a model based on the Group’s cash flow
forecasts from the latest budget. The most significant
judgements related to the assumptions supporting the
underlying cash flows, in particular, revenue growth
(cid:120)(cid:3)
(cid:120)(cid:3)
comparing the forecasts to latest budgets
comparing previous forecasts to actual results
to assess the Group’s historic ability to
forecast future cash flows
Key audit matter
How our audit addressed the key audit matter
rates, terminal growth rates and discount rate.
(cid:120)(cid:3)
The Group considered that each reportable operating
segment constituted its own Cash Generating Unit
(CGU).
The Group identified through its annual assessment of
impairment that assets were impaired and recorded an
impairment charge of $10m against its Intangible
assets ($5.2m) and its Property, plant and equipment
($4.8m), reducing their carrying amounts to nil at the
balance date.
performing sensitivity analysis on the
assumed growth rate in revenues and the
terminal growth rate used in the cash flow
forecasts.
In testing the valuation model, we:
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
evaluated the calculations for mathematical
accuracy
checked that the methodology used to prepare
the valuation model was in accordance with
the requirements of Accounting Standard
AASB 136 Impairment of assets.
considered the sensitivity of the calculation by
varying assumptions (e.g. discount rate) and
applying other values within a reasonably
possible range
(cid:120)(cid:3)
compared the output of the model to the
impairment charge recorded.
Provision for impairment of trade and other
receivables
(Refer to note 13)
We have performed the following procedures amongst
others:
This was a key audit matter because it was the first
period of reporting under Accounting Standard AASB 9
Financial Instruments (AASB 9) and the determination
of the provision for impairment of trade and other
receivables was driven by subjective judgements made
by the Group in determining the approach for
predicting expected credit losses (ECL).
The majority of the receivables balances were low value
and therefore the ECL was modelled on a collective
basis at a portfolio level.
Key elements in the provisioning for trade and other
receivables under AASB 9 include:
(cid:120)(cid:3)
the judgements applied in determining
customers that have had a significant increase
in credit risk, which is assessed by the Group
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
examined the key assumptions in the ECL
model developed by the Group, such as the
staging, PDs and LGDs. This included using
PwC credit modelling experts to assess the
appropriateness of the assumptions and
whether those assumptions were applied
correctly in the ECL model.
assessed the appropriateness of the
delinquency status and staging applied at
customer account level by re-performing the
delinquency status calculation and stage
assignment on a sample basis.
assessed the integrity of the input data used in
the ECL model by comparing key data inputs
to signed customer contracts and source
systems on a sample basis.
Key audit matter
How our audit addressed the key audit matter
based on the delinquency status at a customer
account level.
(cid:120)(cid:3)
(cid:120)(cid:3)
judgements applied in setting the assumptions
used in the ECL model, such as the probability
of default (PDs) and loss given default (LGDs).
reserves and overlays included to reflect
emerging trends or particular situations which
are not otherwise captured by the ECL model.
The Group identified certain exposures and provided
individually for these, separate to the collectively
assessed provision.
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
considered the accuracy of the modelled
provision for impairment held by the Group
by re-performing the ECL calculation on a
portfolio basis.
obtained an understanding of and evaluated
the appropriateness of the reserves and
overlays applied.
for receivables which were identified and
provisioned for separately, considered the
basis of measuring the individually assessed
provisions by considering the latest
information available to the Group.
assessed the integrity of the input data used to
compute the individually assessed provisions
by comparing key inputs to signed contracts
and source systems on a sample basis.
Recognition of revenue
(Refer to note 3)
We performed the following procedures amongst
others:
The Thorn Group has two main sources of revenue,
finance lease interest income and sales revenue.
This was a key audit matter because of:
(cid:120)(cid:3)
(cid:120)(cid:3)
the significance of finance lease interest
income in the context of the profit of the
Group; and
the significance of sales revenue recorded at
the commencement of the lease contract, and
the associated incentives offered to customers.
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
inspected and compared the key contract data
inputs in the product system to the signed
contract for a sample of leases
re-performed the finance lease calculations on
a sample basis
for a sample of sales during the year, we tested
the sales amount recorded to external price
lists and internally determined rental rates
for a sample of adjustments to sales revenue,
tested the incentives offered to customers by
agreeing the amount to the signed lease
contract.
Operation of IT systems and controls
The Group is dependent on its IT systems for the
processing and recording of significant volumes of
transactions.
We evaluated the design and implementation of key
controls over relevant IT systems, which included
assessing: the governance of the Group’s technology
control environment, IT change management controls,
security and access controls, system development
Key audit matter
How our audit addressed the key audit matter
This was a key audit matter because a number of key
financial controls we seek to rely on are related to IT
systems and automated controls.
Controls relating to the management of IT systems are
important because they are intended to ensure changes
to applications and data are appropriately implemented
and authorised. Ensuring staff have appropriate access
to IT systems and that access is monitored are key
controls in mitigating the potential for fraud or error as
a result of underlying changes to an application or data.
controls and IT operations controls.
Based on the results of our IT control design
assessment, we were required to carry out further
direct tests over the accuracy of relevant automated
calculations and reports to obtain sufficient evidence
for our audit.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 31 March 2019, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 10 to 20 of the directors’ report for the
year ended 31 March 2019.
In our opinion, the remuneration report of Thorn Group Limited for the year ended 31 March 2019
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Marcus Laithwaite
Partner
Sydney
30 May 2019
SHAREHOLDER INFORMATION
DISTRIBUTION OF SHAREHOLDERS AS AT 30 JUNE 2019
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 9,999,999,999
Rounding
Total
Fully Paid Ordinary Shares (Total)
Total Holders
1,330
2,348
1,174
1,508
104
Shares
664,753
6,728,951
9,183,598
41,306,964
103,290,800
6,464
161,175,066
% issued capital
0.41
4.17
5.70
25.63
64.09
0.00
100.00
MARKETABLE PARCELS AS AT 30 JUNE 2019
Minimum $ 500.00 parcel at $ 0.3050 per unit
Minimum Parcel Size
1,640
Holders
1,789
Units
1,271,675
THE NAMES OF THE SUBSTANTIAL SHAREHOLDERS LISTED IN THE COMPANY’S REGISTER AS AT 20 JUNE 2019
Rank
1
2
3
Top Investors
ICM Limited
Forager Funds Management Pty Ltd
Investors Mutual Limited
VOTING RIGHTS
% Issued Capital
19.89%
11.30%
8.63%
32,055,942
18,216,132
13,901,351
The Company only has ordinary shares on issue. 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.
UNLISTED EMPLOYEE PERFORMANCE RIGHTS
On 1 July 2019, there were 8,531,012 unlisted Performance Rights on issue held by 12 different persons.
Of these Rights, all have no exercise price and vest between 1 September 2019 and 1 September 2022 subject to the
fulfilment of the relevant vesting conditions.
SHAREHOLDER INFORMATION
20 LARGEST SHAREHOLDERS – ORDINARY SHARES AS AT 30 JUNE 2019
Rank
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Top Investors
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
MR HONGBIN CHEN
CVC LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
BRAZIL FARMING PTY LTD
DRNEWNHAM SUPER PTY LTD
DALELAN PTY LIMITED
CREATIVE LIVING (QLD) PTY LTD
MR TIMOTHY JAMES LUCE
NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>
SPORRAN LEAN PTY LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
MR MICHAEL JOHN HORN
PILGRIM PTY LTD
TIMENOW PTY LTD
MR FRANCIS MAXWELL HOOPER
Totals: Top 20 Holders Of Ordinary Fully Paid
Shares (Total)
Total Remaining Holders Balance
% Issued Capital
28.41
13.95
4.51
1.15
1.01
0.91
0.76
0.48
0.43
0.41
0.38
0.37
0.37
0.33
0.31
0.31
0.28
0.28
0.27
0.25
55.18
44.82
45,789,357
22,484,196
7,267,679
1,849,235
1,632,804
1,472,655
1,225,385
768,234
700,000
653,000
618,471
600,000
598,803
528,771
502,000
500,750
454,500
450,000
434,405
400,171
88,930,416
72,244,650
There are 161,175,066 fully paid ordinary shares on issue, all of which are listed on the Australian Securities Exchange.
SHAREHOLDER INFORMATION
NON-EXECUTIVE DIRECTORS
David Foster
Chairman, Non-Executive Director
Belinda Gibson
Non-Executive Director
Stephen Kulmar
Non-Executive Director
Andrew Stevens
Non-Executive Director
MANAGING DIRECTOR
Tim Luce
COMPANY SECRETARIES
David Lines
Peter Forsberg
REGISTERED OFFICE
Thorn Group Limited
Level 1
62 Hume Highway
Chullora, NSW 2190
www.thorn.com.au
Telephone: +61 2 9101 5000
Facsimile: +61 2 9101 5033
AUDITOR TO THORN GROUP LIMITED
PWC
One International Towers Sydney
Watermans Quay
Barangaroo
Sydney, NSW 2000
REGISTRY
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000