Annual
Report
31 March 2020
ACN 072 507 147
CONTENTS
Directors’ Report
Lead Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
2
23
24
Consolidated Statement of Financial Position
25
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
26
27
29
60
61
Annual Report 2020 I 1
DIRECTORS’ REPORT
For the year ended 31 March 2020
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 2020
and the auditor’s report thereon.
PREFACE
The year for Thorn has been an eventful one, with changes in its substantial shareholders, a new board of directors, the
appointment of a new CEO, the departure of other members of senior management, the settlement of the class action, a
capital raising, and the COVID-19 pandemic.
Thorn’s board of directors and its CEO have taken significant decisions to seek to best position the Company for the future.
These include the permanent closure of all Radio Rentals stores (which had been temporarily closed to mitigate some of the
effects of COVID-19), a significant tightening, until the economic and funding situation becomes clear, of the criteria of new
facilities in the Business Finance division, which has decreased the number of new facilities and the total amount advanced,
and a significant number of the Company’s staff becoming redundant.
At the mid-year point, a loss for the full year was anticipated after the $26 million charge for the class action settlement. The
write off a substantial number of debts in the Business Finance division in the second half added additional expense. The
announcement of the closure of the Radio Rentals stores changed the carrying value of certain assets and liabilities in that
division including inventory and finally the emergence of COVID-19 then prompted Thorn to take up further provisions to
reduce the valuation of assets, primarily receivables under lease contracts, on the balance sheet down to their current carrying
amounts in accordance with accounting standards.
In the absence of historical evidence from which to position a provision for expected losses from the effects of COVID-19, the
board of directors has had to determine suitable provisions based on judgement and advice from management and advisers.
The method chosen and the results are explained further in the financial statements. The outcomes were a $22.1 million
provision for Business Finance and a $13.5 million provision for Consumer Leasing.
It was then determined not to take up all the deferred tax benefit attributable due to the size of the available tax losses and the
difficulty in forecasting the Company’s future profitability to be able to fully utilise them.
This is a substantial list of changes to the Company’s business and the financial statements and takes the result for the year to a
loss of $(81.1) million.
OPERATING AND FINANCIAL REVIEW
Principal activities
Thorn is a diversified financial services group providing the leasing of household products to consumers, and commercial asset
finance to small and medium size enterprises. There were no other significant changes in the nature of the activities of the
consolidated entity during the year.
Financial performance
A$m
Consumer Leasing
Business Finance
Corporate
Significant items – class action and strategic review
Sub-total
Net interest expense
Loss 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
Segment revenue
Segment EBIT to NPAT
2020
162.4
41.9
-
-
204.3
2019
178.7
43.2
-
-
221.9
2020
(8.0)
(19.1)
(8.3)
(26.7)
(62.1)
(16.3)
(78.3)
(2.7)
(81.1)
-
(81.1)
2019
(2.1)
16.1
(11.9)
(11.9)
(9.8)
(15.4)
(25.2)
7.1
(18.1)
3.2
(14.9)
DIRECTORS’ REPORT
For the year ended 31 March 2020
Revenue from continuing operations fell 7.9% to $204.3m (2019: $221.9m), and the net profit after tax (‘NPAT’) fell from a
$(14.9)m loss to a $(81.1)m loss.
The profit and loss statement includes significant items which are displayed below separate to the normal operating results of
the Group. This year $26.7m of costs were incurred for the class action and the strategic review and are presented as significant
items, the last year comparative contains asset impairments and class action legal costs of a combined $11.9m. Within the
reported operating EBIT for Consumer Leasing and Business Finance are additional provision charges of $13.5m and $22.1m
respectively for the expected credit loss as a result of COVID-19 on the receivables books in those divisions.
Consumer Leasing
The Company’s consumer leasing division, Radio Rentals, recorded lower sales units and revenues this year with 74,503 units
being installed in the year which was 10.6% lower than last year’s 83,299. Revenue for the 2020 financial year reduced by
$16.3m to $162.4m (2019: $178.7m). Revenue is a combination of sales revenue from installations under new contracts and
the interest and fee income from past written contracts. Interest income reduced as the receivables book (before provisioning),
which generates the interest income, fell 10.5% to $146.0m (2019: $163.1m).
In the face of reduced revenue, the costs of the division were cut. Costs, other than impairment expenses, reduced by $18.7m,
by a combination of reductions in cost of goods sold, staff costs and other expenses.
The introduction of AASB 16 generated a right of use asset for the leased property and vehicles along with a lease liability but
the right of use asset was written off upon introduction through reserves. If AASB 16 had not been adopted rent expense would
have been $7.3m higher. The $7.3m was replaced by $0.7m of financing expense. The difference, $6.7m, would usually have
been presented as depreciation, however due to the impairment depreciation was zero. Additionally new leases capitalised
during the year were immediately impaired through the impairment line at an expense of $1.9m. The net positive impact to
profit before tax was $4.8m.
The credit loss impairment expense on the lease receivables book rose $8.4m to $38.8m (2019: $30.4m) including the
additional provision of $13.5m taken up for the expected impact of COVID-19 and the closure of the store network. Arrears
over 30 days outstanding at the year-end finished at 15.7% compared to 13.8% at 31 March 2019.
EBIT was a $8.0m loss (2019: $2.1m loss).
Business Finance
Originations of equipment leases and chattel mortgages were $152.0m for the year which was broadly in line with the prior
year total of $150.5m. The portfolio interest rate remained stable across the year. The receivables book reduced from $345.2m
to $323.4m before the provision for expected credit losses.
Revenue decreased 3.1% to $41.9m (2019: $43.2m). Arrears have trended up from 4.4% at the end of March 2019 to 5.1% at
this year-end. Impairment expenses for credit loss rose $32.5m to $49.9m (2019: $17.4m) and included the additional provision
of $22.1m for the expected credit loss impact of COVID-19. At the time of writing, approximately 31% of customers by value
with a principal amount owing of circa $100m have applied for payment holiday relief citing COVID-19. Costs other than
impairment increased by $1.3m during the year with additional costs being recorded for collection staff and the legal recoveries
process.
EBIT was a $19.1m loss (2019: $16.1m profit).
Corporate
Corporate expenses were cut by 30.3% to $8.3m (2019: $11.9m) as management have continued to focus on the aligning the
cost structure with the current revenue base. The majority of the reduction was achieved through reduced headcount.
Insurance costs for directors and officers insurance also increased.
Significant items
The $26.0m of costs incurred in settling the Radio Rentals class action including the associated legal fees are recorded as a
significant item along with $0.7m of costs for the strategic review.
Annual Report 2020 I 3
DIRECTORS’ REPORT
For the year ended 31 March 2020
Net interest expense
Net interest expense increased by 5.5% from $15.4m to $16.3m. These costs now include $0.7m of financing charges on
operating lease liabilities due to the adoption of AASB 16. Borrowings in the warehouse rose marginally to $293.5m (2019:
$288.6m) which led to marginally higher funding costs in the Business Finance division. The corporate facility balance
conversely was slightly reduced during the year down to $12.0m (2019: $15.0m).
Tax expense
The Company recorded a large loss before tax but has not taken up the full tax benefit attributable as directors were not
certain that there would be sufficient taxable profits in future years to justify the recording of such a large asset on the balance
sheet.
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. This additional column
format is presented so the reader can view the gearing and financial position of Thorn without the securitised warehouse trust
and its cash, receivables, and borrowings.
Summarised financial position
31 March 2020
31 March 2019
excl. Trust
incl. Trust
excl. Trust
incl. Trust
$m
Cash at bank
Receivables
Investment in unrated notes
Inventories and other assets
Intangible assets
Total Assets
Borrowings
Other liabilities
Total Liabilities
Total Equity
28.7
91.7
25.5
13.9
-
159.8
12.0
42.1
54.1
105.8
49.6
389.8
-
13.9
-
453.4
305.5
42.1
347.6
105.8
261.7%
(33.7)
7.9
167.5
24.0
24.8
-
224.2
15.0
40.9
55.9
168.3
4.2%
30.6
457.4
-
24.8
-
512.8
303.6
40.9
344.5
168.3
171.9%
(9.3)
Gearing (net debt/equity) (i)
-15.8%
EPS
(i) Gearing is calculated as closing net debt (i.e. debt less free cash) divided by closing equity
Cash at bank
The cash at bank amount includes the free cash available to the Group for its usual working capital balance plus the tied cash
which is both customer receipts held in the securitised warehouse special purpose vehicle and cash reserves required to
support the public rating of the notes. At the year end, free cash was $28.7m and tied cash $20.9m (2019: $7.9m and $22.7m).
Receivables
The balance consists of consumer leasing receivables and business finance receivables. All are stated as their gross amount less
unearned interest, less a provision for any expected credit loss. Those provisions have been increased this year as a result of
the significant increase in credit risk and losses anticipated to arise from the COVID-19 pandemic.
The Consumer Leasing receivables gross balance reduced by $17.1m to $146.0m (2019: $163.1m) due to lower originations and
the total book reducing accordingly. The provision increased by $9.6m to $(36.3m) (2019: $(26.7m)). This included a $13.5m
4 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
provision for the expected impact of COVID-19 and store closures. The net receivables balance reduced by $26.7m to $109.7m
(2019: $136.4m).
The Business Finance receivables gross balance reduced by $22.5m to $325.5m (2019: $348.0m) due to lower originations and
higher write offs. The provision increased by $18.0m to $(45.3m) (2019: $(27.1m)). This included a $12.1m provision for the
expected impact of COVID-19. The net receivables balance reduced by $40.8m to $280.2m (2019: $321.0m).
In the table above, the columns which exclude the warehouse trust eliminate the Business Finance receivables held in the
warehouse leaving the Consumer Leasing receivables, the remaining Business Finance receivables which are not financed
through the warehouse along with the provisions for impairment.
Investment in unrated notes
This balance represents the equity notes held by the Group in the securitised warehouse representing 8% of the notes by value.
Borrowings
The corporate facility was paid down by $3.0m from $15.0m to $12.0m during the year. The securitised warehouse borrowings
were paid down by $10.1m to $293.5m (2019: $303.6m) during the year.
Other liabilities
Other liabilities increased by $1.1m which was driven by the introduction of $11.7m of lease liabilities under AASB 16, plus
$2.0m due to the interest rate derivative used to hedge the Business Finance book going up from $3.3m to $6.3m. There were
countervailing reductions due to the finalisation of the regulatory remediation program and the settlement of related
provisions and liabilities.
Funding
The Group has the following debt facility limits:
$m
Secured Corporate Loan Facilities A and B
Securitised Warehouse Facility
Corporate facilities
2020
17.0
368.0
2019
30.0
368.0
The corporate debt facility is in two parts; the ‘A’ facility which is a general corporate facility fully drawn to its $12.0m limit, and
the ‘B’ facility which is a $5.0m limit of a combined undrawn overdraft and drawn bank guarantees to landlords and suppliers.
The ‘B’ facility utilization varies with the level of overall guarantees given and was drawn to $3.0m at year end to fund bank
guarantees and the remaining available overdraft facility was undrawn. The drawn balance in facility ‘A’ of $12.0m is presented
as a current liability in the statement of financial position as the facility matures on 30 November 2020 and the intention is to
repay it at that time. The corporate facilities are secured by a fixed and floating charge over the assets of the consolidated
entity.
During the year the Group entered into a revised arrangement with its lender on its corporate facility which waived the Group’s
obligation to comply with any financial covenants until 14 April 2020. As part of this arrangement, the Group’s $25.0m facility
‘A’ limit was reduced to $15.0m at 30 September 2019 and subsequently reduced to $12.0m in October 2019 following the
Group’s rights issue. The Group is currently operating without a waiver but is in negotiations with its lender over a further
waiver which envisages repaying the $12m corporate facility progressively through to 30 November 2020 and abiding under a
new covenant not to pay a dividend while the corporate facilities remain unrepaid.
Warehouse facility
Thorn Business Finance is financed by a securitised warehouse structure with senior notes (70%) held by a major Australian
bank, mezzanine notes (22%) held by a major Australian financial services company, and equity class F notes (8%) held by
Thorn.
The warehouse facility was reviewed by the note holders in the normal course of business during the year with the availability
period being extended to 10 August 2020 and the final maturity date to 10 August 2026.
The warehouse facility is secured by rentals and payments receivable from the underlying lease receivable contracts and is non-
recourse to the Group by which it is meant that Thorn’s liability is limited to its class F notes unless it is liable in damages for
breach of the documents or it is required to buy back a ineligible receivable (defined as one that breached Thorn’s initial sale
representations and not merely that it goes into arrears or defaults).
Annual Report 2020 I 5
DIRECTORS’ REPORT
For the year ended 31 March 2020
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. 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.
On 5 May 2020, when calculating the 30 April 2020 warehouse monthly financial results, the warehouse facility was
determined to have a breach in one of its warehouse parameters which requires no more than 6% of the balances to be in
arrears by more than 30 days. That arrears number was 10.5% and was directly due to the increasing presence of COVID-19
affected customers many of whom had requested a payment holiday and stopped repayments under their leases.
When the COVID-19 pandemic arose and Thorn began receiving payment holiday requests, Thorn held discussions with the
senior and mezzanine noteholders around the granting of concessions such that Thorn could vary the customer contracts to
include a payment holiday. Those discussions had not progressed to a resolution by 5 May 2020 and so the inevitable arrears
increase triggered the breach.
A breach of this parameter is an amortisation event which, if not waived or remedied, puts the warehouse into run off under its
amortisation rules. While such an event subsists, Thorn is unable to sell its originations into the warehouse and the
distributions it was expecting from the warehouse via the waterfall distribution mechanism will decline depending upon the
extent of the cash flow reduction.
Discussions are continuing with the senior and mezzanine note holders. If this situation remains unresolved then Thorn will
endeavour to seek new sources of finance.
DIVIDENDS PAID OR RECOMMENDED
There were no dividends declared or paid during the financial year:
2020
Final 2019
Interim 2020
Total amount
2019
Final 2018
Interim 2019
Total amount
Cents per share
Amount $'000
Franking
Date of payment
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Directors have resolved that no final dividend be declared.
REGULATORY MATTERS
Thorn finalised its Enforceable Undertaking, originally entered into with ASIC on 23 January 2018, during the year.
The Group is not subject to any significant environmental regulation. Thorn’s asset valuations, useful lives, fair values, costs of
or demand for its products, and credit losses from its receivable books are unlikely to be materially affected by climate change.
Thorn does seek to source products for its consumer division customers which are environmentally friendly and efficient and
does seek to finance solar installations.
CONTINGENT LIABILITY
The class action which was previously classified as a contingent liability was settled during the year for an amount of $25.0m
paid by Thorn. This settlement was approved by the Federal Court on 20 December 2019.
6 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
SUBSEQUENT EVENTS
The COVID-19 pandemic has had two significant impacts upon Thorn subsequent to the year end.
Securitised warehouse funding
First, as explained above in the Funding section, the pandemic has affected the financial position of many of Thorn’s customers
and in particular reduced the cash repayments being received from Thorn Business Finance division customers. That reduced
cash flow has had the consequent impact upon the warehouse financing structure described and has caused an amortisation
event to subsist which precludes Thorn selling any further receivables into the warehouse and changes the waterfall cash flows
to repay the more senior notes first.
Discussions are continuing with the senior and mezzanine note holders. If this situation remains unresolved then Thorn will
endeavour to seek new sources of finance.
Radio Rentals store closures and transition to fully online
The health and safety concerns for Radio Rentals customers and staff during the developing COVID-19 pandemic prompted
Thorn to temporarily close the Radio Rentals stores on 2 April 2020.
Thorn had at the time been developing a plan to address the division’s profitability and the substantial move by customers to
the online platform where 70% of applications were being received online. On 23 April 2020, Thorn announced the decision to
permanently close the Radio Rentals store network, collect the legacy receivables book, and develop its core Radio Rentals
business using a purely online platform.
This decision entails approximately 300 redundancies at an estimated cost of $5m which is not provided for in these financial
statements as it is a non-adjusting accounting event, the termination of all Radio Rentals store leases with a settlement sum to
be paid to the lessors and make good expenses where appropriate, the realisation of the existing inventory position, incurring
of expenses to continue to service and collect on the receivables book, and developing the digital business model. These are
substantial changes to the division’s business model which will have a significant impact on the company and its financial
statements going forward.
FINANCING AND GOING CONCERN BASIS FOR THE FINANCIAL REPORT
The directors have determined that the going concern basis is appropriate in preparing the financial report.
The Group incurred a net loss after tax of $81.1m (2019: $14.9m loss) for the year ended 31 March 2020 and net cash used in
operating activities during the same period amounted to a $9.2m (2018: $12.9m) out flow. It should also be noted that the net
operating cash outflow includes outflows of $61.2m for inventory of household goods assets used to seed Radio Rentals
consumer leases and $155.8m for originations in Business Finance.
The Group provides financing to both consumers and small and medium size enterprises across a range of industries, many of
which have been impacted by COVID-19. Approximately 30% of the Group’s SME customers by value have requested payment
holidays. Thorn continues to be in discussion with the senior and mezzanine note holders in the securitised warehouse
regarding relief options.
Subsequent to the year end, the securitised warehouse fell into breach of one of its warehouse parameters as a result of
customers affected by COVID-19 progressively going into arrears. That breach while it subsists puts the warehouse into
amortisation. Discussions are continuing with the note holders to waive or remedy that breach.
Thorn’s Radio Rentals division has been affected by COVID-19 with the Group announcing the temporary closure of its store
network for safety reasons, and then a permanent closure of the Radio Rentals stores and warehouses and moving the business
completely online. These closures are expected to result in redundancies for approximately 300 casual and full time staff across
the Group.
The core of the Radio Rentals business will continue to operate and will be leveraged to develop a new digital business model.
Thorn has introduced new credit policies and collection processes as well as cutting costs across all divisions to seek to ensure
the business model remains sustainable into the future.
The cost reductions underway, the tightening of Business Finance originations and the collecting on the Radio Rentals
receivables book will all be cash positive for the Group. The continuing viability of the Group as a going concern beyond that
point is dependent upon the Group returning to profitability, resolving present financing difficulties so as to be able to revitalise
Business Finance, and successfully progressing the Radio Rentals digital strategy.
Annual Report 2020 I 7
DIRECTORS’ REPORT
For the year ended 31 March 2020
Considering all the above, and acknowledging that corporate actions and discussions with current or proposed lenders always
contain some risk and uncertainty, the directors have reviewed the Group’s cash flow forecast and, in the directors’ opinion,
there are reasonable grounds to believe that the collecting on the Radio Rentals book will provide sufficient incoming cash flow
to ensure the Group will be able to meet its obligations and accordingly continue as a going concern.
While the directors are of the opinion expressed above, the resolution of funding for the Business Finance division and the
launch of Radio Rentals online business are not guaranteed and accordingly 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 discharge its liabilities in the normal course of business and for the amounts recorded in this report.
OUTLOOK
Given the significant effect that the ongoing COVID-19 pandemic is having, there are insufficient grounds to be able to provide
a detailed and reliable outlook statement and profit guidance at the present time.
Thorn will progress its announced actions on Radio Rentals, will invest in and launch the new digital Radio Rentals business, and
seek to resolve the funding issues in the Business Finance division.
8 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
DIRECTORS' INFORMATION
Warren McLeland
Non-Executive
Appointed 30 August 2019
Appointed Board Chairman 23 October 2019
Appointed Chair of Risk and Compliance Committee 4
December 2019
Other current ASX directorships
None
Former ASX directorships
None
Interests in shares and options
133,186 ordinary shares
Paul Oneile
Independent, Non-Executive
Appointed 14 October 2019
Appointed Chair of Audit Committee 4 December 2019
Qualifications
Bachelor of Economics
Experience
Paul is the current Chair of ASX listed company, A2B Australia
Limited (formerly Cabcharge Australia Limited).
Previously Paul was the non-executive Chairman of Intecq
Limited (formerly eBet Limited), from 2012 until its
acquisition by Tabcorp Holdings Limited in December 2016.
From 2003 to 2008, Paul was CEO of Aristocrat Leisure
Limited where he oversaw significant business and cultural
change, refocused R&D spending, streamlined the supply
chain operation, and successfully oversaw growth of the
company’s international operations.
Other current ASX directorships
A2B Australia Ltd A2B Limited (formerly Cabcharge Australia
Limited)
Former ASX directorships
Aristocrat Leisure Ltd
Intecq Limited (formerly eBet Limited)
Village Roadshow Limited
Interests in shares and options
Nil
Qualifications
Bachelor of Science
MBA
Experience
Warren has over 40 years’ experience in financial services, in
wholesale and retail sectors at top business management and
CEO levels. Warren’s experience has been gained in
organisations such as Bain and Co and Chase Manhattan (now
JP Morgan Chase). Warren is the Non-Executive Chairman of
ASX listed Resimac Group Limited and was formerly the CEO.
Warren is a former non-executive director of UIL Limited.
Other current ASX directorships
Resimac Group Ltd
Former ASX directorships
Interests in shares and options
Nil
Kent Bird
Independent, Non-Executive
Appointed 30 August 2019
Appointed Deputy Chair of the Board 11 October 2019 and
the Chair of Thorn’s Remuneration and Nomination
Committee 30 August 2019
Qualifications
Bachelor of Business
Graduate Diploma in Applied Finance
Experience
Kent is a banking and finance professional with 25 years’
experience in commercial and investment banking.
Kent was with Credit Agricole CIB Australia Limited for 12
years and was the Managing Director – Head of Loan
Syndications Australia and Head of DCM Origination Australia
for the last three years, ending in December 2018. Prior to
this, Kent worked at various financial institutions such as
Suncorp Limited, Heritage Bank Limited and the Queensland
Office of Financial Supervision (now the Australian Prudential
Regulation Authority).
Annual Report 2020 I 9
DIRECTORS’ REPORT
For the year ended 31 March 2020
Allan Sullivan
Non-Executive
Appointed 30 August 2019
Qualifications
Bachelor of Science, Bachelor of Engineering, Doctor of
Engineering
Experience
Allan has had a professional career spanning over 30 years
involving senior management roles in Switzerland, Holland,
Korea, Hong Kong and Australia. Allan has a Bachelor of
Science, a Bachelor of Engineering and a Doctor of
Engineering from the University of Sydney.
Allan was the Chief Executive Officer and Director of the
listed ASX-ERG Group of Companies based in Perth (now Vix
Technology) from 2004 to 2007. Since 2007, Allan has acted
as a consultant to the VIX Verify Group and the Allectus
Capital Group in relation to their technology businesses.
More recently, Allan has acted as Executive Chairman of the
VIX Verify Group, managing the successful sale of VIX Verify
Global Identification business to the UK listed GB Group.
Other current ASX directorships
None
Former ASX directorships
Vix Technology Ltd
Interests in shares and options
205,999 ordinary shares
David Foster
Independent, Non-Executive
Appointed 1 December 2014, retired on 23 October 2019
Appointed Board Chairman 1 February 2018, Chairman until
his retirement on 23 October 2019
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 and former ASX directorships
G8 Education Limited
MotorCycle Holdings Limited
Genworth Mortgage Insurance Australia Limited
Kina Securities Limited
10 I Thorn Group
Interests in shares and options
Nil
Belinda Gibson
Independent, Non-Executive
Appointed 1 July 2016, retired 4 December 2019
Chairman of the Risk & Compliance Committee
Appointed 1 February 2018, Chairman until her retirement on
4 December 2019
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 current and former ASX directorships
Getswift Limited
Interests in shares and options
Nil
Andrew Stevens
Independent, Non-Executive
Appointed 1 June 2015, retired 4 December 2019,
Chairman of the Audit Committee
Appointed 1 February 2018, Chairman until his retirement on
4 December 2019
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 current and former ASX directorships
Stockland Corporation Limited
MYOB Group Limited
Interests in shares and options
Nil
DIRECTORS’ REPORT
For the year ended 31 March 2020
Stephen Kulmar
Independent, Non-Executive
Appointed 15 April 2014, retired 30 August 2019
Chairman of the Remuneration & Nomination Committee
Appointed 15 April 2014, Chairman until his retirement on 30
August 2019
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 current and former ASX directorships
Accent Group Ltd
Interests in shares and options
136,000 ordinary shares
Joycelyn Morton
InvoCare Limited, Crane Group Limited
Count Financial Limited, Noni B Limited
Interests in shares and options
95,119 ordinary shares
Tim Luce
Managing Director
Appointed 15 February 2018, Managing Director and CEO
until his retirement on 12 February 2020
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.
Independent, Non-Executive
Appointed 1 October 2011, resigned 31 May 2018
Board Chairman 26 August 2014 until 1 February 2018
Interests in shares and options
738,117 ordinary shares
598,803 performance rights
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 current and former directorships
Argo Investments Limited, Argo Global Listed Infrastructure
Limited, Beach Energy Limited
Company Secretary
Alexandra Rose (BLaws, MBA, FAID, FGIA, FCIS) is the Group’s
General Counsel and General Manager of Risk & Compliance
having joined the company on 30 October 2019. Alexandra is
an experienced corporate lawyer with over 20 years of legal,
risk and regulatory expertise. She has held senior executive
roles at a number of leading Australian financial services
companies.
Annual Report 2020 I 11
DIRECTORS’ REPORT
For the year ended 31 March 2020
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
Warren McLeland
Kent Bird
Paul Oneile
Allan Sullivan
David Foster
Belinda Gibson
Andrew Stevens
Stephen Kulmar
A
10
11
7
11
14
15
16
9
B
11
11
7
11
14
17
17
11
A
1
1
1
1
2
3
3
2
B
1
1
1
1
2
3
3
2
A
0
1
0
1
4
4
4
3
Tim Luce
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
19
19
3
3
4
B
1
1
0
1
4
4
4
3
4
A
1
1
1
1
2
3
3
2
3
B
1
1
1
1
2
3
3
2
3
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 $931,000 in respect of directors’ and officers’ liability
and legal expenses insurance contracts, for current and former directors and officers, including senior executives of the
Company and directors, senior executives and secretaries of its controlled entities. The insurance premiums relate to costs and
expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome, and
other liabilities that may arise from their position, with the exception of conduct involving misconduct. The insurance policies
outlined above do not contain details of the premiums paid in respect of individual officers of the Company.
12 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
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
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 2019 AGM, the
Remuneration Report received a vote of approval of 12% of the votes received and hence was rejected by shareholders.
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 2020, the NEDs and KMP were:
Non-Executive Directors
Position
Warren McLeland
Allan Sullivan
Kent Bird
Paul Oneile
David Foster
Stephen Kulmar
Andrew Stevens
Belinda Gibson
Director
Board Chairman
Chairman of Risk & Compliance Committee
Director
Director
Chairman of the Remuneration & Nomination Committee
Director
Chairman of Audit Committee
Director and Board Chairman
Director and Chairman of the Remuneration & Nomination
Committee
Director/Committee Chair
Term or Date
Appointed 30 August 2019
Appointed 23 October 2019
Appointed 4 December 2019
Appointed 30 August 2019
Appointed 30 August 2019
Appointed 30 August 2019
Appointed 14 October 2019
Appointed 4 December 2019
Until 23 October 2019
Until 30 August 2019
Director and Chairman of Audit Committee
Until 4 December 2019
Director and Chairman of Risk & Compliance Committee
Until 4 December 2019
Annual Report 2020 I 13
DIRECTORS’ REPORT
For the year ended 31 March 2020
Executive KMP
Pete Lirantzis
Alexandra Rose
Peter Forsberg
Tim Luce
Wendy Yip
David Lines
Position
CEO
General Counsel, General Manager Risk & Compliance and
Company Secretary
Chief Financial Officer
CEO and Managing Director
Chief Risk Officer
General Counsel and Company Secretary
Term or Date
Appointed 10 February 2020
Appointed 30 October 2019
Full Year
Until 12 February 2020
Until 22 November 2019
Until 16 August 2019
NB. Peter Forsberg resigned as Company Secretary on 7 May 2020.
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. The Board does not intend
to seek an increase to the fee pool at the 2020 AGM.
The new directors appointed during the year reduced their fees. The base annual fee for the Chairman was $187,223 per
annum including superannuation and is now $82,125. Base fees for other non-executive directors were $93,611 per annum
including superannuation but are now $82,125. 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.
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Salary and fees
Superannuation
45,115
-
47,731
-
36,173
-
42,115
-
100,615
170,980
42,236
95,490
67,210
95,490
67,210
95,490
-
16,112
448,405
473,562
4,286
-
4,534
-
3,436
-
4,001
-
9,558
16,243
4,187
9,072
6,385
9,072
6,385
9,072
-
1,531
42,772
44,990
Total
49,401
-
52,265
-
39,609
-
46,116
-
110,173
187,223
46,423
104,562
73,595
104,562
73,595
104,562
-
17,643
491,177
518,552
Name
Warren McLeland
Kent Bird
Paul Oneile
Allan Sullivan
David Foster
Stephen Kulmar
Andrew Stevens
Belinda Gibson
Joycelyn Morton
Total Non-Executive Director Remuneration
14 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
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
↓
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.
↓
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 for both short and long term incentives is presently under review.
Annual Report 2020 I 15
DIRECTORS’ REPORT
For the year ended 31 March 2020
Summary of executive KMP remuneration outcomes on a statutory basis – audited
Name
Year
Salary Termination
STI
Other
remuneration
Superannuation
Long
Service
Leave
LTI
Executive KMP
Pete Lirantzis
Peter Forsberg
Alexandra Rose
Former KMP’s
Tim Luce
Wendy Yip
David Lines
Total KMP
Remuneration
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
111,588
-
424,958
424,967
130,731
-
680,973
704,580
249,727
329,580
149,239
329,580
1,747,216
1,788,707
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 181,250
-
-
-
-
-
-
-
-
-
-
- 181,250
-
-
215,000
110,000
-
-
-
-
46,376
60,000
2,612
60,000
263,988
230,000
6,717
-
20,885
20,411
10,435
-
20,885
20,411
15,634
20,411
10,384
20,411
84,940
81,644
-
-
-
-
- 136,657
- 180,358
-
-
-
-
- (332,184)
-
736,226
- (53,157)
- 115,488
- (58,737)
- 102,249
- (307,421)
- 1,134,321
Total
118,305
-
797,500
735,736
141,166
-
369,674
1,642,467
258,580
525,479
103,498
512,240
1,788,723
3,415,922
a) Other remuneration represents retention and capital raising incentive payments
b)
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.
Retention payments
The KMP, with the exception of Mr Luce, received no pay rise or short term incentive in 2019 or 2020. The Board in place at the
beginning of the financial year recognised that retaining the services of several of its key executives was essential to the
ongoing success of the Group and accordingly retention payment arrangements were paid in the year to 31 March 2020 to Mr
Forsberg, Ms Yip and Mr Lines as set out in the table above. The new Board has put no such arrangements in place.
Remuneration mix
The table below represents the target remuneration mix for group executives in the current year:
KMP
At risk
Fixed remuneration
Short term incentive
Long term incentive
50%
25%
25%
16 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
Fixed remuneration
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.
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 discretion in all matters. The below described remuneration framework is
presently under review.
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 Net Profit After Tax ‘NPAT’ gateway below which no STI payments are made. The maximum STI
that can be earned is based on NPAT against budget as follows:
Company NPAT 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.
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.
Annual Report 2020 I 17
DIRECTORS’ REPORT
For the year ended 31 March 2020
STI OUTCOMES FOR 2020 - AUDITED
The Company reported a loss after tax which did not meet the hurdle and accordingly no STI’s were awarded.
STI for 2019-20
Pete Lirantzis*
Peter Forsberg
Alexandra Rose*
Tim Luce
Wendy Yip
David Lines
Total
Target $
-
222,500
-
362,500
165,000
165,000
915,000
Earned %
Earned $
Forfeited %
Forfeited $
-
0%
-
0%
0%
0%
0%
-
-
-
-
-
-
-
-
100%
-
100%
100%
100%
100%
-
222,500
-
362,500
165,000
165,000
915,000
Pete Lirantzis and Alexandra Rose commenced employment during the year and were not eligible to participate in the FY20 STI scheme.
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 below described remuneration framework is presently under review.
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 2017, 2018 and 2019 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.
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 2017, July
2018 and July 2019 Grants
Percentage of Performance Rights subject to TSR
condition that qualify for vesting
< 50th percentile
50th percentile
50th to 75th percentile
75th percentile or greater
0%
50%
Assessed on a straight line basis
100%
Thorn Group Limited’s EPS Hurdle July 2017, July
2018 and July 2019 Grants
Percentage of Performance Rights subject to EPS
condition that qualify for vesting
< 5% compound annual growth rate
5%
>5% to <10%
= or > 10% CAGR
0%
50%
Assessed on straight line basis
100%
Performance period
and vesting dates
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.
July 2019: 3 years (1 July 2019 to 30 June 2022). Vesting date is 1 September 2022.
18 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
Features
Description
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.
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 2017
1 July 2018
1 July 2019
1 September 2020
31 October 2020
1 September 2021
31 October 2021
1 September 2022
31 October 2022
$1.00
$0.46
$0.26
Nil
Nil
Nil
$1.42
$0.60
$0.31
37.0%
44.0%
46.0%
1.9%
2.1%
1.0%
5.3%
2.8%
0.0%
Long term incentive outcomes for FY20
The 2016 plan was tested at 1 June 2019, failed the performance criteria, and all performance rights attaching to it lapsed.
Performance rights granted as compensation in the year
Peter Forsberg
Wendy Yip
David Lines
Performance Rights Granted
Number
765,535
601,581
601,581
Date
1 July 2019
1 July 2019
1 July 2019
Financial Year in which Grants Vest
(ended 31 March)
Values Yet to Vest $
Min (a)
Max (b)
2023
N/A
N/A
Nil
N/A
N/A
-
N/A
N/A
Nb. Wendy Yip and David Lines resigned during the year and under the LTI arrangements forfeited their award
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 2020 was $0.05.
Annual Report 2020 I 19
DIRECTORS’ REPORT
For the year ended 31 March 2020
5. ALIGNMENT BETWEEN REMUNERATION AND PERFORMANCE – AUDITED
In considering the consolidated entity’s performance and benefits for shareholders’ wealth, the board of directors has regard to
the following indices in respect of the current financial year and the four previous financial years.
Year ending 31 March
Profit After Tax (AUD millions)
Earnings per share (cents)
Dividends per share (cents)
Share price at year end ($)
Return on capital employed %
Return on equity %
2020
(81.1)
(33.7)
0.0
0.05
n/a
n/a
2019
(14.9)
(9.3)
0.0
0.46
n/a
n/a
2018
(2.2)
(1.4)
1.0
0.62
n/a
n/a
2017
25.3
16.2
8.0
1.31
11.0
12.4
2016
20.1
13.1
11.5
1.82
11.1
10.4
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.
6. SERVICE CONTRACTS FOR EXECUTIVE KMP - AUDITED
The present contractual arrangements with executive KMPs are:
Component
Contract duration
Notice by individual or company
Termination without cause
Termination with cause
CEO
Ongoing
6 months
Senior executives
Ongoing
Range between 3 and 6 months
Entitlement to pro-rata STI for the year.
Unvested LTI is forfeited unless the board decide at its absolute discretion otherwise.
Board has discretion to award a greater or lesser amount.
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
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
Financial Years
in Which Grant
Vests (ending
31 March)
Date
Remaining
Unvested
Values Yet
to Vest $
2020 Movements
on original grant
Number
Min (a)
Max (b)
Vested
Forfeited Unvested
Peter Forsberg
LTI*
LTI
LTI
233,476
361,928
765,535
1 July 2017
1 July 2018
1 July 2019
2021
2022
2023
233,476
361,928
765,535
Nil
Nil
Nil
-
-
-
-
-
-
-
-
-
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.
Alexandra Rose joined during the year and hence has not participated in any LTI plan at the date of this report.
Performance rights over equity instruments granted
The movement during the year in the number of performance rights over ordinary shares in Thorn Group Limited held directly,
indirectly or beneficially, by each key management person, including their related parties is as follows:
20 I Thorn Group
DIRECTORS’ REPORT
For the year ended 31 March 2020
Tim Luce
Peter Forsberg
Wendy Yip
David Lines
Held at
1 April 2019
Granted as
Compensation
Vested during
the year
Lapsed
Forfeited Held at 31 March
2020
1,187,947
738,750
526,286
411,106
-
765,535
601,581
601,581
-
-
-
-
-
(1,187,949)
-
(143,346)
(115,180)
-
-
1,360,939
(1,012,687)
(1,012,687)
-
-
Shareholdings of the directors and executive KMP
2020
Name
Warren McLeland
Kent Bird
Paul Oneile
Allan Sullivan
Pete Lirantzis*
Peter Forsberg
Alexandra Rose
David Foster
Belinda Gibson
Andrew Stevens
Stephen Kulmar
Joycelyn Morton
Tim Luce
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
-
-
-
-
-
333,855
-
60,270
20,000
15,720
68,000
95,119
646,460
183,913
173,913
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
133,186
-
205,999
-
333,855
-
(60,270)
(20,000)
(15,720)
68,000
-
690,460
10,000
-
-
133,186
-
205,999
-
667,710
-
-
-
-
136,000
95,119
1,336,920
193,913
173,913
*Pete Lirantzis was granted 464,253 shares, effective 22 May 2020, subject to a 2 year service period as part of his
remuneration package under the terms of his employment contract.
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 had 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
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:
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;
the non-audit services provided do not undermine the general principles relating to auditor independence; and
as set out in APES110 Code of Ethics for Professional Accountants, 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 24.
Annual Report 2020 I 21
DIRECTORS’ REPORT
For the year ended 31 March 2020
ROUNDING OF FINANCIAL AMOUNTS
The Company is of a kind referred to in ASIC Instrument 2016/191 issued by the Australian Securities & 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 23 and forms part of the directors’ report for financial year ended 31
March 2020.
This report is made in accordance with a resolution of the directors:
Warren McLeland
Chairman
Dated at Sydney
29 May 2020
22 I Thorn Group
Auditor’s Independence Declaration
As lead auditor for the audit of Thorn Group Limited for the year ended 31 March 2020, I declare that
to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Thorn Group Limited and the entities it controlled during the period.
Marcus Laithwaite
Partner
PricewaterhouseCoopers
Sydney
29 May 2020
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2020
Notes
2020
2019 Restated*
74,873
78,512
120,099
128,211
9,327
15,134
$’000 AUD
Continuing operations
Sales revenue
Interest revenue
Other revenue
Revenue
Finance lease cost of sales
Employee benefit expense
Impairment losses on loans and receivables
12
Marketing expenses
Property expenses
Transport expenses
Communication & IT expenses
Printing, stationary and postage
Travel expenses
Other expenses
Depreciation & amortisation
Impairment of intangibles & PP&E
Class action settlement and related expenses
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
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
Other comprehensive income
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)
7,8
9
21
16
16
16
16
204,299
(59,993)
(48,194)
(88,893)
(8,499)
(5,266)
(3,252)
(6,240)
(1,429)
(772)
(15,964)
-
(1,925)
(25,944)
221,857
(66,695)
(53,268)
(47,852)
(9,220)
(10,666)
(5,519)
(7,502)
(2,051)
(1,127)
(12,663)
(3,248)
(9,977)
(1,905)
(266,371)
(231,693)
(62,072)
(16,253)
(9,836)
(15,392)
(78,324)
(25,228)
(2,744)
7,081
(81,068)
(18,147)
-
3,182
(81,068)
(14,965)
(2,996)
(2,784)
(998)
835
(3,994)
(1,949)
(85,062)
(16,914)
(33.7)
(33.7)
(33.7)
(33.7)
(11.3)
(11.3)
(9.3)
(9.3)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes.
* Restated to correct a prior period error in respect of tax balances. For further details see note 10
24 I Thorn Group
Note
2020
2019 Restated
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2020
$’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
Right of use asset
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payables
Lease liability
Other payables
Loans and borrowings
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Loans and borrowings
Lease liability
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
4
5
3
5
10
8
7
7
6
14
13
14
6
10
11
13
15
15
The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.
* Restated to correct a prior period error in respect of tax balances. For further details see note 10
49,619
129,297
2,895
7,975
3,051
192,838
30,627
167,847
4,352
13,638
4,213
220,677
260,546
289,547
-
-
-
-
260,546
453,383
8,475
6,142
6,514
117,918
4,641
3,929
147,619
187,627
5,578
-
462
6,322
-
199,989
347,609
105,775
155,255
(5,912)
(43,569)
105,775
-
-
-
-
289,547
510,224
10,764
-
13,974
122,490
4,777
2,767
154,772
181,154
-
1,100
518
3,326
1,035
187,133
341,905
168,319
120,932
(1,424)
48,811
168,319
Annual Report 2020 I 25
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2020
$’000 AUD
Balance at 1 April 2018
Correction of error*
Changes on initial application of AASB 9
Restated total equity at 1 April 2018
Total comprehensive income
Net loss for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the company
Issue of shares under dividend reinvestment plan
Share based payments transactions
Dividends to shareholders
Total transactions with owners of the company
Share capital
Reserves
Retained
earnings
79,543
(3,696)
(12,071)
63,776
181
-
-
181
-
(14,965)
(1,949)
(1,949)
-
(14,965)
-
344
-
344
-
-
-
-
Total Equity
199,675
(3,696)
(12,071)
183,908
(14,965)
(1,949)
(16,914)
-
1,325
-
1,325
119,951
-
-
119,951
-
-
-
-
981
-
981
Balance at 31 March 2019
120,932
(1,424)
48,811
168,319
$’000 AUD
Share capital
Reserves
Balance at 1 April 2019
Changes on initial application of AASB 16 (see note 1(h))
Restated total equity at 1 April 2019
120,932
-
120,932
(1,424)
-
(1,424)
Retained
earnings
48,811
(11,460)
37,351
Total comprehensive income
Net loss for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the company
Issue of shares under capital raising
Issue of shares under dividend reinvestment plan
Share based payments transactions
Dividends to shareholders
Total transactions with owners of the company
Balance at 31 March 2020
-
-
-
34,323
-
-
-
34,323
155,255
-
(81,068)
(3,994)
(3,994)
-
-
(494)
-
(494)
(5,912)
-
(81,068)
-
-
148
-
148
(43,569)
Total Equity
168,319
(11,460)
156,859
(81,068)
(3,994)
(85,062)
34,323
-
(347)
-
33,977
105,755
The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.
* Restated to correct a prior period error in respect of tax balances. For further details see note 10
26 I Thorn Group
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2020
$’000 AUD
2020
2019
Cash flows from operating activities
Cash receipts from customers (excluding interest)
Interest revenue received
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
243,947
117,525
(138,598)
(61,273)
(155,784)
5,816
(16,117)
1,145
(9,156)
Cash flows from investing activities
Acquisition of property, plant and equipment and software
Net cash from investing activities
(809)
(809)
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liability
Proceeds from issues of shares
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
154,458
(152,557)
(7,267)
34,323
-
28,958
18,992
30,627
49,619
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.
*Includes $25m class action settlement and associated legal costs settled during the current year.
246,117
123,037
(134,028)
(70,825)
(155,447)
8,854
(15,168)
(6,563)
(12,877)
(4,060)
(4,060)
192,898
(173,561)
-
-
-
19,337
2,400
28,227
30,627
Annual Report 2020 I 27
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2020
Reconciliation of cash flows from operating activities
$’000 AUD
Loss after tax
Adjustments for:
Depreciation, amortisation, asset and goodwill impairment
Equity settled transactions
Other adjustments
Operating loss before changes in working capital and provisions
Changes in working capital and provisions, net of the effects of the sale of subsidiaries
Decrease in trade and other receivables
(Increase)/decrease in prepayments and other assets
(Increase)/decrease 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
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.
2020
(81,068)
1,905
(346)
5,435
(74,074)
67,551
1,457
5,663
(1,100)
1,163
(9,750)
(64)
(9,156)
2019
(14,965)
13,225
1,326
(3,696)
(4,110)
14,389
(1,184)
(2,262)
(5,312)
(4,620)
(5,397)
(4,381)
(12,877)
28 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
1. SIGNIFICANT ACCOUNTING POLICIES
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 2020
comprise the Company and its subsidiaries (together referred
to as the ‘Group’ or ‘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 29 May 2020.
(b) Basis of Preparation
The consolidated financial statements are presented in
Australian dollars, which is the Company’s functional
currency.
The consolidated financial statements have been prepared on
the historical cost basis except 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 & 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.
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 and impairment of goodwill and other
intangibles. See note 7; and
(ii) Determination of expected credit losses of receivables.
See note 12.
(iii) Net realisable value of inventory. See note 3.
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;
(ii) It is important for understanding the results of the Group
or changes in the Group’s business; and
(iii) It relates to an aspect of the Group’s operations that is
important to its future operations.
The ongoing COVID-19 pandemic has increased the
estimation uncertainty in the preparation of these
Consolidated Financial Statements.
The estimation uncertainty is associated with:
(i)
the extent and duration of the disruption to businesses
arising from the actions by governments, businesses and
consumers to contain the spread of the virus;
(ii) the extent and duration of the expected economic
downturn. This includes the disruption to capital
markets, deteriorating availability of credit, liquidity
concerns, increasing unemployment, declines in
consumer discretionary spending, reductions in
production because of decreased demand, and other
restructuring activities; and
(iii) the effectiveness of government and central bank
measures that have and will be put in place to support
businesses and consumers through this disruption and
economic downturn.
The Group has developed expected credit loss estimates in
these Consolidated Financial Statements based on forecasts
of economic conditions which reflect expectations and
assumptions as at 31 March 2020 about future events that
the Directors believe are reasonable in the circumstances.
There is a considerable degree of judgement involved in
preparing forecasts. The underlying assumptions are subject
to uncertainties which are often outside the control of the
Group. Accordingly, actual economic conditions are likely to
be different from those forecast since anticipated events
frequently do not occur as expected, and the effect of those
differences may significantly impact accounting estimates
included in these financial statements.
Annual Report 2020 I 29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The impact of the COVID-19 pandemic on the Group’s
expected credit loss estimates is disclosed and further
explained in note 12 to the financial statements. Readers
should carefully consider these disclosures in light of the
inherent uncertainty described above.
Financing and going concern basis for the financial report
The Group incurred a net loss after tax of $81.1m (2019:
$15.0m loss) for the year ended 31 March 2020 and net cash
used in operating activities during the same period amounted
to a $9.2m (2018: $12.9m) out flow.
It should also be noted that the net operating cash outflow
includes outflows of $61.2m for inventory of household
goods assets used to seed Radio Rentals consumer leases and
$155.8m for originations in Business Finance.
The Group provides financing to both consumers and small
and medium size enterprises across a range of industries,
many of which have been impacted by COVID-19. At the date
of this report approximately 30% of the Group’s SME
customers by value (by comparison to the total value at
March 31 2020) have requested a payment holiday. Thorn
continues to be in discussion with the senior and mezzanine
note holders in the securitised warehouse regarding relief
options.
Subsequent to the year end, the securitised warehouse fell
into breach of one if its warehouse parameters as a result of
customers affected by COVID-19 progressively going into
arrears. That breach while it subsists puts the warehouse into
amortisation. Discussions are continuing with the note
holders to waive or remedy that breach.
Thorn’s Radio Rentals division has been affected by COVID-19
with the Group announcing the temporary closure of its store
network for safety reasons (subsequent to the yearend), and
then a permanent closure of the Radio Rentals stores and
warehouses and moving the business completely online.
These closures are expected to result in redundancies for
approximately 300 casual and full time staff across the Group.
The core of the Radio Rentals business will continue to
operate and will be leveraged to develop a new digital
business model. Thorn has introduced new credit policies and
collection processes as well as cutting costs across all
divisions to seek to ensure the business model remains
sustainable into the future.
The cost reductions underway, the tightening of Business
Finance originations and the collecting on the Radio Rentals
receivables book will all be cash positive for the Group.
The continuing viability of the Group and its ability to
continue as a going concern are dependent upon the Group
returning to profitability through:
(i) satisfactorily progressing various cost saving initiatives
(ii) resolving present financing difficulties so as to be able to
revitalise Business Finance; and
(iii) successfully progressing the Radio Rentals digital
strategy.
30 I Thorn Group
Considering all the above, and acknowledging that corporate
actions and discussions with current or proposed lenders
always contain some risk and uncertainty, the directors have
reviewed the Group’s cash flow forecast and, in the directors’
opinion, there are reasonable grounds to believe that the
collecting on the Radio Rentals book will provide sufficient
incoming cash flow to ensure the Group will be able to meet
its obligations and accordingly continue as a going concern.
While the directors are of the opinion expressed above, the
resolution of funding for the Business Finance division and
the launch of Radio Rentals online business are not
guaranteed and accordingly 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 discharge its liabilities in the
normal course of business and for the amounts recorded in
this report.
(c) 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:
(d) Inventories
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. Net realisable value is the estimated selling
price in the ordinary course of business less the estimated
costs necessary to make the sale.
(e) Revenue
The major components of revenue are recognised as follows:
(i) Finance lease sales revenue is recognised at the time the
rental contract is entered into based on the fair value of
the leased item, or if lower, the present value of the
lease payments discounted using a market rate of
interest.
(ii) Interest revenue is calculated and charged on the
outstanding loan or lease balance and recognised on an
accrual basis using the effective and implicit interest rate
method respectively.
(iii) Other revenue includes late fees, establishment fees,
termination fees and other non-lease related income.
(f) Cost of Sales
Finance lease costs of sales comprise the cost of the item sold
as well as other costs associated with the transaction such as
incentives offered to customers.
(g) Finance expenses
Finance expenses comprise interest expense on lease
liabilities, 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
(h) Impairment
(i) Goods and Services Tax
Non-Financial Assets
In accordance with AASB 136 the carrying amounts of the
consolidated entity’s assets within the scope of the standard,
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.
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.
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 the recoverable amount 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.
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.
(j) Changes in Accounting Policy
All new Accounting Standards and Interpretations applicable
to annual reporting periods commencing on or before 1 April
2019 have been applied to the consolidated entity effective
from their required date of application. Note 1(k) explains the
impact of AASB 16 Leases on the Group's financial
statements.
(k) New Standards and Interpretations Adopted
This note explains the impact of the adoption of AASB 16
Leases on the Group’s financial statements and discloses the
new accounting policies that have been applied from 1 April
2019. AASB 16 replaces existing leases guidance, including
AASB 117 Leases.
The Group has adopted AASB 16 retrospectively from 1 April
2019, but has not restated comparatives for the 2018
reporting period, as permitted under the specific transitional
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 April 2019.
Annual Report 2020 I 31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The Group’s leasing activities (as a lessor) and accounting under AASB 16
There has been no change to the group’s accounting for its leases as a lessor. See note 5 and 6 for more information on these
activities.
The Group’s leasing activities (as a lessee) and accounting under AASB 16
The Group leases offices, retail stores, equipment and cars. Rental contracts are typically made for fixed periods of 2 to 5 years
and may have extension options. Lease terms are negotiated on an individual basis and can contain different terms and
conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing
purposes.
Until 31 March 2019, leases of property, equipment and cars were classified as operating leases. Payments made under
operating leases were charged to profit or loss on a straight-line basis over the period of the lease.
From 1 April 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period. The right-of-use asset is typically then depreciated over the shorter of the asset's useful life and
the lease term on a straight-line basis unless the asset is considered to be impaired (see below).
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present
value of the following lease payments:
fixed payments (including in-substance fixed payments) less any lease incentives receivable; or
variable lease payments that are based on an index or a rate.
The lease payments are discounted using the incremental borrowing rate, being the rate that the lessee would have to pay to
borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and
conditions.
Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability; and
any lease payments made at or before the commencement date less any lease incentives received.
Payments associated with short-term leases under 12 months term and leases of low-value assets under $10,000 are
recognised on a straight-line basis as an expense in profit or loss.
Initial adoption accounting
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of AASB117 Leases. These liabilities were measured at the present value of the
remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 April 2019. The weighted average
incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 4.8%.
$’000 AUD
Operating lease commitments disclosed as at 31 March 2019
Less: discount using the lessee’s incremental borrowing rate of 4.8% at the date of initial application
Less: short-term leases recognised on a straight-line basis as expense
Less: low-value leases recognised on a straight-line basis as expense
Add: adjustments as a result of a different treatment of extension and termination options
Add/(less): adjustments relating to changes in the index or rate affecting variable payments
Lease liability recognised as at 1 April 2019
Of the $17.2m balance, $6.5m was classified as current at 1 April 2019 and $10.7m as non-current.
1 April 2019
19,683
(1,176)
(2,548)
(185)
983
624
17,381
32 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The associated right-of-use assets for property, vehicle and equipment leases were measured on a retrospective basis as if the
requirements of AASB 16 had always been applied. There were no onerous lease contracts that would have required an
adjustment to the right-of-use assets at the date of initial application.
The recognised right-of-use assets relate to the following types of assets at 1 April 2019.
$’000 AUD
Properties
Vehicles
Printers
Asset
Impairment
Carrying value
11,164
4,924
267
16,355
(11,164)
(4,924)
(267)
(16,355)
-
-
-
-
The change in accounting policy affected the following items in the balance sheet on 1 April 2019:
a) Right of use assets - increased by $16.4m;
b) Trade payables - decreased by $1.1m; and
c)
Lease liabilities - increased by $17.4m.
Impairment tests for Cash Generating Units (CGU)
At 31 March 2019, testing using a fair value less cost of disposal model revealed the carrying amount of the Consumer Leasing
CGU exceeded its recoverable amount. An impairment charge for the total value of the intangibles and fixed assets of the CGU
of $10.0m was recognised in the income statement for the year ended 31 March 2019.
The key assumptions used in the estimation of recoverable amount were 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%. Volume related costs were projected to increase with volume during the testing
period. Other costs were either increased by CPI or by contracted arrangements, or where reasonable kept flat with productivity
savings assumption. The post-tax discount rate was assumed at 9.5% (2019: 9.5% post-tax).
As a result, the right of use asset created on the adoption of AASB 16 on 1 April 2019 was deemed to be fully impaired. As this
was part of the initial application entries for AASB 16 the impairment was processed through retained earnings in accordance
with the transition provisions noted above. The accounting entries were as follows
a) Right of use assets – decreased by $16.4m
b) Deferred tax – increased by $5.2m
c) Retained earnings – decreased by $11.1m
See note 7 for further details on impairment testing in the current year. All intangibles continue to be impaired.
Practical expedients applied
In applying AASB16 the Group has used the following practical expedients permitted by the standard:
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
the accounting for operating leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-
term leases;
the accounting for operating leases with a value of $10,000 or less as at 1 April 2019 as low value leases;
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead,
for contracts entered into before the transition date the Group relied on its assessment made applying AASB 117 and
Interpretation 4 Determining whether an Arrangement contains a Lease.
Those same expedients, where relevant, continue to be applied and have been applied for any new leases entered into during
the year.
Annual Report 2020 I 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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.
Consumer Leasing
Equipment
Finance
Corporate
Discontinued
operations
Consolidated
74,873
79,394
8,169
162,436
(168,738)
(6,302)
-
(1,665)
(7,967)
(1,744)
(9,710)
-
40,705
1,158
41,863
(60,900)
(19,037)
-
(62)
(19,099)
(14,509)
(33,608)
-
-
-
-
(34,808)
(34,808)
-
(198)
(35,006)
-
(35,006)
-
-
-
-
-
-
-
-
-
-
-
74,873
120,099
9,327
204,229
(264,446)
(60,147)
-
(1,925)
(62,071)
(16,253)
(78,324)
122,231
(54,063)
299,378
(293,545)
31,774
-
-
-
453,383
(347,609)
Consumer
Leasing
Equipment
Finance
Corporate
Discontinued
operations
Consolidated
78,512
85,838
14,262
178,612
-
42,373
872
43,245
(179,790)
(27,030)
(1,178)
(1,018)
(9,977)
16,215
(108)
-
-
-
-
-
(11,648)
(11,648)
(2,122)
-
(12,173)
16,107
(13,770)
(1,704)
(13,688)
-
(13,877)
2,419
(13,770)
-
-
-
-
3,197
3,197
-
-
3,197
-
3,197
78,512
128,211
15,134
221,857
(215,271)
6,586
(3,248)
(9,977)
(6,639)
(15,392)
(22,031)
161,098
(52,161)
336,966
(288,644)
12,160
(1,100)
-
-
510,224
(341,905)
2020
$’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
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
34 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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.
INVENTORIES
$’000 AUD
Inventories
2020
2019
204,299
-
204,299
(78,324)
-
(78,324)
221,857
-
221,857
(22,031)
(3,197)
(25,228)
2020
7,975
2019
13,638
An additional provision of $3.7m has been recognised to write-down inventories to net realisable value as a result of the
decision to store the close network. This was recognised as an expense during the period and included in cost of sales in the
income statement.
4. CASH AND CASH EQUIVALENTS
$’000 AUD
Bank balances
Call deposits
Cash and cash equivalents
2020
49,619
-
49,619
2019
30,627
-
30,627
Included in cash is an amount of $20,896,000 (2019: $22,681,000) 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 $28,723,000 (2019: $7,947,000).
5. TRADE AND OTHER RECEIVABLES
$’000 AUD
2020
2019
Current
Trade receivables
Finance lease receivables
Loan receivables
Non-current
Finance lease receivables
Loan receivables
7,105
101,561
20,631
129,297
221,954
38,591
260,546
11,711
128,128
28,008
167,847
238,855
50,692
289,547
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. At
balance date there was approximately $250,000 of unguaranteed residual value in the finance lease receivable balance.
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 12.
Annual Report 2020 I 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
6. LEASES
Finance leases as lessor
The Consumer Leasing division leases household goods to consumers. Contracts range from 1 - 60 months. The Business
Finance division finances business assets to small and medium enterprises. Finance is provided in the form of a lease, a hire
purchase agreements or a chattel mortgage contract. The majority of contracts in both divisions are for 24 months or more.
Leases where the lessee has substantially all the risks and rewards incidental to ownership of the leased assets are classified as
finance leases. All other leases are classified as operating leases. The majority of the Group’s leased assets meet the definition
of finance leases.
Where finance leases are granted to third parties, the present value of the minimum lease payments plus an estimate of any
unguaranteed residual value is recognised as a receivable. The difference between the gross receivable and the present value
of the receivable is unearned interest income. Lease receipts are discounted using the interest rate implicit in the lease.
Interest income is recognised over the term of the lease using the effective interest rate method, which reflects a constant rate
of return. Finance lease income is presented within interest revenue.
Contracts are secured against the assets leased. In the Business Finance division further security may be obtained including the
taking of personal and director guarantees.
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
2020
238,307
321,507
559,814
(72,399)
(91,264)
(163,663)
(72,635)
323,516
2019
250,173
334,767
584,940
(91,360)
(76,934)
(168,294)
(49,663)
366,983
Gross cash flows are expected to be collected as follows: $168,577,000 between one and two years, $98,300,000 between
years two and three, $44,681,000 between years four and five and $9,949,000 in year five.
At 31 March 2020 there is $1,200,000 (2019: $800,000) in unguaranteed residual value recognised in the Business Finance lease
receivable balance.
Operating lease revenue of $243,000 (2019: $2,182,000) has been recognised in other revenue in the Consumer Leasing
division. Finance lease revenue of $34,200,000 (2019: $33,900,000) has been recognised in interest revenue in the Business
Finance division.
Finance leases as lessee
At 31 March the lease liability was $11.7m of which $8.3m related to property leases, $3.2m were vehicle lease commitments
and $0.2m were printer lease commitments.
36 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
Amounts recognised in the statement of profit or loss and other comprehensive income
The statement of profit or loss and other comprehensive income shows the following amounts relating to leases.
$’000 AUD
Impairment charge of right-of-use assets
Properties
Vehicles
Printers
Total impairment
Interest expense (included in finance expenses)
Expense relating to short-term and low-value leases
Expense relating to variable lease payments not included in lease liabilities
Total expenses relating to leases
2020
1,095
-
-
1,095
715
2,586
559
3,860
The total cash outflow for leases in financial year ending 31 March 2020 was $10,412,000.
7.
INTANGIBLE ASSETS
$’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
Right of use asset
Goodwill
Software
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,702
1,205
(1,697)
(5,210)
-
16,914
(11,704)
(5,210)
-
5,702
1,205
(1,697)
(5,210)
-
16,914
(11,704)
(5,210)
-
$’000 AUD
Year ended 31 March 2020
Opening net carrying amount
Initial application of AASB 16 – creation of asset
Initial application of AASB 16 – impairment of asset
Additions
Amortisation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2020
Cost
Amortisation and impairment
Net book amount
Goodwill
Right of use asset
Goodwill
Software
Total
-
16,355
(16,355)
1,095
-
(1,095)
-
17,450
(17,450)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
195
-
(195)
-
17,109
(17,109)
-
-
16,355
(16,355)
1,290
-
(1,290)
-
34,559
(34,559)
-
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.
Annual Report 2020 I 37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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
When not impaired, 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)
Key assumptions used for fair value less cost of sale calculations
Consumer Leasing
During the year a similar test (as described below) was performed with a similar outcome, i.e. the CGU continued to be
impaired. The average annual revenue growth rate assumed was 3%. All other assumptions remained the same. At year end
the forecast assumptions have deteriorated further and the division continues to be impaired. As such all intangibles
recognised during the year have been fully impaired.
31 March 2019
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).
8. PROPERTY, PLANT AND EQUIPMENT
$’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
38 I Thorn Group
Total
3,463
2,855
(1,551)
(4,767)
-
34,188
(29,421)
(4,767)
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
$’000 AUD
Year ended 31 March 2020
Opening net carrying amount
Additions
Depreciation charges for the year
Impairment charges for the year
Closing net book amount
At 31 March 2020
Cost
Accumulated depreciation
Impairment
Net book amount
Property plant and equipment
Total
-
615
-
(615)
-
34,803
(29,421)
(5,382)
-
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 7 for details.
9.
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% (2019: 30%)
Change in income tax expense due to:
Non-deductible expense and unrecognised timing differences
Recognised and unrecognised timing differences
(Over) / Under provided in prior years
Income tax (benefit)/ expense on pre-tax accounting profit
2020
-
-
2,744
-
2,744
2020
(78,324)
(23,497)
(67)
26,308
-
2,744
2019
-
(919)
(6,147)
(15)
(7,081)
2019
(25,228)
(7,568)
1,406
-
(919)
(7,081)
Annual Report 2020 I 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
10. DEFERRED TAX ASSETS & LIABILITIES
Recognised deferred tax assets and liabilities
Assets
Liabilities
Net
$’000 AUD
Inventories
Property, plant and equipment
Trade, loan and other receivables
Finance lease receivables
Accruals
Provisions
Tax losses
Financial derivative
Tax assets / (liabilities)
2020
49,666
3,779
-
-
1,752
1,274
-
-
2019
56,649
4,049
1,273
2020
2019
2020
2019
-
-
(199)
-
-
-
49,666
56,649
3,779
(199)
4,049
1,273
-
(56,272)
(70,158)
(56,272)
(70,158)
2,580
1,390
2,118
998
-
-
-
-
-
-
-
-
1,752
1,274
-
-
-
2,580
1,390
2,118
998
(1,100)
56,472
69,058
(56,472)
(70,158)
The Group has unrecognised current tax losses of $41.5m ($12.5m tax effected) and $46.5m ($13.9m tax effected) of
unrecognised deferred tax future deductions.
Prior year restatement
The Group undertook a project to re-evaluate its prior tax returns as there was a concern that there had been errors in the
timing of tax differences relating to tax depreciation adjustments which meant that Thorn had paid in advance and would seek
a cash refund (and repay in later years when formally due). The project resulted in the acceleration of current tax benefits and
converted the 2019 current tax expense from a tax payable position to a $7m tax loss. This was offset by an equal and opposite
change in deferred tax expense such that the total tax expense for 2019 did not change. As a result the Group received refunds
for all PAYG instalments made for 2019 (in the current financial year) and 2020 (subsequent to the 31 March 2020) and the
Group’s PAYG instalment rate was varied to zero.
This resulted in the following restatement to the prior comparative period;
Statement of Financial Position
(extract)
31 March 2019
$’000 AUD
Increase/(Decrease)
$’000 AUD
31 March 2019 Restated
$’000 AUD
Assets
Income tax receivable
Total current assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Retained earnings
Total equity
1,293
217,757
5,541
295,088
512,845
-
186,033
340,805
172,040
52,532
172,040
2,920
2,920
(5,541)
(5,541)
(2,621)
1,100
1,100
1,100
(3,721)
(3,721)
(3,721)
4,213
220,677
-
289,547
510,224
1,100
187,133
341,905
168,319
48,811
168,319
The net income tax benefit has reduced by $25,000. No other financial statement line items were impacted.
40 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The cumulative impact of the above error resulted in a decrease of retained earnings as at 31 March 2018 of $3,696,000 with a
corresponding impact on deferred tax liabilities and income tax payable.
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
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.
Annual Report 2020 I 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
11. DERIVATIVE AND HEDGING ACTIVITIES
The Group enters into interest rate swaps to fix the interest rate on the warehouse funding balance and therefore remove the
fixed/floating interest rate mismatch between the Group’s receivables and the Group’s funding balance. These arrangements
are designated as cash flow hedges under AASB 139 (which the Group has opted to retain as is currently permitted). This
instrument is an amortising swap whose cash flow profile is modelled on the expected repayment profile of the receivables
(which mirrors the funding balance) and is regularly reset. As such the swap is expected to be effective and continues to be
effective under the requirements of AASB 139.
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 2020.
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.
$’000 AUD
Interest rate swap liability
12. FINANCIAL RISK MANAGEMENT
Financial risk management objectives and policies
2020
6,322
2019
3,326
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.
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.
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.
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 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.
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; and
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.
42 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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 it retains an adjusted and
higher probability of default within the impairment model for 6 months. Default is defined as 60 days past due for Radio
Rentals and 90 days past due for Business Finance. In light of COVID-19, the Group has made an additional assessment of those
assets which are not 30 days past due but have likely experienced a SICR as part of the Management overlay set out in further
detail below.
Macroeconomic Scenarios
Expected credit losses (“ECL”) are a probability-weighted estimate of credit losses over the expected life of the financial
instrument. The Group has a process for incorporating forward looking economic scenarios and determining the probability
weightings assigned to each scenario in determining the overall ECL. The Group prepares a base, best and worst case scenario
based on economic variables relevant to the Consumer Leasing and Business Finance business units. The Group has
incorporated this by use of a management overlay as explained below.
Management overlay
As the full impacts of the COVID-19 pandemic were yet to be felt at the balance date, the Group has yet to see the anticipated
increase in delinquencies which would flow through to the modelled expected loss provision. As these likely future
delinquencies are not currently captured in the modelled outcome, the Group has specifically considered the likely industry
specific and retail customer impacts through an overlay. This overlay is therefore in addition to the standard modelled
provision under AASB 9.
The modelled performance of these receivables will evolve as the situation unfolds and more data is available to model or
understand the credit risk and loss implications from the COVID-19 pandemic and the mitigating impact of government
stimulus. Over time as the impacts work their way into the reported variables the overlay can be expected to reduce as the
impact becomes reflected in the routine modelled outcome.
Business Finance
The Business Finance division finances small to medium size business across the country and many of the divisions customers
are in industries heavily affected by COVID-19. To evaluate the ECL, the portfolio has been stratified into industry segments
whose impact from the COVID-19 pandemic has then been rated as either high or low. The impact rating has been determined
by analysing the proportion of customers from these industry groups who have contacted Thorn to advise they have been
negatively affected by COVID-19 and who have requested payment relief. The more highly impacted industry groups are in
industries impacted by social distancing, travel, supply chain disruption, and industries adjacent to and dependent upon these
groups. They include accommodation and food services, arts and recreational services. The majority of those customers
applying for payment relief have gone into arrears after 31 March 2020.
Consumer Leasing
Many of the Radio Rentals customers work in affected industries and particularly in the higher affected employment statuses
such as part time and casual work. As such, the COVID-19 pandemic is expected to have a material impact upon those
customers financial situation and the related receivable credit losses. In addition to that factor, the recently announced
decision to close the entire Radio Rentals store network and run off the existing consumer leasing receivables book is expected
to present challenges to collection rates.
To assess the ECL, a rating matrix has been applied by rating customers across three criteria; monthly billing amount,
occupation status and employment type. This resulted in a rating scale from 3 to 9. Ratings 3 to 5 are considered to be low risk,
6 to 7 medium and 8 to 9 high risk. Receivables have then been attributed to groups across that ratings scale with the AASB 9
staging buckets and their probability of default (“PD”) adjusted upwards progressively as they move through the scale. The
adjusted PD has been applied at a portfolio level using the current loss given default (“LGD”) to estimate the expected loss. In
addition, the Group has overlaid this with prior experience of collection performance deterioration from situations where
stores have been closed in the past. This has been used to estimate the increased risk to collections in the portfolio.
Overall
The Group has looked at three potential scenarios, outlined below, and how these will impact the two divisions. The Group has
then weighted the three scenarios with the highest weighting being applied to the baseline case. The outcome of this is an
additional $22.1m million provision for the Business Finance Division and a $13.5m provision for the Consumer Leasing Division.
Annual Report 2020 I 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The following provides an overview of the scenarios chosen as well as the expected change to the total overlay were the
individual scenarios to be given a 100% weighting:
Scenario
Baseline
A 100% weighting to this scenario would
reduce the expected credit loss provision by
circa $3.8m
Expectation
This scenario assumes that most of the current domestic containment measures remain in place
for most of the June quarter and that most of the restrictions are assumed to have been lifted by
the end of the September quarter. With business activity adversely impacted, unemployment rates
rise to ~9% in mid-2020 with a recovery to broadly pre COVID-19 levels over the following 3 years.
Australian GDP could contract by ~10% year on year in mid-2020 before recovering to pre-COVID-
19 levels in 2022.
Faster recovery
A 100% weighting to this scenario would
reduce the expected credit loss provision by
circa $9.0m
If measures to control of the virus prove more effective a stronger economic recovery would be
possible. In this scenario, much of the near-term decline in GDP could be reversed over 2020–21 as
consumption and employment growth rebound. The unemployment rate could be expected to
move from a peak of around 10 per cent to be around its pre-COVID-19 level over the following 2
years. The stronger recovery would enable some recovery in wage growth. Australian GDP could
contract by ~10% year on year in mid-2020 before recovering to pre-COVID-19 levels in late 2021.
Slower recovery
A 100% weighting to this scenario would
increase the expected credit loss provision by
circa $7.0m
If the lifting of restrictions is delayed or the restrictions need to be reimposed and household and
business confidence remains low, the outcomes would be even more challenging than those in the
baseline scenario. For this scenario, it is assumed that severe restrictions remain in place until
closer to the end of calendar 2020.
GPD would then be expected to contract by 10% year on year and not recover until 2023 or later
while the unemployment rate would be expected to be greater than 10% at the end of calendar
2020 and not expected to recover to pre COVID-19 levels until 2023 or later.
The judgements and assumptions used in estimating the overlays will be reviewed and refined in future financial periods as the
COVID-19 pandemic progresses.
Loss allowance
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
Impairment provision
Stage 1
Stage 2
Stage 3
Total
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
$’000 AUD
Loss allowance as at 1 April 2019
14,040
7,317
5,523
26,881
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
Changes in the balances of non-transferred financial
assets
Changes to model assumptions and methodologies
Write-offs
Total net P&L charge during the period
Loss allowance as at 31 March 2020
44 I Thorn Group
(10,784)
(273)
288
-
92
-
1,014
13,500
(1,782)
2,055
16,095
13,382
-
(1,622)
(234)
-
94
(766)
-
(2,426)
8,428
15,745
-
3,210
-
252
(667)
(278)
(4)
-
(3,195)
(680)
4,843
2,599
2,937
(1,334)
18
(575)
(184)
244
13,500
(7,403)
9,803
36,683
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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 2019
144,946
13,210
5,228
163,385
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
Changes in the balances of non-transferred financial assets
Write-offs
Total net change during the period
Gross closing amount as at 31 March 2020
Business finance loan and lease receivables
Impairment provision
(30,017)
(2,870)
3,318
-
826
12,032
(21,222)
(37,933)
107,013
30,017
-
(3,318)
(491)
-
344
(9)
(5,390)
21,152
34,362
-
2,870
-
491
(826)
(344)
1,507
(3,957)
(258)
-
-
-
-
-
-
13,530
(30,569)
(17,039)
4,970
146,345
Stage 1
Stage 2
Stage 3
Total
12-month ECL
Lifetime ECL
Lifetime ECL
$’000 AUD
$’000 AUD
$’000 AUD
$’000 AUD
Loss allowance as at 1 April 2019
7,419
1,519
17,958
26,896
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
Changes in the balances of non-transferred financial
assets
Changes to model assumptions and methodologies
Write-offs
Total net P&L charge during the period
Loss allowance as at 31 March 2020
(20,727)
(2,860)
41
-
25
-
7,595
22,109
(774)
5,408
12,827
23,541
-
(447)
(120)
-
20
502
-
(393)
23,103
24,622
-
6,165
-
236
(1,401)
(28)
(11,637)
-
(3,443)
(10,108)
7,851
2,814
3,305
(406)
116
(1,375)
(8)
(3,540)
22,109
(4,611)
18,404
45,300
Annual Report 2020 I 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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:
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 2019
319,973
4,342
23,470
347,785
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
Changes in the balances of non-transferred financial assets
Write-offs
Total net change during the period
Gross closing amount as at 31 March 2020
(61,951)
(6,551)
1,953
-
3,759
-
42,432
(43,594)
(63,952)
256,021
61,951
(1,953)
(515)
-
75
(234)
(1,512)
57,811
62,153
-
6,551
-
515
(3,759)
(75)
(10,148)
(9,241)
(16,156)
-
-
-
-
-
-
32,049
(54,346)
(22,297)
7,314
325,488
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
2020
7,105
103,522
277,442
1,774
389,843
2019
11,711
129,652
237,331
78,700
457,394
Chattel mortgages are classified as loan receivables in accordance with AASB 9. The group classifies its chattel mortgages as at
amortised cost only if both of the following criteria are met: the asset is held within a business model whose objective is to
collect the contractual cash flows, and the contractual terms give rise to cash flows that are solely payments of principal and
interest.
Write-off policy
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.
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 and 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.
46 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
Impairment losses
Consumer Leasing lease receivables
$’000 AUD
Stage 1
Stage 2
Stage 3
Gross 2020
Impairment 2020
Gross 2019
Impairment 2019
107,013
34,362
4,970
146,345
(16,095)
(15,745)
(4,843)
(36,683)
144,947
13,210
5,228
(14,040)
(7,612)
(5,228)
163,385
(26,881)
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 respectively and the
corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and
forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
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.
Business Finance lease receivables
$’000 AUD
Stage 1
Stage 2
Stage 3
Gross
2020
203,370
48,280
5,321
256,971
Impairment 2020
(10,501)
(19,233)
(6,552)
(36,286)
Gross
2019
240,638
3,344
20,362
264,344
Impairment 2019
(5,353)
(1,190)
(16,261)
(22,804)
Loan receivables (Business Finance and remaining consumer solar loans)
$’000 AUD
Stage 1
Stage 2
Stage 3
Liquidity risk
Gross
2020
52,651
13,873
1,993
68,517
Impairment 2020
(2,326)
(5,389)
(1,299)
(9,014)
Gross
2019
79,334
998
3,108
83,440
Impairment
2019
(2,066)
(329)
(1,697)
(4,092)
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. See note 25,
subsequent events, for more information on a breach of warehouse parameters post year end.
Annual Report 2020 I 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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.
The following are the contractual maturities of the consolidated entity’s financial liabilities including, where applicable, future
interest payments as at 31 March 2020.
31 March 2020 ($’000 AUD)
Secured loan facilities
Lease liability
Trade and other payables
31 March 2019 ($’000 AUD)
Secured loan facilities
Trade and other payables
Carrying
amount
305,545
11,721
14,988
332,254
Carrying
Amount
303,644
24,738
328,382
Contractual
Cash flows
332,507
12,346
14,988
359,841
Contractual
Cash flows
336,977
24,738
361,715
1 year or less
1-5 years
127,066
205,441
6,391
14,948
148,445
5,955
-
221,396
1 year or less
1-5 years
5 years
or more
-
-
-
-
5 years
or more
-
119,923
24,738
144,661
217,054
-
-
217,054
-
The consolidated entity’s access to financing arrangements is disclosed in note 14.
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. The 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 Group may not be able to pass on such changes in the cost of purchased products to its customers which
may negatively impact the Group’s financial performance. The Group 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 enters into interest rate hedges to effectively fix the interest payments on securitised warehouse
borrowings and therefore remove the interest rate mismatch between the receivables and the borrowings. 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
2020
28,723
2019
7,947
(305,545)
(303,644)
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 $1,938,000 (2019: $2,070,000), net of tax.
48 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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 15 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.
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.
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); and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
Derivatives are measured at fair value. These are level 2 instruments. For all other financial instruments, amortised cost
approximates fair value.
Annual Report 2020 I 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
13. PROVISIONS
2020
$’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
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
Business Finance restitution
Business Finance
restitution
Regulatory
Make good
1,420
269
-
-
-
1,689
1,689
-
1,689
707
-
(102)
-
605
605
-
605
1,675
47
(87)
-
-
1,635
1,635
-
1,635
Business Finance
restitution
Regulatory
Make good
-
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
Total
3,802
316
(189)
-
-
3,929
3,929
-
3,929
Total
7,946
1,495
(3,445)
-
(2,194)
3,802
2,767
1,035
3,802
In the prior year 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. The receivable has now been written off in full, in accordance with
the Group’s write off policy, as management have concluded there is no reasonable expectation of recovery and all practical
recovery efforts have been exhausted.
However, the matter has not been settled and consequently the Group still retains the restitution provision related to this
matter.
Regulatory
Regulatory provision represents amounts set aside in the Consumer Leasing division for potential customer remediation,
penalties and administration costs.
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.
50 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
14. LOANS AND BORROWINGS
$’000 AUD
Current liabilities
Secured loans
Non-Current liabilities
Secured loans
2020
2019
117,918
122,490
187,627
305,545
181,154
303,645
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.
Financing 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
Corporate facilities
2020
12,000
(12,000)
-
5,000
(2,956)
2,044
368,000
(293,545)
74,455
385,000
(308,501)
76,499
2019
25,000
(15,000)
10,000
5,000
(2,146)
2,854
368,000
(288,644)
79,356
398,000
(305,790)
92,210
The corporate debt facility is in two parts; the ‘A’ facility which is a general corporate facility fully drawn to its $12.0m limit, and
the ‘B’ facility which is a $5.0m limit of a combined undrawn overdraft and drawn bank guarantees to landlords and suppliers.
The ‘B’ facility utilization varies with the level of overall guarantees given and was drawn to $3.0m at year end to fund bank
guarantees and the remaining available overdraft facility was undrawn. The drawn balance in facility ‘A’ of $12.0m is presented
as a current liability in the statement of financial position as the facility matures on 30 November 2020 and the intention is to
repay it at that time. The corporate facilities are secured by a fixed and floating charge over the assets of the consolidated
entity.
During the year the Group entered into a revised arrangement with its lender on its corporate facility which waived the Group’s
obligation to comply with any financial covenants until 14 April 2020. As part of this arrangement, the Group’s $25.0m facility
‘A’ limit was reduced to $15.0m at 30 September 2019 and subsequently reduced to $12.0m in October 2019 following the
Group’s rights issue. The Group is currently operating without a waiver but is in negotiations with its lender over a further
waiver which envisages repaying the $12m corporate facility progressively through to 30 November 2020 and abiding under a
new covenant not to pay a dividend while the corporate facilities remain unrepaid.
Warehouse facility
Thorn Business Finance is financed by a securitised warehouse structure with senior notes (70%) held by a major Australian
bank, mezzanine notes (22%) held by a major Australian financial services company, and equity class F notes (8%) held by
Thorn. The warehouse facility was reviewed by the note holders in the normal course during the year with the availability
period being extended to 10 August 2020 and the final maturity date to 10 August 2026.
The warehouse facility is secured by rentals and payments receivable from the underlying lease receivable contracts and is non-
recourse to the Group by which it is meant that Thorn’s liability is limited to its class F notes unless it is liable in damages for
breach of the documents or it is required to buy back a ineligible receivable (defined as one that breached Thorn’s initial sale
representations and not merely that it goes into arrears or defaults).
Annual Report 2020 I 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
The amounts due and payable on the warehouse loan facility in the next 12 months are disclosed as current based on the
amortisation profile of the underlying lease receivables. 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. 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.
On 5 May 2020, when calculating the 30 April 2020 warehouse monthly financial results, the warehouse facility was
determined to have a breach in one of its warehouse parameters which requires no more than 6% of the balances to be in
arrears by more than 30 days. That arrears number was 10.5% and was directly due to the increasing presence of COVID-19
affected customers many of whom had requested a payment holiday and stopped repayments under their leases.
When the COVID-19 pandemic arose and Thorn began receiving payment holiday requests, Thorn held discussions with the
senior and mezzanine noteholders around the granting of concessions such that Thorn could vary the customer contracts to
include a payment holiday. Those discussions had not progressed to a resolution by 5 May 2020 and so the arrears increase
triggered the breach.
A breach of this parameter is an amortisation event which, if not waived or remedied, puts the warehouse into run off under its
amortisation rules. While such an event subsists, Thorn is unable to sell its originations into the warehouse and the
distributions it was expecting from the warehouse via the waterfall distribution mechanism will decline depending upon the
extent of the cash flow reduction.
Discussions are continuing with the senior and mezzanine note holders. If this situation remains unresolved then Thorn will
endeavour to seek new sources of finance.
15. CAPITAL AND RESERVES
Issued capital
Number of shares
On issue at the beginning of year
Issue of new shares on vesting of performance rights
Issue of new shares under rights issue
2020
161,175,066
-
161,175,066
322,350,132
2019
159,929,582
1,245,484
-
161,175,066
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.
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.
Rights issue
During the period a rights issue took place. The rights issue had an institutional component and a retail component. In September
2019, under the institutional offer, 64,342,142 shares were issued at $0.24 per share for gross proceeds of $15.4m less associated
costs of $1.2m. In October 2019, the retail offer was finalised with a further 96,832,924 shares issued at an offer price of $0.24
resulting in gross proceeds of $23.3m less associated costs of $3.2m.
In total 161,175,066 shares were issued with the Group receiving gross proceeds of $38.7m less $4.4m in associated costs.
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.
$’000 AUD
Cash flow hedge reserve
Share based payment reserve
52 I Thorn Group
2020
(6,322)
410
(5,912)
2019
(2,328)
904
(1,424)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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
2020
Final 2019
Interim 2020
Total amount
2019
Final 2018
Interim 2019
Total amount
-
-
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
There was no dividend declared after the balance date.
Dividend franking account
$’000 AUD
30% franking credits available to shareholders of Thorn Group Limited
2020
38,463
2019
39,608
The above available amounts are based on the balance of the dividend franking account at year end adjusted for:
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year-end; and
franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
16. 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 2020 was based on the loss attributable to ordinary shareholders of
$81,068,000 (2019: loss of $18,147,000) and a weighted average number of ordinary shares during the year ended 31 March
2020 of 240,612,049 (2019: 160,160,631).
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 2020 is 242,708,949 (2019: 165,042,055).
The weighted average number of performance rights of 2,097,000 (2019: 1,908,000) was not included because they were anti-
dilutive.
Annual Report 2020 I 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
$’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)
17. 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 Business Finance Pty Limited
Thorn Finance Pty Ltd
Thorn ABS Warehouse Trust No. 1
54 I Thorn Group
2020
2019
(81,068)
-
(81,068)
161,175
79,437
240,612
161,175
81,534
242,709
(33.7)
(33.7)
-
-
(33.7)
(33.7)
(18,147)
3,182
(14,965)
159,930
231
160,161
163,134
1,908
165,042
(11.3)
(11.3)
2.0
1.9
(9.3)
(9.3)
Country of
Incorporation
Ownership Interest
2020
2019
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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 results 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:
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;
The consolidated entity has the decision making powers to obtain the majority of the benefits of the activities of the SPE;
and/or
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.
18. 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 Corporations 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 17 (excluding Thorn ABS Warehouse Trust No. 1).
The profit before tax per 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 2020, 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 which have been disclosed in note
20.
Annual Report 2020 I 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
19. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 31 March 2020 the parent entity of the consolidated entity was Thorn Group
Limited.
$’000 AUD
Result of Parent Entity
Loss for the period
Other comprehensive income
Total comprehensive loss 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
Accumulated losses
Equity remuneration reserve
Total Equity
2020
2019
(49,891)
-
(49,891)
3,051
105,775
-
-
155,255
(49,891)
410
105,775
-
-
-
4,213
122,936
-
1,100
120,932
-
904
121,836
During the period the parent recorded a loss in respect of receivables due from subsidiaries.
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.
20. 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 17 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.
$’000 AUD
Receivables
Cash held by Trust
Total
Borrowings related to receivables
2020
281,903
20,896
302,799
293,545
2019
280,139
22,681
302,820
288,644
The Group provide additional support to the special purpose entity including a liquidity facility of $3.6m (2019: $3.3m) and a bill
and collect facility of $2.5m (2019: $2.2m).
56 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
21. DISPOSAL OF SUBSIDIARY
Three business divisions were sold over the past three years to reduce debt. There were final payment adjustments, tax
finalisation and the resolution of provisions set aside for warranty and other claims during the prior financial year which gave
rise to a profit after tax for discontinued businesses of $3.2m.
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
22. RELATED PARTIES
Key management personnel remuneration
$
Short-term employee benefits
Post-employment benefits
Long-term employee benefits
Share based payments
2020
2019
-
-
-
-
-
-
-
-
-
-
-
-
-
3,197
(15)
3,182
2020
2,459,609
127,713
-
(307,421)
2,279,901
2019
2,673,518
126,634
-
1,134,321
3,934,473
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.
23. 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
4,141,162
Date
1 July 2019
Financial Year in which Grants Vest
(ended 31 March)
2023
Annual Report 2020 I 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
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 2019
Granted as
Compensation
Vested during
the year
Lapsed
Forfeited Held at 31 March
2020
Performance rights
4,389,850
4,141,162
-
(405,900)
(5,334,329)
2,790,783
24. AUDITORS’ REMUNERATION
In whole AUD
Audit services
Audit and review of financial reports
Other assurance services
Total Audit Services
Other services
Controls review
Other assurance services
Total other services
Total auditor’s remuneration
25. SUBSEQUENT EVENTS
2020
PwC
Australia
1,016,938
171,250
1,188,188
-
14,280
14,280
1,202,468
2019
PwC
Australia
660,240
-
660,240
140,879
-
140,879
801,119
The COVID-19 pandemic has had two significant impacts upon Thorn subsequent to the year end.
Securitised warehouse funding
On 5 May 2020, when calculating the 30 April 2020 warehouse monthly financial results, the warehouse facility was
determined to have a breach in one of its warehouse parameters which requires no more than 6% of the balances to be in
arrears by more than 30 days. That arrears number was 10.5% and was directly due to the increasing presence of COVID-19
affected customers many of whom had requested a payment holiday and stopped repayments under their leases.
When the COVID-19 pandemic arose and Thorn began receiving payment holiday requests, Thorn held discussions with the
senior and mezzanine noteholders around the granting of concessions such that Thorn could vary the customer contracts to
include a payment holiday. Those discussions had not progressed to a resolution by 5 May 2020 and so the inevitable arrears
increase triggered the breach.
A breach of this parameter is an amortisation event which, if not waived or remedied, puts the warehouse into run off under its
amortisation rules. While such an event subsists, Thorn is unable to sell its originations into the warehouse and the
distributions it was expecting from the warehouse via the waterfall distribution mechanism will decline depending upon the
extent of the cash flow reduction.
Discussions are continuing with the senior and mezzanine note holders. If this situation remains unresolved then Thorn will
endeavour to seek new sources of finance.
Radio Rentals store closures and transition to fully online
The health and safety concerns for Radio Rentals customers and staff during the developing COVID-19 pandemic prompted
Thorn to temporarily close the Radio Rentals stores on 2 April 2020.
58 I Thorn Group
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
Thorn had at the time been developing a plan to address the division’s profitability and the substantial move by customers to
the online platform where 70% of applications were being received online. On 23 April 2020, Thorn announced the decision to
permanently close the Radio Rentals store network, collect the legacy receivables book, and develop its core Radio Rentals
business using a purely online platform.
This decision entails approximately 300 redundancies at an estimated cost of $5m which is not provided for in these financial
statements as it is a non-adjusting accounting event, the termination of all Radio Rentals store leases with a settlement sum to
be paid to the lessors and make good expenses where appropriate, the realisation of the existing inventory position, incurring
of expenses to continue to service and collect on the receivables book, and developing the digital business model. These are
substantial changes to the division’s business model which will have a significant impact on the company and its financial
statements going forward.
Annual Report 2020 I 59
DIRECTORS’ DECLARATION
For the year ended 31 March 2020
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 24 to 59 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 2020 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 17 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 2020.
Signed in accordance with a resolution of the directors.
Warren McLeland
Chairman
Dated at Sydney
29 May 2020
60 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:
1.
2.
giving a true and fair view of the Group's financial position as at 31 March 2020 and of its
financial performance for the year then ended
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 31 March 2020
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 (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Material uncertainty related to going concern
We draw attention to Note 1(b) in the financial report, which indicates that the Group incurred a net
loss before income tax of ($78.3m) during the year ended 31 March 2020 and, net cash used in its
operating activities during the same period was ($9.2m). As stated in Note 1(b), these events or
conditions, along with other matters set forth in Note 1(b), 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.
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
•
For the purpose of our audit we used overall Group materiality of $2.6 million, equivalent to
approximately 5% of the Group’s adjusted loss before income tax. In calculating our materiality we
adjusted for the class action settlement cost as it is an unusual or infrequently occurring item impacting
the profit and loss.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on
the financial report as a whole.
• We chose Group loss before income tax because, in our view, it is the benchmark against which the
performance of the Group is most commonly measured.
• We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
• Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
•
•
The Group is principally involved in providing leases to consumers and to businesses in Australia, through
its two key divisions, Radio Rentals and Thorn Business Finance, respectively.
The accounting processes are structured around a central Group finance function at the Group's head
office in Sydney.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Committee.
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
Provision for impairment losses on loans and
receivables (Refer to note 13) [$82m]
We have performed the following procedures amongst
others:
This was a key audit matter because the
determination of the provision for impairment losses
on loans and receivables was driven by subjective
judgements made by the Group in predicting expected
credit losses (ECL), particularly as a result of
uncertainty around the economic and financial
market impact from the COVID-19 pandemic.
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 loans and
receivables under AASB 9 include:
•
the judgements applied in determining
customers that have had a significant
increase in credit risk, which is assessed by
•
•
•
examined the key assumptions in the ECL
model developed by the Group, such as the
staging, PDs and LGDs, focussing on
changes to assumptions made during the
year
assessed the accuracy of the delinquency
and hardship status and the resulting
staging applied at a customer account level
by comparing the hardship status to
supporting documentation, re-performing
the delinquency status calculation and re-
performing the 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
•
•
•
•
•
the Group based on the delinquency or
hardship status at a customer account level
judgements applied in setting the
assumptions used in the ECL model, such as
the probability of default (PDs) and loss
given default (LGDs)
the impact of write-offs made during the year
to the data used to determine the modelled
PDs and LGDs
the judgements applied in assessing the
impact of COVID-19 on expected losses of
the Group’s receivables given the absence of
historical data and uncertainty of the
duration and severity of the economic
recovery
the judgements applied in developing
macroeconomic scenarios and their
associated weightings given the wide range
of potential economic outcomes and impacts
from COVID-19 that may impact future
expected credit losses
the judgements applied in developing other
reserves and overlays included to reflect
emerging trends or particular situations
which are not otherwise captured by the ECL
model.
•
•
•
•
•
considered the accuracy of the modelled
provision for impairment held by the Group
by re-performing the modelled ECL
calculation on a portfolio basis
together with PwC credit modelling experts,
assessed the reasonableness of the COVID-
19 overlay by assessing the methodology
adopted by the Group, the reasonableness of
the scenarios developed, mathematical
accuracy of the calculation and accuracy of
key input data on a sample basis
together with PwC credit modelling experts,
assessed the reasonableness of forward-
looking information incorporated into the
impairment calculations by assessing the
appropriateness of the forecasts,
assumptions and probability weightings
applied in the multiple economic scenarios,
and comparing on a sample basis against
supporting evidence where applicable
obtained an understanding of and evaluated
the appropriateness of the other reserves
and overlays applied
assessed the appropriateness of the Group’s
disclosures in the financial report in light of
the requirements of Australian Accounting
Standards.
Net realisable value of inventory
(refer to note 4) [$7.9m]
Our procedures included:
This was a key audit matter because of the judgement
applied by the Group in determining the net realisable
value of inventory.
As described in note 1 to the financial statements,
inventories are valued at the lower of cost and net
realisable value. The Group recognises a provision
where it expects the net realisable value of inventory
to fall below its cost price.
•
•
•
inventory counts across a sample of items
and locations
assessed the Group’s inventory provisioning
policy by considering the levels of aged
inventory and the Group’s inventory
clearance strategy
consideration of post-balance sheet date
events in providing corroborating evidence,
Key audit matter
How our audit addressed the key audit
matter
This will occur where inventory becomes aged,
damaged or obsolete and will be sold below its cost
price in order to clear. The Group develops estimates
for these factors based on historical experience in
determining the net realisable value the Inventory.
The Group took a further write-down to Inventory,
taking into consideration the decision to permanently
close the Radio Rentals stores that was announced
post year-end.
Carrying value of leases as lessee under
transition to AASB 16 Leases
(Refer to notes 1 and 8) [$0m]
This was a key audit matter because it was the first
period of reporting under Accounting Standard AASB
16 Leases (AASB 16) and the Group has a number of
lease arrangements due to its store network for the
Radio Rentals business, which required certain
judgements to be made on adoption, as well as
judgements in the consideration of the valuation of
the Group’s Right-of-use asset.
The recoverable amount of the Right-of-Use asset was
determined through a model based on the Group’s
cash flow forecasts from the budget approved by the
Board. The most significant judgements related to the
assumptions supporting the underlying cash flows, in
particular, revenue growth rates, terminal growth
rates and discount rate.
The Group identified upon transition to AASB 16 and
in consideration of the impairment results from the
previous year, that the Right-of-Use asset was
impaired and written down to nil. The impairment
continued to exist at year-end and the addition of any
new assets during the year were written down to nil.
on a sample basis, in respect of the valuation
of the inventory as at the year-end.
Our procedures included:
•
•
•
•
•
•
testing the accuracy of key data inputs to the
lease liability and right-of-use asset
calculations by comparing to lease
agreements on sample basis
testing the accuracy of the lease liability and
right-of-use asset by reperforming the
calculations on a sample basis
assessing the reasonableness of key
judgments used and appropriateness of the
practical expedients applied by the Group in
computing the lease liability and right-of-use
asset
evaluating the methodology applied in the
impairment assessment conducted
assessing certain underlying data used in
determining the carrying value and
recoverable amount of the Right-of-Use asset
consideration of post-balance sheet date
events in providing corroborating evidence
on the valuation of the right-of-use asset.
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
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, security and access controls, system
development controls and IT operations 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.
Based on the results of our IT control design
assessment, we were required to carry out additional
direct testing, on a sample basis, over the accuracy of
relevant data inputs, automated calculations and
reports in order 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 2020, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and 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 13 to 21 of the directors’ report for the year
ended 31 March 2020.
In our opinion, the remuneration report of Thorn Group Limited for the year ended 31 March 2020
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Marcus Laithwaite
Partner
Sydney
29 May 2020
SHAREHOLDER INFORMATION
DISTRIBUTION OF SHAREHOLDERS AS AT 30 JUNE 2020
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
1,171
1,828
881
1,306
216
Shares
554,424
5,195,229
6,881,651
41,411,216
268,771,865
5,402
322,814,385
% issued capital
0.17
1.61
2.13
12.83
83.26
0.00
100.00
MARKETABLE PARCELS AS AT 30 JUNE 2020
Minimum $ 500.00 parcel at $ 0.0840 per unit
Minimum Parcel Size
5,953
Holders
3,112
Units
6,368,337
THE NAMES OF THE SUBSTANTIAL SHAREHOLDERS LISTED IN THE COMPANY’S REGISTER AS AT 30 JUNE 2020
Rank
1
2
3
Top Investors
ICM Limited
Forager Funds Management Pty Ltd
Investors Mutual Limited
VOTING RIGHTS
% Issued Capital
30.70%
15.39%
7.19%
99,113,147
49,667,435
23,225,115
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.
UNQUOTED EQUITY SECURITIES
On 1 July 2020, there were 2,790,783 unlisted Performance Rights on issue held by 5 different persons.
SHAREHOLDER INFORMATION
20 LARGEST SHAREHOLDERS – ORDINARY SHARES AS AT 30 JUNE 2020
Rank
Top Investors
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
ACE PROPERTY HOLDINGS PTY LTD
MRS TRACEY LEE CUNNINGHAM
CITICORP NOMINEES PTY LIMITED
GLIOCAS INVESTMENTS PTY LTD
MAST FINANCIAL PTY LTD
VANWARD INVESTMENTS LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
JET INVEST PTY LTD
MR HONGBIN CHEN
MR SUNNY YANG + MRS CONNIE YANG
DAWNEY & CO LTD
MR KIM BEE TAN + MRS VERNA SUAT WAH TAN
REDBROOK NOMINEES PTY LTD
MR JASON BRADLEY WHELAN
BRAZIL FARMING PTY LTD
MR MIROSLAV MICHAEL PETROVIC
MR TIMOTHY JAMES LUCE
Totals: Top 20 Holders Of Ordinary Fully Paid
Shares (Total)
Total Remaining Holders Balance
% Issued Capital
123,866,901
52,854,596
38.37
16.37
4,616,096
3,600,000
3,157,500
3,040,027
2,648,595
2,563,562
2,462,450
2,129,076
2,000,000
1,708,100
1,571,453
1,500,000
1,500,000
1,400,000
1,349,466
1,300,000
1,200,000
1,197,606
215,665,428
107,148,957
1.43
1.12
0.98
0.94
0.82
0.79
0.76
0.66
0.62
0.53
0.49
0.46
0.46
0.43
0.42
0.40
0.37
0.37
66.81
33.19
There are 322,814,385 fully paid ordinary shares on issue, all of which are listed on the Australian Securities Exchange.
SHAREHOLDER INFORMATION
NON-EXECUTIVE DIRECTORS
Warren McLeland
Chairman, Non-Executive Director
Allan Sullivan
Non-Executive Director
Kent Bird
Non-Executive Director
Paul Oneile
Non-Executive Director
COMPANY SECRETARY
Alexandra Rose
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