TransGlobe Energy Corporation
Annual Report 2023

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Annual Report 31 March 2023 ACN 072 507 147 CONTENTS Directors’ Report Lead Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 17 18 19 20 21 23 52 53 58 60 Annual Report 2023 I 1 DIRECTORS’ REPORT For the year ended 31 March 2023 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 2023 and the auditor’s report thereon. OPERATING AND FINANCIAL REVIEW Principal activities Thorn is a financial services group providing commercial finance to small and medium-sized enterprises. During the period, the Group restructured and recommenced the utilisation of its securitised warehouse facility to fund the growth of asset finance. Revenue from continuing operations fell 11.6% from $17.3m to $15.3m, and the net profit after tax (“NPAT”) declined from $32.3m (including proceeds from Radio Rentals sale) to $2.5m profit. Refer to Business Finance review below. Financial performance A$m Business Finance Corporate Sub-total Fair value gains/(losses) on derivative Net interest expense Profit/ (loss) before tax Tax expense Profit / (loss) after tax from continuing operations Profit from discontinued operation after tax Net profit after tax Business Finance Segment revenue Segment EBIT to NPAT 2023 14.5 0.8 15.3 2022 17.3 - 17.3 2023 7.6 (0.8) 6.8 (1.1) (7.0) (1.3) - (1.3) 3.8 2.5 2022 25.7 (7.6) 18.1 1.5 (6.8) 12.8 - 12.8 19.5 32.3 Thornmoney relaunched its asset finance business in December 2021. Asset finance originations were $118.2m for the year (2022: $21.7m). Invoice finance, providing a line of credit backed by the SME’s invoices, amounted to $37.2m in drawdowns for this period (2022: $2.3m). The combined receivables balance of $135.3m increased from $88.6m at 31 March 2022; revenue for the 2023 financial year decreased by 11.6% to $15.3m (2022: $17.3m). The asset finance receivables 30 days plus arrears were 2.9% at 31 March 2023 (2022: 7.4%). Operating expenses, excluding impairment expenses, were slightly up at $9.8m (2022: $7.6m) due to the relaunch of the asset finance business. Earnings before interest and taxes (EBIT) amounted to $7.6m profit (2022: $25.7m). Corporate Corporate EBIT increased from ($7.5m) to ($0.8m) due to continued cost reductions in line with the business restructure and the implementation of the Group’s new business strategy. Significant items No significant items in the current financial year. Net interest expense Net interest expense from continuing operations increased by 2.9% from $6.8m to $7.0m. Borrowings in the warehouse increased to $114.9m (2022: $60.6m) with new originations being directly funded by the warehouse facility. 2 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 Tax expense While there is a taxable profit, there is no current tax payable as a result of the tax losses carried forward. Additionally, the Group has not recognised any deferred tax benefits attributable as the directors consider that, as disclosed in prior years, there remains a continuing risk that Thorn may not make sufficient taxable profits in future years to justify their recognition as an asset on the balance sheet. Discontinued Operations In December 2021, the Group’s assets in the Consumer Finance division, Radio Rentals, were sold to Credit Corp Group Limited. During the 2023 financial year, Thorn received an additional deferred cash consideration of $2.3m for the sale, taking the total consideration received to $46.2m. Thorn negotiated an extension of the transitional services agreement with Credit Corp Group Limited for an additional $1.8m. The arrangement ended on 20 December 2022. The discontinued operations segment recorded a profit after tax of $3.8m (2022: $19.5m). Financial position The balance sheet is presented below in two versions; the first excluding the warehouse borrowings for the Business Finance receivables together with the associated receivables and cash in the warehouse (non-recourse funding for the warehouse) (“excl. Trust”), and the second including the warehouse which is as per the statutory accounts format (“incl. Trust”). Summarised financial position 31 March 2023 31 March 2022 $m Cash at bank Receivables Prepayments and other assets Derivative financial instruments Investments Total Assets Borrowings Other liabilities Total Liabilities Total Equity Gearing (net debt/equity) (i) Return on Equity Earnings Per Share excl. Trust incl. Trust excl. Trust incl. Trust 17.4 45.3 2.3 - 2.7 67.7 - 8.9 8.9 58.8 Nm 28.8 141.5 2.3 - 2.7 175.3 114.9 9.4 124.3 51.0 191.7% 1.7% 7.3 68.1 50.0 6.4 - - 124.5 - 17.8 17.8 106.7 86.8 88.6 6.4 - - 181.8 60.6 18.4 79.0 102.8 (7.3%) 32.6% 95.3 (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 plus the cash in the warehouse (a mixture of customer receipts collected in the last month of the year and cash reserves). The cash balance was reduced by a capital return of $41.7 million paid to eligible shareholders in October 2022. At 31 March 2023, free cash was $17.4m and cash in the warehouse was $11.4m (2022: $68.1m and $18.7m). Receivables The balance consists of Business Finance receivables. All are stated at their gross amount less unearned interest, less a provision for expected credit losses. The asset finance receivables gross balance increased by $39.3m to $149.7m (2022: $110.4m) due to strong originations during the year. The provision reduced to $16.6m (2022: $22.1m). The net receivables balance increased by $43.6m to $133.1m (2022: $88.3m). In the table above, the columns which exclude the warehouse (headed “excl. Trust”) do not include the Business Finance receivables and related provisions held in the warehouse. Annual Report 2023 I 3 DIRECTORS’ REPORT For the year ended 31 March 2023 Invoice finance receivables, which are backed by SME invoices, have a $3.4m balance as at 31 March 2023 (2022: $0.3m) Investments During the 2023 financial year, Thorn acquired shares in ASX listed companies for a total cost of $4.4m. Other liabilities The other liabilities for the Group reduced to $9.4m driven by the prior sale of its Consumer Finance division, with the balance attributable to reduced payables and employee-related liabilities as the size of the business reduced. Funding The Group has the following debt facility limits: $m Securitised Warehouse Facility Securitised warehouse facility 2023 200.0 2022 60.6 Thorn is financed by a rated securitised warehouse facility (“the warehouse”). From May 2020 to July 2022, the warehouse was in amortisation due to a breach of one of its warehouse parameters, which requires no more than 6% of the balances to be in arrears by more than 30 days. This was attributable to the increasing presence of COVID-19 affected customers. While this event subsisted, Thorn was unable to sell its originations into the warehouse, and the distributions it was expecting from the warehouse via the waterfall distribution mechanism were retained in an excess spread reserve. The warehouse was restructured with a funding limit of $200 million and re-commenced utilisation in August 2022. The existing notes were repaid in full and the balance of the excess spread reserve was repaid to unitholders. There have been no subsequent deposits to the excess spread reserve and further transfers are not expected except in the case of an amortisation event. Thorn Business Finance is financed by the warehouse with senior notes held by a major Australian bank, mezzanine notes held by a major Australian financial services company, and equity class G notes held by Thorn. The warehouse facility is secured by loans and payments receivable from the underlying receivable contracts and is non- recourse to the Group, meaning Thorn’s liability is limited to its class G notes unless it is liable in damages for breach of the warehouse documents or it is required to buy back an ineligible receivable (defined as one that breached Thorn’s initial sale representations and not merely that it goes into arrears or defaults). Interest on the warehouse is charged at a fixed interest premium plus a floating 1-month BBSY (LY: fixed interest premium plus 3-months BBSY). The facility is currently available until August 2023, however Thorn is negotiating a renewal with its funders. If agreement is not reached with the funders, further receivables are not able to be sold into the facility, and the portfolio will amortise down for as long as the underlying receivables are payable. While the warehouse is in operation there will be no repayment of borrowings and principal collected will be utilised to purchase eligible receivables, hence the full balance of the warehouse facility is disclosed as non-current. In the comparative March 2022, the warehouse was in amortisation, and the principal was applied to repay noteholders with the amounts expected to be due and payable on the warehouse facility in the next 12 months being disclosed as current. This payment structure would recommence if the current warehouse facility went into amortisation. There were reported technical breaches of compliance parameters in the warehouse during the financial year and for the period to May 2023. All breaches were remedied within 30 days and no further action taken. To rectify this, the warehouse parameters were amended with funder consent in May 2023 to align more closely the industry parameters with newly created asset finance business. 4 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 DIVIDENDS PAID OR RECOMMENDED 2023 Final 2022 Interim 2023 Special dividend Total amount 2022 Final 2021 Interim 2022 Special dividend Total amount Cents per Amount Franking share $’000 AUDs % Date of Payment 1.0 - 3.0 4.0 1.0 - 7.0 8.0 3,392 - 10,429 13,821 3,375 - 23,792 27,167 30% n/a 30% 30% n/a 30% 25 July 2022 n/a 2 September 2022 21 July 2021 n/a 9 February 2022 During the year, Thorn paid total dividends of 4 cents per share(*), totalling $13.8m. A number of Thorn’s shareholders participated in the Company’s dividend reinvestment plan (‘DRP’) offered for the final 2022 dividend, resulting in $2.0m of the total being reinvested in Thorn shares. Net cash outflow was $11.8m. *Based on shares prior to the 10:1 share consolidation approved by shareholders on 30 September 2022 and completed on 14 October 2022. RISKS AND CHALLENGES Risk management is an integral part of Thorn’s business model. The Board operates with risk management as a key focus and has implemented a ‘tone from the top’ approach. The material business risks for the Group are summarised below. Financial Risks Key Risks Macroeconomic risk arises from factors such as inflationary pressures, unemployment, interest rates, lack of income growth, business investment, government policy & spending, the volatility and strength of global and Australian capital markets, currency value and exchange rates. Credit risk is the risk of loss that arises when a customer or third party fail to pay an amount owing to the Company or a change in customer circumstances or a failure by Thorn to adequately assess and manage credit risk. This may result in credit losses, decreased operating cash flows, increased funding costs and/or reduced access to funding. Thorn is exposed to the risk that its customers do not meet their financial obligations (e.g. their obligation to repay loans) or become insolvent. How Thorn responds • • • • Thorn continuously monitors the risk of changes in Australia and global environment that may impact the economic environment or its business. Thorn manages the business responsibly, protecting the Group’s strong capital position and maintaining conservative buffers to address uncertainties, in line with the Group’s liquidity policy and funding strategy. Thorn provides business finance to SMEs pursuant to policies and procedures that are intended to ensure that there is no concentration of credit risk. The Group is subject to a higher level of credit risk due to the credit- constrained nature of many of its customers. Thorn has a strong credit risk framework that allows a consistent credit assessment process for each customer. The key components of the credit risk framework include governance (Thorn has established a Credit Committee to manage its credit risk framework and defined risk appetite), credit risk policies, credit procedures, arrears Annual Report 2023 I 5 DIRECTORS’ REPORT For the year ended 31 March 2023 Funding risk is the risk of an adverse impact to the earnings or operations of Thorn that may result from having insufficient funds to meet obligations when they become due, customer demands for funds or any other financial obligations. • • • • management (including collections and recoveries) and portfolio monitoring and reporting. Credit risk typically grows in line with the growth of the loan and lease receivables in all segments. 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. See note 13 for Thorn’s approach to measuring expected credit losses (ECL). Thorn continuously monitors the risk of changes in Australia and global environment that restricts access to capital. Thorn maintains close relationships with its core funders and manages debt levels within acceptable limits. Thorn maintains a liquidity policy and funding strategy which are designed to ensure sufficient funds to support new loan originations and pay maturing liabilities through a pre-defined time horizon as well as meeting specific liquidity position requirements. Non-financial Risks Key Risks How Thorn responds Strategic risk: risk that Thorn's strategy does not address market changes or unforeseen events or initiatives from Thorn's competitors, or that the strategy is not effectively implemented. Operational risks are the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This includes risks such as data, cyber, IT, security, outsourcing and legal. Cyber, technology & Data risk: there is a risk of disruption to Thorn’s business activities, due to an externally driven crisis, cyber attack, the failure of information technology platforms or system failures and where Thorn’s operations are dependent on access to third party technology and data providers to accurately assess customers and provide reliable services (including reporting). If disruption was to occur, Thorn could face significant cost, material data protection issues and/or disruption to its business, operations or financial performance. • • • • • • • • • Regularly discuss strategy and strategic initiatives with the Board Remain flexible and agile in Thorn’s core business strategy Monitor industry developments affecting business finance for SMEs Thorn has specific capabilities, policies and procedures to manage and monitor operational risks. These include (but are not limited to) processes for customer identification, credit assessment and internal and external fraud monitoring. Cyber, technology & Data Risk is a subset of Operational Risk. Thorn maintains appropriate data governance, controls and monitoring, including data loss prevention and cyber protection mechanisms that supports the business to protect its systems, minimise disruption, ensure privacy compliance and data protection for all stakeholders and the Group’s ability to respond to the changing cyber threat environment. Thorn has implemented resilience programs and processes to enhance the reliability of its platform. This includes enhancing flexibility to work across multiple locations in any event of disruption in one workplace. Thorn uses specialist third party security operations to identify potential breaches and responds to minimise impact on the business, customer and partners. Where Thorn relies on third parties to provide technology solutions and (cloud) platforms, ongoing vendor management assures that these partners are delivering services in a manner compliant with standards. 6 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 Regulatory and Compliance risk: is the risk of legal or regulatory sanctions, financial loss, or loss to reputation that Thorn may suffer as a result of its failure to comply with laws, regulations, and standards of good practice expected of a financial services company. • • • • Thorn maintains and regularly tests, cyber security procedures across critical systems, including Group-wide security and cyber security awareness and education for all employees. Regulatory and Compliance Risk is a subset of Operational Risk and managed with policies and practices aligned to the Risk Management Framework. Thorn’s objective is to manage regulatory and compliance risk such that Thorn is compliant with all applicable laws, regulations, codes of conduct and standards of good practice, and manage operational risk so as to balance the avoidance of financial loss and damage to the Group’s reputation, against excessive cost and control procedures that restrict initiative and creativity. Continued engagement with local regulatory, industry and other relevant stakeholder groups and monitoring the regulatory and legislative landscape for material or emerging changes. Emerging Risks The Group continually monitors the regulatory and compliance environment to ensure that the business is abreast of all potential changes. Thorn identifies and assesses emerging risks to ensure they are integrated into the Risk Management Framework along with appropriate risk mitigant strategies. REGULATORY MATTERS The Group is regulated by the Australian Securities & Investments Commission and is a member of an external dispute resolution scheme, the Australian Financial Complaints Authority (AFCA). Changes in laws or regulations in a market in which the Group operates could impact the business. The Group continually monitors the regulatory and compliance environment to ensure that the business is abreast of all potential changes. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Thorn acknowledges its role as a responsible corporate citizen to the environment, the community in which it operates and to its people. Thorn aims to protect the environment in a sustainable manner preventing or reducing any negative impact of our operations and activities. As a financial services company, the Group has a relatively small environmental impact. COVID-19 and the related lockdowns led to a reduction in Thorn’s office environmental footprint. The Board regularly review the risks associated with the business and believe that the Group does not have any material exposure to environmental or social sustainability risks. 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 will continue to look to implement strategies working towards minimising our carbon footprint. Thorn’s sustainability approach is being progressed to ensure Thorn meets emerging ESG compliance requirements, including reporting. CONTINGENT LIABILITIES In March 2023, Thorn and Thorn Australia Pty Ltd (“TAPL”) were served with a cross claim in Federal Court of Australia proceedings in which the Commonwealth Attorney-General’s Department (under the Fair Entitlements Guarantee scheme) is claiming damages, together with interest and legal costs, from Receivers who, on behalf of a secured creditor who appointed the Receivers to do so, recovered assets from a third party. The proceedings are being defended by Thorn and TAPL. Refer to note 14. Annual Report 2023 I 7 DIRECTORS’ REPORT For the year ended 31 March 2023 SUBSEQUENT EVENTS Related party loan On 6 April 2023, the principal repayment date of Somers Limited’s loan was amended and extended to 30 June 2023 at the new interest rate of 12% per annum, accrued and compounded daily. Refer to note 23. Securitised warehouse facility The warehouse parameters were amended in May 2023 with funders consent to align more closely the Industry parameters with the asset finance business. The current facility is available until August 2023, however Thorn is negotiating a renewal with its funders. Investments On 22 May 2023, Thorn acquired an additional 62,500,000 shares in ASX listed company, Moneyme Limited, for a cost of $5.0m. Following the investment, Thorn holds 64,408,413 ordinary shares in Moneyme Limited. On 24 May 2023, Thorn lodged a notice of initial substantial shareholder with ASX, reflecting that Thorn’s voting power was 8.64%. Asset finance portfolio update Thorn is in negotiations with a party which has expressed interest in acquiring Thorn Australia Pty Ltd's and Thornmoney Pty Ltd’s asset finance portfolio. At this stage, negotiations are incomplete and ongoing and no decision has been made in relation to any potential sale or divestment of Thorn's asset finance portfolio. Thorn is also unable at this stage, to provide shareholders with any estimates or guidance as to the financial impact of such a transaction on Thorn. Should any such decision be made, Thorn will update the market in relation to any specific course of action if and when required. FINANCING AND GOING CONCERN The directors have prepared the Financial Report on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Group achieved a net profit after tax of $2.5m (2022: $32.3m) for the year ended 31 March 2023 and net cash generated in operating activities during the same period amounted $52.4m outflow due to the relaunch of Business Finance (2022: $54.0m inflow). The directors have reviewed the Group’s cash flow forecast through to 30 June 2024. The directors are of the opinion that there are reasonable grounds to believe the improved Balance Sheet efficiency & resulting cash generation achieved by 31 May 2024 (moving receivables collateral from being funded On-Balance to being funded by the securitised warehouse facility), alongside a smaller cost base will provide sufficient incoming net cashflows to sustain the business well into the future. OUTLOOK Thorn’s policy is not to provide profit guidance and nothing in this report should be construed as profit guidance. 8 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 DIRECTORS' INFORMATION Warren McLeland Non-Executive Director Appointed 30 August 2019 Appointed Board Chairman 23 October 2019 Appointed Chair of Risk & Compliance Committee 4 December 2019 Qualifications Bachelor of Science MBA Experience Warren has over 40 years of 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 Ltd 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 in the last three years None Interests in shares and options Nil Paul Oneile Independent, Non-Executive Director Appointed 14 October 2019 Appointed Chair of Audit Committee 4 December 2019 Appointed Deputy Chair of the Board 20 October 2020 Appointed Chair of Remuneration and Nomination Committee 20 October 2020 Qualifications Bachelor of Economics Experience 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 the growth of the company’s international operations. Paul was the non-executive Chairman of Invigor Group Limited, the non-executive Chairman of ASX listed company, A2B Australia Limited (formerly Cabcharge Australia Limited) and was the non-executive Chairman of Intecq Limited (formerly eBet Limited), from 2012 until its acquisition by Tabcorp Holdings Limited in December 2016. Other current ASX directorships None Former ASX directorships in the last three years A2B Australia Limited Invigor Group Limited Interests in shares and options 23,500 ordinary shares Allan Sullivan Non-Executive Director Appointed 30 August 2019 Qualifications Bachelor of Science, Bachelor of Engineering, Doctor of Engineering Experience Allan has had a professional career spanning over 40 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 served as Executive Chairman of the VIX Verify Group, managing the successful sale of VIX Verify Global Identification business to the UK listed GB Group Plc. Allan is a former non-executive director of Invigor Group Limited. Other current ASX directorships None Former ASX directorships in the last three years Invigor Group Limited Interests in shares and options 24,755 ordinary shares Company Secretary Alexandra Rose (BLaws, MBA, FAID, FGIA, FCIS) is the Group’s General Counsel, Company Secretary and General Manager of Risk & Compliance. Alexandra is an experienced corporate lawyer with over 25 years of legal, risk and regulatory expertise. She has held senior executive roles at a number of leading Australian financial services companies and is a former non-executive director of The Law Society of New South Wales. Annual Report 2023 I 9 DIRECTORS’ REPORT For the year ended 31 March 2023 Directors’ Meetings The number of directors’ meetings (including meetings of committees of directors) and the 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 Paul Oneile A 27 26 B 27 27 A 9 10 B 10 10 A 2 2 Allan Sullivan A – Number of meetings attended B – Number of meetings held during the time the director held office during the year 10 10 25 27 2 B 2 2 2 A 2 2 2 B 2 2 2 INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Insurance During the financial year, the Company paid insurance premiums of $655,000 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, except for conduct involving misconduct. These insurance policies do not contain details of the premiums paid in respect of individual officers of the Company. 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 agreements stipulate that the Company will meet the full amount of any such liabilities, including costs and expenses. 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 our auditors. 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 (‘KMP’) 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 has ultimate responsibility for the fixed and variable remuneration opportunity and outcomes and determines what is value for money for shareholders. 10 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 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 non-executive 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 non-executive directors and its charter is available on the Company’s website. The Committee makes recommendations to the Board for its consideration and approval. The Chairman of the Committee will be available at the Annual General Meeting to answer any questions from shareholders on this report. The Committee draws 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 For the year ended 31 March 2023, the Non-Executive Directors (‘NEDs’) and KMP were: Non-Executive Directors Position Warren McLeland Paul Oneile Director Board Chairman Chairman of Risk & Compliance Committee Director Chairman of Audit Committee Chairman of Remuneration & Nomination Committee Allan Sullivan Director Executive KMP Peter Lirantzis Luis Orp Position Chief Executive Officer Chief Financial Officer Director/Committee Chair Term or Date Full Year Full Year Full Year Full Year Full Year Full Year Full Year Term or Date Full Year Terminated 30 September 2022 3. NON-EXECUTIVE DIRECTOR REMUNERATION 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 beyond the existing fee pool, 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 Annual General Meeting (‘AGM’). The Board does not intend to seek an increase to the fee pool at the upcoming AGM. From 1 April 2022, the base annual fee for the Chairman is $110,000 per annum plus superannuation. Base fees for other non- executive directors are $100,000 per annum plus superannuation. The Chair of each of the committees receives an additional annual fee of $10,000 plus superannuation. Members of each of the committees receive an additional annual fee of $5,000 plus superannuation. Non-executive directors do not receive performance-related remuneration. Non-executive directors are not entitled to any additional remuneration upon retirement. Out-of-pocket expenses are reimbursed to directors upon the production of proper documentation. Name Warren McLeland Paul Oneile Allan Sullivan Total Non-Executive Director Remuneration Year 2023 2022 2023 2022 2023 2022 2023 2022 Salary and fees Superannuation 130,000 130,000 125,000 125,000 115,000 115,000 370,000 370,000 13,488 12,838 12,969 12,344 11,931 11,356 38,388 36,538 Total 143,488 142,838 137,969 137,344 126,931 126,356 408,388 406,538 Annual Report 2023 I 11 DIRECTORS’ REPORT For the year ended 31 March 2023 4. KEY MANAGEMENT PERSONNEL 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. Thorn is committed to providing financial solutions to Small and Medium-sized Enterprises (SMEs) 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 various cash based targets and delivering on strategic objectives. 2. Attract, motivate and retain executive talent in a competitive market through a competitive rewards program that 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 or performance rights (may be partially deferred) Performance rights granted annually at the Board’s discretion Rewards experience, skills and capabilities Rewards performance over a 12 month period Fixed payment reviewed annually 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 CEO sign on allocation of share rights At-risk wholly dependent upon achieving agreed performance (only paid if targets achieved) Payment is determined by performance against certain financial targets 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 that align to the Company’s long term shareholder return objectives As part of his remuneration package on appointment as CEO, Peter Lirantzis was provided with an upfront allocation of 464,253 units of share rights (post the 10:1 share consolidation, 46,425). These rights required a two year service period to be completed, starting from 10 February 2020. These rights vested on 30 March 2022 and are currently held in escrow with a two year hold period until 10 February 2024. If Mr Lirantzis’s employment is terminated by the Company for cause, all shares subject to a holding lock, at the time of termination will be forfeited. Share Rights Granted Financial Year in which Grants Vest (ended 31 March) Values Yet to Vest $ Financial Year in which Escrow released (ended 31 March) Peter Lirantzis Number 464,253 Date 22 May 2020* 2022 Min (a) Nil Max (b) - 2024 *The grant of the rights was finalised during the 2021 financial year with the service period being backdated to 10 February 2020, Peter’s start date. These share rights are not part of any of the LTI plans disclosed below. Future remuneration intentions The above-described remuneration framework for both short and long term incentives is presently under review. 12 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 Remuneration expenses for Executive KMP The following table shows details of the remuneration expense recognised for the Group’s executive key management personnel for the current and previous financial year measured in accordance with the requirements of the accounting standards. Name Year Salary Termination STI (a) Other remuneration (b) Superannuation Long Service Leave LTI (c) Total Executive KMP Peter Lirantzis Former KMP’s Luis Orp* Total Remuneration 2023 2022 2023 2022 2023 2022 499,308 - 424,412 - 499,308 - 522,876 234,451 180,000 286,974 - - 360,000 - 153,427 98,623 679,308 286,974 424,412 - 859,308 - 676,303 333,074 24,861 23,100 24,861 23,100 49,722 46,200 - - - - - - - 948,581 32,328 1,312,063 - - - 491,835 635,150 1,440,416 32,328 1,947,213 * Luis Orp’s employment terminated on 30 September 2022 a) b) c) The amounts are earned by the KMP but, due to the introduction of the deferral mechanism, 50% of the total FY22 STI was paid in Q3 FY23, 25% is to be paid in the Q3 FY24 and the remaining 25% is to be paid in the Q3 FY25. The FY23 STI will be paid 50% in Q3 FY24 and 50% in Q2 FY25. In December 2021, the Board determined to change the short term incentive framework post annual report sign off for the 2021 financial year. The potential target amount had changed from 50% to 100% of fixed remuneration salary package. An additional amount of $234,451 and $98,623 was paid in FY22 financial year to Peter Lirantzis and Luis Orp respectively for FY21. The LTI column represents the accounting charge recognised in the Company’s profit or loss statement 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. 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% 50% 0% Peter Lirantzis received performance rights, which can be considered to be long term incentives, as part of his sign on. There are no performance hurdles and therefore they have not been included in the above table. 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. 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. Annual Report 2023 I 13 DIRECTORS’ REPORT For the year ended 31 March 2023 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. The Board has discretion in all matters. The remuneration framework described below is presently under review. Features Purpose Opportunity Description To motivate executives to achieve short term performance targets. KMP 100% 100% Target (as % of Fixed) Maximum (as % of Fixed) In December 2021, the Board determined to change the short term incentive framework post annual report sign off for the 2021 financial year. The potential target amount had changed from 50% to 100% of fixed remuneration salary package and it continues to be same for FY23. Performance Period 12 months Gateway and performance metrics (2023) The FY23 STIs were set based upon recovery of COVID-19 and executing a number of strategic initiatives. The KPIs that were assessed for financial year 2023 include: Financial metrics including cash NPAT and preserving the cash balance; • • Market Benchmarking; • • • People and culture; Capital, Risk and Funding; and • • Market Benchmarking; • • • People and culture; Capital, Risk and Funding; and Innovation and technology initiatives (delivery of technology strategies to allow for scale and digitalisation) Gateway and performance metrics (2022) The FY22 STIs were set based upon recovery of COVID-19 and executing a number of strategic initiatives. The KPIs that were assessed for financial year 2022 include: Financial metrics including cash NPAT and preserving the cash balance; Innovation and technology initiatives (delivery of technology strategies to allow for scale and digitalisation) 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 the Group KPIs to determine the value of each executive’s STI reward. 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 payments are expected to be paid in Q3 2023 (subject to the deferral mechanism detailed below). Deferral CEO STI payment for FY23 to Peter Lirantzis is to be paid in two instalments (50% in Q3 FY24 and 50% in Q2 FY25). The STI payment to other executive team members is paid in two instalments (50% in Q3 FY24 and 50% in Q2 FY25). Payment of STI deferred amount is subject to continued employment and “good leaver” terms. STI OUTCOMES FOR 2023 Given the performance against NPAT and other KPI measures, short term incentive payments will be made to the executive KMPs for financial year 2023. The Board approved an STI outcome of 85% of total KMP target pool. 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 LTI remuneration framework is presently under review. For financial year 2023, no executive KMPs were involved in LTI plans and at the date of this report, no options had been issued or vested under the LTI plan. Refer to note 24 for details of the LTI plan that was in place for the year. 14 I Annual Report 2023 DIRECTORS’ REPORT For the year ended 31 March 2023 Performance rights granted as compensation in the year No performance rights have been granted as compensation during the period under any of these existing long term incentive plans. 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 ($)* 2023 2.5 7.3 4.0 1.14 2022 32.3 95.3 8.0 2.80 2021 8.4 2.6 8.5 0.18 2020 (81.1) (33.7) 0.0 0.05 2019 (14.9) (9.3) 0.0 0.46 Return on equity % Return on equity is calculated as NPAT divided by the average book equity. *Earnings per share and share price for 2022 has been adjusted as a result of 10:1 share consolidation during the 2023 financial year. 2019 to 2021 figures haven’t been updated for this amendment. 32.5 n/a 8.4 0.8 n/a 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 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 unexercised 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 There are no other performance rights available for vesting. Performance and share rights over equity instruments granted Performance rights over ordinary shares issued last year to Peter Lirantzis are currently held in escrow with a two year hold period until 10 February 2024. Shareholdings of the directors and executive KMP 2023 Name Warren McLeland Paul Oneile Allan Sullivan Peter Lirantzis* Luis Orp** Balance at the start of the year Received on vesting of incentives Other changes (bought and sold) Consolidation of shares(***) Balance at the end of the year - 235,000 247,540 464,253 262,206 - - - - - - - - - - - (211,500) (222,785) (417,827) - - 23,500 24,755 46,426 - * Currently held in escrow with a two year hold period until 10 February 2024. ** Luis Orp’s employment terminated on 30 September 2022 and any shares held by him are not disclosed after this date. *** During the year, shareholders approved a share consolidation of 10:1 basis. Other transactions with Directors or Executive KMP There were no loans made or outstanding to Directors or executive KMPs during or at the end of the year. Annual Report 2023 I 15 DIRECTORS’ REPORT For the year ended 31 March 2023 UNISSUED SHARES UNDER OPTIONS At the date of this report, there are no unissued ordinary shares of the Company under option. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. AUDIT AND NON-AUDIT SERVICES UHY Haines Norton 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, UHY Haines Norton, and its related practices for audit and non-audit services provided during the year are set out in note 26. The Company has agreed to indemnify the auditor, UHY Haines Norton, to the extent permitted by law. 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’s website at www.thorn.com.au/site/file/39/view/CorporateGovernanceStatement2023Clean.pdf AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s independence declaration is set out on page 17 and forms part of the directors’ report for the financial year ended 31 March 2023. This report is made in accordance with a resolution of the directors: Warren McLeland Chairman Dated at Sydney 31 May 2023 16 I Annual Report 2023 Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Thorn Group Limited As lead auditor for the audit of Thorn Group Limited for the financial year ended 31 March 2023, 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 financial year. Mark Nicholaeff Partner Sydney 31 May 2023 UHY Haines Norton Chartered Accountants 17 Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001t: +61 2 9256 6600 | f: +61 2 9256 6611sydney@uhyhnsyd.com.auwww.uhyhnsydney.com.auAn association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2023 Notes 2023 2022 14,443 15,490 890 1,806 $’000 AUD Continuing operations Interest revenue Other revenue Revenue Employee benefit expense Reversal of impairment losses on loans and receivables Marketing expenses Property expenses Communication & IT expenses Insurance expenses Legal expenses Other expenses Impairment of intangibles & property, plant and equipment Net gain on sale of financial asset Corporate expense allocated to discontinued operation Total operating expenses Earnings before interest and tax ("EBIT") Fair value gains/(losses) on derivative Finance expenses Profit/(Loss) before income tax Income tax Profit/(Loss) after tax for the year from continuing operations* Discontinued operation Profit from discontinued operation, net of tax Profit after tax for the year 25 13 27 8,9 2 12 10 22 Other comprehensive income (OCI) - items that may be reclassified subsequently to profit or loss Cash flow hedge reserve movements Other comprehensive income – reclassification adjustments Cash flow hedge reclassification adjustments 12 Other comprehensive income – items that will not be reclassified to profit or loss Changes in the fair value of equity investments at fair value through OCI 16 Other comprehensive income for the year 15,333 (9,290) 5,738 (199) (374) (1,771) (1,901) (936) 762 (583) - - (8,554) 6,779 (1,106) (7,020) (1,347) 17,296 (14,137) 19,898 (359) 220 (3,942) (2,601) (1,592) (4,362) (389) 119 8,025 880 18,176 1,453 (6,764) 12,865 - - (1,347) 3,884 2,537 - 1,369 (1,677) (308) 12,865 19,481 32,346 2,352 - - 2,352 Total comprehensive profit 2,229 34,698 Earnings per share- Continuing Operations* Basic earnings per share (cents) Diluted earnings per share (cents) Earnings per share- Discontinued Operation* Basic earnings per share (cents) Diluted earnings per share (cents) Earnings per share- Consolidated* Basic earnings per share (cents) Diluted earnings per share (cents) 17 17 17 17 17 17 (3.9) (3.9) 11.2 11.2 7.3 7.3 37.9 37.8 57.4 57.3 95.3 95.1 * Earnings per share was adjusted in the prior year due to the consolidation of shares during the 2023 financial year. Refer to Note 17. The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes. 18 I Annual Report 2023 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2023 $’000 AUD Assets Current assets Cash and cash equivalents Trade and other receivables Prepayments and other assets Income tax receivable Total current assets Non-current assets Trade and other receivables Derivative financial instrument Deferred tax assets Property, plant and equipment Financial assets at fair value through other comprehensive income Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liability Loans and borrowings Employee benefits Provisions Total current liabilities Non-current liabilities Loans and borrowings Lease liability Employee benefits Derivative financial instruments Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 3 4 4 12 11 9 7 8 5 6 15 25 14 15 6 25 12 14 16 16 The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes Note 2023 2022 28,800 46,775 2,240 - 77,815 86,760 34,984 6,480 - 128,224 94,708 53,600 12 - - 2,744 - 97,464 175,279 4,949 - - 2,936 1,512 9,397 - - - - - 53,600 181,824 8,810 11 43,412 5,090 4,090 61,413 114,890 17,179 - 19 - - 114,909 124,306 50,973 117,818 (1,677) (65,168) 50,973 - 77 359 - 17,615 79,028 102,796 158,049 5,605 (60,858) 102,796 Annual Report 2023 I 19 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2023 $’000 AUD Share capital Reserves Retained earnings Total Equity Balance at 1 April 2021 Total comprehensive income Net profit for the period Other comprehensive income Total comprehensive income Transactions with owners of the Company Issue of shares under dividend reinvestment plan Shares buy-back program Share-based payments transactions Dividends to shareholders Total transactions with owners of the Company Balance at 31 March 2022 $’000 AUD Balance at 1 April 2022 Total comprehensive income Net profit for the period Release of retained earnings from reserves Other comprehensive income Total comprehensive income Transactions with owners of the Company Issue of shares under dividend reinvestment plan Shares buy-back program Return of capital Transaction costs Dividends to shareholders Total transactions with owners of the Company Balance at 31 March 2023 16 16 16 16 16 16 16 16 16 16 157,843 (3,492) (59,217) 95,134 - - - 491 (354) 69 - 206 158,049 6,974 2,352 9,326 - - (229) - (229) 5,605 25,372 - 25,372 - - 154 (27,167) (27,013) (60,858) 32,346 2,352 34,698 491 (354) (6) (27,167) (27,036) 102,796 Share capital Reserves Retained earnings Total Equity 158,049 5,605 (60,858) 102,796 - - - - - (6,974) (308) (7,282) 1,990 (405) (41,716) (100) - (40,231) 117,818 - - - - - - (1,677) 2,537 6,974 - 9,511 - - - - (13,821) (13,821) (65,168) 2,537 - (308) 2,229 1,990 (405) (41,716) (100) (13,821) (54,052) 50,973 The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes. 20 I Annual Report 2023 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2023 $’000 AUD 2023 2022 Cash flows from operating activities Cash receipts from customers (excluding interest) Interest revenue received Cash paid to suppliers and employees Asset finance originations and Invoice finance drawdowns/transfers Cash generated from operations Net borrowing costs Income tax refund Net cash from operating activities Cash flows from investing activities Acquisition of property, plant and equipment and software Loan to related parties (Acquisition)/sale of equity investments Net cash from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Redemption of borrowings Repayment of lease liabilities Proceeds from issues of shares Payment for share buy back Return of Capital Dividends paid Net cash from financing activities Net increase in cash and cash equivalents- continuing operations Net increase in cash and cash equivalents from discontinued operation 22 Cash and cash equivalents at 1 April Cash and cash equivalents at 31 March The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes. 129,288 13,036 (20,532) (167,511) (45,719) (6,649) - (52,368) (583) (5,000) (4,410) (9,993) 114,890 (24,790) (35,801) - 1,990 (404) (41,716) (13,821) 348 (62,013) 4,053 86,760 28,800 108,763 16,623 (40,494) (24,454) 60,438 (6,422) - 54,016 (257) - 1,154 897 - (105,711) - (247) 491 (354) - (27,167) (132,988) (78,075) 76,790 88,045 86,760 Annual Report 2023 I 21 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2023 Reconciliation of cash flows from operating activities $’000 AUD Profit/(Loss) after tax Adjustments for: Impairment and net gain on modification of lease liability Equity settled transactions Proceeds on sale of investment and discontinued operation Fair value (gains)/losses on derivative Interest expense adjustment on derivative 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 (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments and other assets Decrease in inventories (Decrease)/increase in trade and other payables Increase/(decrease) in provisions and employee benefits Net cash from operating activities Net cash from operating activities- discontinued operation Net cash from operation activities – continuing operations 22 The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes. 2023 2,537 583 - (4,053) 1,106 - (231) (58) (47,899) 4,241 - (3,861) (4,791) (52,368) - (52,368) 2022 32,346 389 (39) (43,876) (1,453) 443 (131) (12,321) 108,058 (3,545) 128 (6,913) 2,322 87,729 33,713 54,016 22 I Annual Report 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 1. SIGNIFICANT ACCOUNTING POLICIES Thorn Group Limited (the ‘Company’ or ‘Thorn’) is a for-profit company domiciled in Australia. The Company’s registered office is Level 11, 1 York Street, Sydney NSW 2000 and principal place of business is Level 13, 333 George Street, Sydney NSW 2000. The consolidated financial statements of the Company as at and for the financial year ended 31 March 2023 comprise the Company and its subsidiaries (together referred to as the ‘Group’ or ‘consolidated entity’). Thorn is a financial services group providing commercial finance to small and medium-sized 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 31 May 2023. (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 a 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) Determination of expected credit losses of receivables and provisions. See note 13. The notes include information which is required to understand the financial statements and is material and relevant to the operations, financial position and performance of the Group. Information is considered material and relevant if: (i) The amount is significant because of its size or nature; (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 estimation uncertainty is associated with: (iv) 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 (v) the effectiveness of government and central bank measures that have and may continue to 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 2023 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. The directors have prepared the consolidated financial statements on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. Accounting Policies Accounting policies have been included within the underlying notes with which they relate where possible. The balance of accounting policies are detailed below: (c) Revenue The major components of revenue are recognised as follows: Annual Report 2023 I 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 (i) 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. (ii) Other revenue includes late fees, establishment fees, termination fees and other non-lease related income. (d) 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. (e) Impairment 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. 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, are 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 statement, unless an asset has previously been re-valued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. (f) Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (g) Changes in Accounting Policy A number of new or amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards. (h) New Standards and Interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 March 2023 reporting periods and have not been early adopted by the group. These standards and interpretations are not expected to have a material impact on the entity in the current or future reporting periods, however management and the directors will continue to assess closer to the mandatory dates. 24 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 2. SEGMENT REPORTING The Board and CEO (together the chief operating decision makers) monitor the operating results of the two reportable segments which are the Business Finance division and the discontinued operations (Consumer Finance division). On 20 December 2021, the Group completed the sale of assets from the Consumer Finance division to Credit Corp Group Limited. This division was disclosed as discontinued operation, with comparatives in 2021 restated in the Consolidated Statement of Profit or Loss & Other Comprehensive Income to show the impact of the divested assets. Segment performance is evaluated based on operating profit or loss. Income tax expense are not allocated to operating segments, as this type of activity is managed on a group basis. 2023 $’000 AUD Sales Revenue Interest Revenue Other Total Segment revenue Operating expenses Corporate re-allocation of expenses EBITDA Depreciation and amortisation Impairment on PPE and intangibles EBIT Fair value losses on derivative Finance expense Profit from discontinued operations Profit before tax Segment assets Segment liabilities 2022 $’000 AUD Sales Revenue Interest Revenue Other Total Segment revenue Depreciation and amortisation Impairment on PPE and intangibles Gain on sale of discontinued operations EBITDA Depreciation and amortisation Impairment on PPE and intangibles Gain on sale of discontinued operations EBIT Fair value gains on derivative Finance expense Profit before tax Segment assets Segment liabilities Consumer Finance (Discontinued operation) Business Finance Corporate Consolidated - - - - - - - - - - - - 3,884 3,884 - 13,624 890 14,514 (3,494) (2,911) 8,109 - (559) 7,550 (1,106) (7,020) - (576) 153,894 (119,782) - 819 - 819 (4,477) 2,911 (747) - (24) (771) - - - (771) 21,385 (4,524) - 14,443 890 15,333 (7,971) - 7,362 - (583) 6,779 (1,106) (7,020) 3,884 2,537 175,279 (124,306) Consumer Finance (Discontinued operation) Business Finance Corporate Consolidated 6,411 22,943 4,567 33,921 - (18,104) (8,025) 7,792 - (13) 11,736 19,515 - (34) 19,481 - 15,490 1,806 17,296 - 12,413 (3,883) 25,826 - (153) - 25,673 1,453 (6,764) 20,362 - - 109,323 (69,987) - - - - 119 (19,288) 11,908 (7,261) - (236) - (7,497) - - (7,497) 72,501 (9,041) 6,411 38,433 6,373 51,217 119 (24,979) - 26,357 - (402) 11,736 37,691 1453 (6,798) 32,346 181,824 (79,028) Annual Report 2023 I 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 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/(loss) before tax from continuing operations Reconciliations of corporate re-allocation expenses The breakdown of the allocated costs is as below. 2023 $’000 AUD Employee benefit expense Property expenses Communication & IT expenses Legal fees Other expenses Total corporate expenses re-allocated 2022 $’000 AUD Employee benefit expense Property expenses Communication & IT expenses Legal fees Other expenses Total corporate expenses re-allocated 3. CASH AND CASH EQUIVALENTS $’000 AUD Bank balances Call deposits Cash and cash equivalents 2023 2022 15,333 51,217 - (33,921) 15,333 17,296 2,537 32,346 (3,884) (19,481) (1,347) 12,865 Consumer Finance Business Finance - - - - - - (1,218) (240) - (315) (1,138) (2,911) Consumer Leasing Business Finance (4,393) (305) (2,489) (266) (572) (8,025) 2023 28,800 - 28,800 (2,481) (77) (631) (213) (481) (3,883) 2022 86,760 - 86,760 Included in cash is an amount of $11.4m (March 2022: $18.7m) held as part of the consolidated entity’s funding arrangements that is not available to the consolidated entity. This cash is held within the warehouse and, as such, is under the control of the Trustee. Within this balance $nil excess spread is held on 31 March 2023 (2022: $6.7m). Free cash is therefore $17.4m ( 2022: $68.1m). 26 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 4. TRADE AND OTHER RECEIVABLES $’000 AUD Current Trade receivables Finance lease receivables Loan receivables Non-current Finance lease receivables Loan receivables 2023 891 4,635 41,249 46,775 1,578 93,130 94,708 2022 2,431 8,805 23,748 34,984 9,533 44,067 53,600 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 the balance date there was approximately $18,511 (2022: $40,460) of unguaranteed residual value in the finance lease receivables 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 13. Loan receivables also includes a loan of $5.0m to a related party, Somers Limited. Refer to note 23 for further information. 5. TRADE AND OTHER PAYABLES $’000 AUD Trade payables Other payables 2023 23 4,926 4,949 2022 103 8,707 8,810 Trade payables are unsecured and are usually paid within 30 days of recognition. Other payables consists of audit fee accruals, refundable deposits for the Business Finance division and other general accruals. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. 6. LEASES Finance leases as lessor The Business Finance division finances business assets to small and medium-sized enterprises. Finance is provided in the form of a lease, a hire purchase agreement or a chattel mortgage contract. The majority of contracts 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. 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. Further security may be obtained including the taking of personal and director guarantees. Annual Report 2023 I 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 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 2023 6,345 2,090 8,435 (590) (194) (784) (1,438) 6,213 2022 16,990 11,059 28,049 (2,181) (1,418) (3,599) (6,112) 18,338 Gross cash flows are expected to be collected as follows: $6,345,000 less than one year, $2,024,000 between one and two years, $65,000 between years two and three, $1,000 between years three and four, and nil between years four and five. Finance lease revenue of $1,562,000 (2022: $4,134,000) has been recognised in interest revenue in the Business Finance division. Finance leases as lessee No right-of-use assets or lease liabilities recognised during the 2023 financial year. 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 - 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 Net gain on modification of lease liability Total 2023 2022 - - - - - 334 59 393 - 393 - - - - 14 217 130 361 - 361 The total cash outflow for leases in the year ending 31 March 2023 was $393,000. 7. INVESTMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities that are not held for trading and which the Group has irrevocably elected at initial recognition to recognise in this category. These are strategic investments and the Group considers this classification to be more relevant. Equity investments at FVOCI comprise the following investments: $’000 AUD Investments in ASX listed companies 2023 2,744 2022 - During the 2023 financial year the Group acquired shares in ASX listed companies for a total cost of $4.4m. 28 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 8. INTANGIBLE ASSETS $’000 AUD Year ended 31 March 2023 Opening net carrying amount Additions Amortisation charges for the year Impairment charges for the year Closing net book amount At 31 March 2023 Cost Disposals Amortisation and impairment Net book amount Disposals Goodwill Right of use assets Software - - - - 5,054 - (5,054) - - - - - - 277 (277) - - - 583 - (583) - 17,836 (17,109) (727) - Total - 583 - (583) - 23,167 (17,386) (5,781) - In FY23, the Group carried out an assessment of the intangible assets remaining after the sale of the consumer finance business in December 2021. The obsolete intangible assets, which were fully impaired/amortised, are now disposed. $’000 AUD Year ended 31 March 2022 Opening net carrying amount Additions Amortisation charges for the year Impairment charges for the year Closing net book amount At 31 March 2022 Cost Disposals Amortisation and impairment Net book amount Amortisation Goodwill Right of use assets Software Total - - - - - 20,658 (15,604) (5,054) - - - - - - - 145 - (145) - - 145 - (145) - 277 17,254 38,189 - - (15,604) (277) (17,254) (22,585) - - - When not impaired, amortisation is provided on all intangible assets excluding other intangibles. 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) In 2019 and 2020 testing was performed to identify if any of the Group’s intangibles were impaired as required under AASB 116. All were considered to be impaired and an impairment expense was recognised as a result. At 31 March 2023, testing was performed by the Group with a similar outcome as previous years. Given the early stage the Group is at regarding its strategy, there is no indication that any historical impairment losses should be reversed. The Group is in a period of transformation and working towards building new revenue streams which would generate sufficient profits to support the carrying value of any other intangibles. Therefore, definite life intangible assets as well as PP&E continue to be immediately impaired on acquisition. Annual Report 2023 I 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 9. PROPERTY, PLANT AND EQUIPMENT $’000 AUD Year ended 31 March 2023 Opening net carrying amount Additions Depreciation charges for the year Impairment charges for the year Closing net book amount At 31 March 2023 Cost Disposals Accumulated depreciation and impairment Net book amount Disposals In FY23 the Group carried out an assessment of the property, plant and equipment assets remaining after the sale of the consumer finance business in December 2021. The obsolete property, plant and equipment assets, which were fully impaired/amortised, are now disposed. $’000 AUD Year ended 31 March 2022 Opening net carrying amount Additions Depreciation charges for the year Impairment charges for the year Closing net book amount At 31 March 2022 Cost Accumulated depreciation and impairment Net book amount Property plant and equipment Total - - - - - 3,757 (3,629) (128) - Total - 257 - (257) - 3,757 (3,757) - Property plant and equipment consist of furniture, fittings, and physical computer equipment. Impairment Refer to note 8 for details. 10. INCOME TAX EXPENSE Recognised in the profit or loss statement $’000 AUD Current tax expense Current year Adjustment for prior year Deferred tax expense Origination and reversal of temporary differences Total income tax (benefit)/ expense in the profit or loss statement 30 I Annual Report 2023 2023 2022 - - - - - - - - NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 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% (2021: 30%) Change in income tax expense due to: Non-deductible expense and unrecognised timing differences Utilisation of tax losses Recognised and unrecognised timing differences Income tax (benefit)/ expense on pre-tax accounting profit 2023 2,537 761 20 - (781) - 2022 32,346 9,704 31 (7,999) (1,736) - 11. DEFERRED TAX ASSETS & LIABILITIES Recognised deferred tax assets and liabilities $’000 AUD Inventories Property, plant and equipment Trade, loan and other receivables Finance lease receivables Accruals Provisions Tax losses Financial derivative Tax assets / (liabilities) Assets 2023 - 78 - - 1,557 726 - - 2022 - 165 - - 795 - - - Liabilities Net 2023 2022 2023 2022 - - - - - - - 78 - (2,361) (960) (2,361) - - - - - - - - 1,557 726 - - - - 165 - (960) 795 - - - - 2,361 960 (2,361) (960) The Group has unrecognised current tax losses of $24.0m (7.2m tax effected) and $32.5m ($9.7m tax effected) of unrecognised deferred tax future deductions. 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 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. Annual Report 2023 I 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 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 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. 12. 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. Historically these arrangements were designated as cash flow hedges under AASB 139 (which the Group had opted to retain as is currently permitted). The 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. Derivatives designated as cash flow hedges 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 ineffective portion of designated hedge derivatives is recognised in the statement of profit or loss and other comprehensive income as fair value gains or losses on derivatives. In December 2021, the Group made an assessment that the interest rate swap had fallen outside the prescribed 80-125% range of effectiveness as per AASB 139. At this point hedge accounting ceased and the full fair value movements were booked to the profit and loss. This was attributable to the warehouse being in amortisation, leading to the funding balance decreasing at a faster rate than the expected repayment of the warehouse receivables. The swap remained ineffective for the period from December 2021 through to July 2022. In August 2022 with the restructuring of the warehouse, the swap was reset and redesignated to hedge the warehouse receivables balance. Due to the redesignation of the swap, the previous hedge was derecognised, and the cash flow hedge balance was recognised to profit and loss. The reset swap has not been designated as a cash flow hedge at 31 March 2023 and the fair value movements of the derivative are recognised in the statement of profit or loss. 32 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 The impact of the derivative on the statement of profit or loss and other comprehensive income are as per below table. $’000 AUD Fair value gains on derivative FVPL loss on cash flow hedge derecognised from reserves FVPL gain on ineffective hedge FVPL gain on undesignated swap Interest expense 2023 - (1,369) 774 (511) (584) (1,690) 2022 1,453 - - - (443) 1,010 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 2023. The fair value of derivatives is 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 asset Interest rate swap liability 13. FINANCIAL RISK MANAGEMENT Financial risk management objectives and policies 2023 12 - 2022 - 359 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 of receivables and loans. The Group provides business finance to SMEs 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 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 typically grows in line with the growth of the loan and lease receivables in all segments. The Group holds a related party loan which is secured by the borrower’s current and future shareholding in Thorn Group Limited and management has assessed that no loss impairment is required. Annual Report 2023 I 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 Expected credit loss measurement for Business Finance loan and lease receivables 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. 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 six months. Default is defined as 90 days past due for asset finance receivables. Impact of Covid-19 pandemic In prior years, the Covid-19 affected contracts were removed from the AASB9 model and a separate management overlay was provided. During the 2023 financial year, the collection activity on the Covid affected book has improved and there was no further economic lockdowns. As a result, the arrears have fallen to 10.1% at 31 March 2023 (31 March 2022: 16.1%). The Covid affected book has decreased by 67% in the period to March 2023 to $11.3m and 82% of the book will reach maturity in the next two years. Given the strong collection activity, the declining book and the likelihood that the economy will not suffer from further lockdowns, it has been decided by management to remove the Covid-19 management overlay. Covid contracts are now subject to the same AASB9 provision methodology as applied across the entire asset finance portfolio. Macroeconomic Scenarios Management has evaluated the current economic indicators and determined that there is a possibility of a downturn, accompanied by a continuous increase in the cost of living. The economy has already experienced 11 interest rate hikes since May 2022, with escalating inflation in Australia and worldwide. Considering this assessment, management introduced a management overlay in addition to the existing Expected Credit Loss (ECL) provisions. This overlay is calculated at 3.7% of the asset finance receivables book. This forward-looking adjustment considers the estimated impact of various scenarios based on economic assumptions and the concentrations of industries and asset classes. The Group considers these factors across multiple scenarios, including the base case, upside, and downside scenarios. To inform their analysis, the Group combines publicly available economic forecasts for the Australian economy with portfolio information, judgments, and analysis. Model risk reserve A model risk reserve continues to be in place for Business Finance calculated at 2.4% of the asset finance receivables book. Loss allowance The impairment expense on the statement of profit or loss includes both net write-offs and provision movements. 34 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 The following table explains the changes in the loss allowance between the beginning and the end of the financial year due to these factors: Asset finance loan and lease receivables Asset finance 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 2022 13,856 6,763 1,442 22,061 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 balance Change in estimates Changes to model assumptions and methodologies Write-offs Total net P&L charge during the period Loss allowance as at 31 March 2023 (352) (141) 8 7 1,180 4,973 (6,554) (879) 12,977 419 (173) (18) 1 (1,641) 215 (3,166) (4,363) 2,400 262 10 (44) (19) 3,699 (673) 612 (4,105) (258) 1,184 67 121 (165) (8) (37) (18) 3,238 4,515 (9,108) (4,105) (5,500) 16,561 The following table further explains changes in the gross carrying amount of the loans and lease receivables to help explain their significance to the changes in the loss allowance as discussed above: Asset finance loan and lease receivables Stage 1 Stage 2 Stage 3 Total 12-month ECL Lifetime ECL Lifetime ECL $’000 AUD $’000 AUD $’000 AUD $’000 AUD Gross carrying amount as at 1 April 2022 99,854 9,349 1,442 110,645 Movements with P&L impact Transfers: Transfer from Stage 1 to Stage 2 Transfer from Stage 1 to Stage 3 Transfer from Stage 2 to Stage 1 Transfer from Stage 2 to Stage 3 Transfer from Stage 3 to Stage 1 Transfer from Stage 3 to Stage 2 New financial assets originated or purchased Changes in the balances of non-transferred financial assets Write-offs Total net change during the period Gross closing amount as at 31 March 2023 (2,688) (1,454) 417 69 115,881 (66,821) 45,404 145,258 2,688 (417) (290) 30 1,943 (10,081) (6,127) 3,222 1,454 290 (69) (30) - - - - - - 395 118,219 1,807 (4,105) (258) 1,184 (75,095) (4,105) 39,019 149,664 Annual Report 2023 I 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 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 Asset finance lease receivables Asset finance loan receivables Invoice finance receivables Related party loan receivables Total gross amount Allowance for impairment 23 2023 2022 891 2,430 7,652 24,451 141,121 83,492 3,381 5,000 158,045 (16,561) 141,484 272 - 110,645 (22,061) 88,584 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. Invoice finance receivables of $3.4m are secured by the SME’s accounts receivable, allowing them to generate cash quickly. The facility available is based on a percentage of invoices identified as security. The loan is not dissimilar to a working capital loan where the facility is drawn and repaid multiple times as the business’ liquidity rises and falls. Thorn utilises an invoice financing platform which access live SME’s financials keeping ahead of potentials risk of default securing the recoverability of the loan facility. In addition, Thorn manages the loan in-line with roburst credit collection policy. Thorn has assessed that no impairment provision is required. Related party interest-bearing loan of $5.0m, which is secured by the borrower’s current and future shareholding in Thorn and is repayable on 30 June 2023, has been assessed to require no loss impairment. Write-off policy The Group writes off financial assets in whole or in part, when it has exhausted all practical recovery efforts via normal means of collections and has concluded there is no reasonable expectation of recovery. The Group’s write-off process provides that if an account is not paid by a specified “days due” threshold, it is written off, unless there is reasonable degree of certainty on future collections. 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. Contracts which have been modified are all considered to have a significant increase in credit risk and are measured using a lifetime expected credit loss model, unless other creditworthiness indicators provide information which would rebut this presumption. Impairment losses Asset finance lease receivables $’000 AUD Stage 1 Stage 2 Stage 3 36 I Annual Report 2023 Gross 2023 Impairment 2023 Gross 2022 Impairment 2022 7,234 301 116 7,651 (1,168) (154) (116) (1,438) 22,489 2,510 577 25,576 (3,527) (2,008) (577) (6,112) NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 Asset finance loan receivables and remaining consumer solar loans $’000 AUD Stage 1 Stage 2 Stage 3 Gross 2023 Impairment 2023 Gross 2022 Impairment 2022 138,024 2,921 1,068 142,013 (11,809) (2,246) (1,068) (15,123) 77,364 6,840 865 85,069 (10,329) (4,755) (865) (15,949) At 31 March 2023, the contractual amount outstanding on receivables that were written off in the financial year and that are still subject to enforcement activity is $2.9m. Thorn has provided a guarantee to the trustee of the warehouse trust, against a group of affected trust receivables. The value of the receivables as at 31 March 2023 is $7.0m. Thorn has deemed the risk of an outflow of economic resources to be extremely remote and, as such, has estimated the guarantee to have a zero fair value. Liquidity risk Liquidity risk is the risk that the Group’s financial condition is adversely affected by an inability to meet its liabilities and support its business growth. The Group manages its capital to maintain its ability to continue as a going concern and to provide adequate returns to shareholders. The capital structure of the Group consists of external debt and shareholders’ equity. The Group manages its capital structure and makes adjustments to it in light of economic conditions and the Group’s individual situation. The Group’s debt facilities contain restrictions on the Group’s ability to, among other things, sell or transfer assets, incur additional debt, repay other debt, make certain investments or acquisitions, repurchase or redeem shares and engage in alternate business activities. The facilities also contain a number of financial and non-financial covenants. Failure to meet any of these covenants could result in an event of default under these facilities which could, in turn, allow the lender to declare all amounts outstanding to be immediately due and payable or the inability to draw down further. In such a case, the financial condition, liquidity and results of operations of the Group could materially suffer. Liquidity risk is managed through the adequate provision of funding and effective capital management policies. The following are the contractual maturities of the consolidated entity’s financial liabilities including, where applicable, future interest payments as at 31 March 2023. 31 March 2023 ($’000 AUD) Securitised warehouse facility Lease liability Trade and other payables Total non-derivatives Interest rate swap (Inflow) Outflow Total derivatives 31 March 2022 ($’000 AUD) Securitised warehouse facility Lease liability Trade and other payables Total non-derivatives Interest rate swap (Inflow) Outflow Total derivatives Carrying amount 114,890 - 4,949 Contractual Cash flows 127,449 - 4,949 119,839 132,398 (6,800) 6,796 (4) 1 year or less 1-5 years 51,711 - 4,949 56,660 (3,256) 3,127 (129) 75,738 - - 75,738 (3,544) 3,669 125 5 years or more - - - - - - Contractual Cash flows 1 year or less 1-5 years 5 years or more 62,180 11 8,700 70,891 (1,334) 1,683 349 59,627 - 8,700 68,327 (545) 1,171 626 2,553 - - 2,553 (789) 512 (277) - - - - - - - Annual Report 2023 I 37 (12) - (12) Carrying amount 60,591 11 8,700 69,302 - 359 359 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 The securitised warehouse facility (‘warehouse facility’) is secured by rentals and payments receivable from the underlying receivable contracts. The amounts collected from these receivables are used to repay the warehouse facility. As such the timing of repayment is dependent upon the timing of the receivables collected. For the purpose of this note, which requires contractual maturities, we have used the future contractual receivable repayment amounts to estimate the timing of repayment of the warehouse facility principal and interest. This is different from the current and non-current split in note 15 which is based on expected cash flows. The consolidated entity’s access to financing arrangements is disclosed in note 15. Market risk Market risk is the risk that changes in market prices, such as interest rates and foreign currency, will affect the consolidated entity’s income and cash flow. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. Price risk The Group exposure to equity securities price risk arises from investments held by the Group and classified in the balance sheet at fair value through other comprehensive income (FVOCI). The Group diversifies its portfolio to manage any price risk arising from investments in equity securities and focusses on long term investment. Diversification of the portfolio is done in accordance with the limits set by the Group. The Group’s Board of Directors reviews and approves all equity investment decisions. A change of 57 percent in the share price of the investment assets (ASX listed companies) at the reporting date would have increased or decreased the consolidated entity’s other comprehensive income by approximately $1.6m (2022: Nil), net of tax. Foreign currency risk The Group is not currently exposed to any significant foreign currency risks. 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 its warehouse facility. The consolidated entity enters into interest rate swaps to fix the interest payments on its warehouse receivables and therefore remove the interest rate mismatch between the receivables and the borrowings. In December 2021, the Group made an assessment that the interest rate swap had fallen outside the prescribed 80-125% range of effectiveness as per AASB 139. This was attributable to the warehouse being in amortisation, leading to the funding balance decreasing at a faster rate than the expected repayment of the warehouse receivables. The swap remained ineffective for the period from December 2021 through to July 2022. In August 2022 with the restructuring of the warehouse, the swap was reset and redesignated to hedge the warehouse receivables balance. Due to the redesignation of the swap, the previous hedge was derecognised, and the cash flow hedge balance was recognised to profit and loss. The reset swap has not been designated as a cash flow hedge at 31 March 2023 and the fair value movements of the derivative are recognised in the statement of profit or loss, refer to note 12 for details. At the reporting date the interest rate profile of the consolidated entity’s floating interest-bearing financial instruments was: $’000 AUD Free cash Borrowings net of swap 2023 17,363 3,341 2022 68,055 (23,692) At 31 March 2023, Thorn was hedged at 98% (2022: 139%) of its warehouse receivables balance of $113.9m (2022 borrowing balance: $60.6m). A change of one percent in interest rates at the reporting date would have increased or decreased the consolidated entity’s profit and loss by $1.8m (2022: $0.2m), net of tax. The change from prior period is due to changes in the floating rate of the swap based on a higher notional value and more volatile interest rate market. 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 permit future development of the business. The Board monitors the return on equity, which the consolidated entity defines as net 38 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 profit after tax divided by the average of opening and closing equity. The Board also monitors the level of dividends to ordinary shareholders. 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 or 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. Investments at fair value through other comprehensive income The cost of the Group’s investment in ASX listed companies is considered to represent fair value. The investments are considered to be Level 1 investments. 14. PROVISIONS AND CONTINGENT LIABILITIES 2023 $’000 AUD Opening balance Provisions made during the year Provisions used during the year Provisions released during the year Current Make good 45 - (45) - - - Service warranties - - - - - - Regulatory and Other 4,045 150 (283) (2,400) 1,512 1,512 Total 4,090 150 (328) (2,400) 1,512 1,512 Annual Report 2023 I 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 Non-current 2022 $’000 AUD Opening balance Provisions made during the year Provisions used during the year Provisions transferred as part of asset sale of Radio Rentals Provisions released during the year Current Non-current Make good on leased premises - - - - - 1,512 Make good 423 26 (112) (35) (257) 45 45 - 45 Service warranties 1,808 1,029 (1,526) (1,311) - - - - - Regulatory and Other 583 4,879 (1,417) - - 4,045 4,045 - 4,045 - 1,512 Total 2,814 5,934 (3,055) (1,346) (257) 4,090 4,090 - 4,090 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. Regulatory and Other provision This a general provision which covers a number of potential obligations, including indemnities and warranties in connection with the sale of the Consumer Finance business, costs associated with the business restructure following the sale transaction, potential customer remediation, penalties and administration costs and legal matters. Warranty provision Under the terms of the former consumer leases, the Group was required to maintain the leased product in good working order. Provision was made for the expected cost of this obligation over the remaining life of the existing lease arrangements. Upon completion of the sale of the Consumer Finance business, the warranty of $1.3m was released to gain on sale calculations. Contingent liabilities Overview Contingent liabilities are disclosed when the possibility of a future settlement of economic benefits is considered to be less than probable but more likely than remote. If the expected settlement of the liability becomes probable, a provision is recognised. A contingent liability is disclosed where a legal or constructive obligation is possible, but not probable; or where the obligation is probable but the financial impact of the event is unable to be reliably estimated. From time to time the Group may incur obligations or suffer financial loss arising from litigation or contracts entered into in the normal course of business, including guarantees issued for performance obligations of controlled entities in the Group. Legal proceedings threatened against Thorn may also, if filed, result in Thorn incurring obligations or suffering financial loss. A contingent liability exists in relation to actual and likely potential legal proceedings. Where it is determined that the disclosure of information in relation to a contingent liability can be expected to adversely prejudice the position of the Group (or its insurers) in a dispute, accounting standards allow Thorn to not disclose such information. It is Thorn’s policy that such information is not disclosed in this note. Litigation In March 2023, Thorn and Thorn Australia Pty Ltd (“TAPL”) were served with a cross claim in Federal Court of Australia proceedings in which the Commonwealth Attorney-General’s Department (under the Fair Entitlements Guarantee scheme) is claiming damages, together with interest and legal costs, from Receivers who, on behalf of a secured creditor who appointed the Receivers to do so, recovered assets from a third party. That secured creditor was previously, but in February 2018 ceased to be, a subsidiary of Thorn. Those Receivers have claimed indemnity from the secured creditor who appointed the Receivers to that role. By the cross claim against Thorn and TAPL, that secured creditor has claimed contractual indemnities, from Thorn and TAPL, against any liability that secured creditor is found to have to the Receivers plus interest and legal costs. Thorn and TAPL are defending that cross claim. The cross claim against Thorn and TAPL is not quantified. The proceedings are being defended. Critical Accounting Estimates and Judgments The Group recognises a provision where a legal or constructive obligation exists at the balance sheet date and a reliable estimate can be made of the likely outcome. Provisions are reviewed on a regular basis and adjusted for management’s best 40 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 estimates, however significant judgement is required to estimate likely outcomes and future cash flows. The judgemental nature of these items means that future amounts settled may be different from those provided for 15. LOANS AND BORROWINGS $’000 AUD Current liabilities Secured loans Non-Current liabilities Secured loans 2023 2022 - 43,412 114,890 114,890 17,179 60,591 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 Securitised warehouse facility Utilised Available headroom Total loan facilities Utilised Secured loan facilities not utilised at reporting date Corporate facilities The Group has no open corporate debt facility. 2023 200,000 (114,890) 85,110 200,000 (114,890) 85,110 2022 60,591 (60,591) - 60,591 (60,591) - The Group retains access to bank guarantees and credit card facilities with a total limit of $1.1m as part of its ongoing transactional banking arrangements. At 31 March 2023, the amount utilised was $0.2m and the Group has cash collateralised the total facilities. Securitised warehouse facility Thorn is financed by a rated securitised warehouse facility (“the warehouse”). From May 2020 to July 2022, the warehouse was in amortisation due to a breach of one of its warehouse parameters, which requires no more than 6% of the balances to be in arrears by more than 30 days. This was attributable to the increasing presence of COVID-19 affected customers. While this event subsisted, Thorn was unable to sell its originations into the warehouse, and the distributions it was expecting from the warehouse via the waterfall distribution mechanism were retained in an excess spread reserve. The warehouse was restructured with a funding limit of $200 million and re-commenced utilisation in August 2022. The existing notes were repaid in full and the balance of the excess spread reserve was repaid to the unitholder. There have been no subsequent deposits to the excess spread reserve and further transfers are not expected except in the case of an amortisation event. Thorn Business Finance is financed by the warehouse with senior notes held by a major Australian bank, mezzanine notes held by a major Australian financial services company, and equity class G notes held by Thorn. The warehouse facility is secured by loans and payments receivable from the underlying receivable contracts and is non- recourse to the Group, meaning Thorn’s liability is limited to its class G notes unless it is liable for damages for breach of the warehouse documents or it is required to buy back an ineligible receivable (defined as one that breached Thorn’s initial sale representations and not merely that it goes into arrears or defaults). Interest on the warehouse is charged at a fixed interest premium plus a floating 1-month BBSY (LY: fixed interest premium plus 3-months BBSY). The current facility is available until August 2023, however Thorn is negotiating a renewal with its funders. If agreement is not reached, further receivables will not be able to be sold into the facility, and the portfolio will amortise down for as long as the underlying receivables are payable. While the warehouse is in operation, there will be no repayment of borrowings and principal collected will be utilised to purchase eligible receivables, hence the full balance of the warehouse facility is disclosed Annual Report 2023 I 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 as non-current. In the comparative March 2022, the warehouse was in amortisation, and the principal was applied to repay noteholders with the amounts expected to be due and payable on the warehouse facility in the next 12 months being disclosed as current. This payment structure would recommence if the current warehouse facility went into amortisation. There were reported technical breaches of compliance parameters in the warehouse during the financial year and for the period to May 2023. All breaches were remedied within 30 days and no further action taken. To rectify this, the warehouse parameters were amended with funder consent in May 2023 to align more closely the industry parameters with newly created asset finance business. 16. CAPITAL AND RESERVES Issued capital Number of shares On issue at the beginning of year Issue of new shares under dividend reinvestment plan Issue of new shares under an employee share based payment plan Repurchase of shares through buy-back scheme Consolidation of shares 2023 340,192,714 9,044,579 - (1,603,828) (312,869,446) 34,764,019 2022 339,188,085 2,398,077 464,253 (1,857,701) - 340,192,714 Ordinary shares are classified as equity. Incremental costs directly attributable to the 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 shareholders’ 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. Share buy-back programs Thorn conducted on-market share buy-back program of up to 5% of Thorn’s ordinary shares, or up to 16,994,615 ordinary shares, commenced from 1 March 2022 up until 28 February 2023. From 1 April 2022 to 28 February 2023, the Group bought back 1,603,828 fully paid ordinary shares for a total cost of $404,703. Consolidation of Shares On 30 September 2022 the Group held an Extraordinary General Meeting, during which shareholders approved the consolidation of every 10 ordinary shares held by a shareholder into 1 ordinary share. The share consolidation was completed on 14 October 2022. The post consolidation shares on issue amounted to 34,764,019 ordinary shares. Return of Capital to Shareholders On 6 October 2022, the Company’s issued ordinary share capital was reduced by approximately $41.7m, following shareholder approval at the Extraordinary General Meeting convened on 30 September 2022. The Company paid each eligible shareholder registered on the record date of 6 October 2022, the amount of $0.12 per share held at that time. Reserves The reserves consist of the fair value investment reserve, the cash flow hedge reserve and trust excess spread reserve. The value investment reserve represents the value of quoted prices in active markets. The cash flow hedge reserve consists of the fair value of cash flow hedges after tax. $’000 AUD Cash flow hedge reserve Fair value investment reserve Trust excess spread reserve 42 I Annual Report 2023 2023 - (1,677) - (1,677) 2022 (1,369) - 6,974 5,605 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 During 2021, Thorn reached an agreement with its funders to allow Thorn to vary contracts with certain COVID-19 affected customers. As a result of the amendments made to the funding arrangements, an “excess spread ledger” was established. Any excess spread which would usually be distributed to Thorn on a monthly basis was instead held within a cash reserve and serves as collateral against the collection of the receivables. The balance of the excess spread as at 31 March 2022 was $6,973,594. Following the re-opening of the warehouse on 2 August 2022, the existing notes were repaid in full and the balance of the excess spread reserve was repaid to unitholders. There have been no subsequent deposits to the excess spread reserve and further transfers are not expected except in the case of an amortisation event. 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: 2023 Final 2022 Interim 2023 Special dividend Total amount 2022 Final 2021 Interim 2022 Special dividend Total amount Cents per Share Amount $’000 AUD Franking % Date of payment 1.0 - 3.0 4.0 3,392 - 10,429 13,821 30% n/a 30% 25th July 2022 n/a 2nd September 2022 1.0 3,375 - - 7.0 23,792 8.0 27,167 30% n/a 30% 21 July 2021 n/a 9 February 2022 During the year, Thorn paid total dividends of 4 cents per share, totalling $13.8m. A number of Thorn’s shareholders participated in the Company’s dividend reinvestment plan (‘DRP’) offered for the final 2022 dividend, resulting in $2.0m of the total being reinvested in Thorn shares. Net cash outflow was $11.8m. Dividend franking account $’000 AUD 30% franking credits available to shareholders of Thorn Group Limited 2023 10,511 2022 16,435 The above available amounts are based on the balance of the dividend franking account at year-end. This may be 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. 17. EARNINGS PER SHARE The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. For comparability, EPS for the prior year was restated to account for the share consolidation during the year. 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. 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. Annual Report 2023 I 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 $’000 AUD 2023 2022 Profit attributable to ordinary shareholders (basic) $’000 AUD Profit attributable to ordinary shareholders (basic)- Continuing operations Profit attributable to ordinary shareholders (basic)- Discontinued operation 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 operation Basic earnings per share (cents) Diluted earnings per share (cents) Earnings per share - Consolidated Basic earnings per share (cents) Diluted earnings per share (cents) 18. CONSOLIDATED ENTITIES Parent entity Thorn Group Limited Subsidiaries Thorn Australia Pty Ltd A.C.N. 647 764 510 Pty Ltd Thornmoney Pty Ltd Thorn ABS Warehouse Trust No. 1 Thorn Finance Pty Ltd Thorn Services Pty Ltd Thorn Employee Services Pty Ltd* Thorn Administration No.1 Pty Ltd* *These entities were deregistered during the financial year. 44 I Annual Report 2023 (1,347) 12,865 3,884 19,481 2,537 32,346 34,020 33,919 501 5 34,521 33,924 34,020 33,919 501 108 34,521 34,027 (3.9) 37.9 (3.9) 37.8 11.2 57.4 11.2 57.3 7.3 7.3 95.3 95.1 Country of Incorporation Ownership Interest 2023 2022 Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% N/A N/A 100% 100% 100% 100% 100% 100% 100% 100% NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 Basis of consolidation Subsidiaries Subsidiaries are entities (including special purpose entities) controlled by the consolidated entity. The consolidated entity controls an entity when it 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 ownership risks of the SPE or its assets in order to obtain benefits from its activities. 19. DEED OF CROSS GUARANTEE Thorn and each of the subsidiaries, with the exception of Thorn ABS Warehouse Trust No.1 (the Closed Group) listed in note 18 have entered 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. During the year, two subsidiaries (Thorn Employee Services Pty Ltd and Thorn Administration No.1 Pty Ltd) were deregistered. Pursuant to ASIC Corporations Instrument 2016/785, Thorn Australia Pty Limited and Thornmoney Pty Ltd were relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and Directors’ reports. The profit before tax of the Closed Group after eliminating all transactions between parties to the Deed of Cross Guarantee, at 31 March 2023, is $7.0m. Annual Report 2023 I 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Closed Group $’000 AUD Continuing operations Interest revenue Other revenue Revenue Employee benefit expense Reversal of impairment losses on loans and receivables Marketing expenses Property expenses Communication & IT expenses Insurance expenses Legal expenses Other expenses Impairment of intangibles & property, plant and equipment Net gain on sale of financial asset Corporate expense allocated to discontinued operation Total operating expenses Earnings before interest and tax ("EBIT") Fair value gains/(losses) on derivative Finance expenses Profit/(Loss) before income tax Income tax Profit/(Loss) after tax for the year from continuing operations Discontinued operation Profit from discontinued operation, net of tax Profit after tax for the year Other comprehensive income – items that will not be reclassified to profit or loss Changes in the fair value of equity investments at fair value through OCI Other comprehensive income for the year 2023 2022 4,021 176 15,096 1,816 19,117 (9,290) (635) (199) (374) (1,771) (1,901) (936) 780 (583) 1,992 (14,137) 26,103 (359) 220 (3,942) (2,601) (1,592) (4,177) (389) - - 119 8,025 (14,909) 4,208 - (1,078) 3,130 7,270 9,262 - (771) 8,491 - - 3,130 3,884 7,014 (1,677) (1,677) 8,491 19,481 27,972 - - Total comprehensive profit 5,337 27,972 46 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 Consolidated statement of financial position of the Closed Group $’000 AUD Assets Current assets Cash and cash equivalents Trade and other receivables Prepayments and other assets Income tax receivable Total current assets Non-current assets Trade and other receivables Other assets Financial assets at fair value through other comprehensive income Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liability Employee benefits Provisions and contingent liabilities Total current liabilities Non-current liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2023 2022 17,362 15,276 2,240 - 34,878 24,707 6,214 2,744 - 33,665 68,543 5,304 - 2,935 1,512 9,751 19 19 9,770 58,773 117,818 (1,677) (57,368) 58,773 68,055 5,140 6,480 - 79,675 19,401 25,470 - - 44,871 124,546 8,557 11 5,090 4,090 17,748 77 77 17,825 106,721 158,049 6,974 (58,302) 106,721 Annual Report 2023 I 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 20. PARENT ENTITY DISCLOSURES As at 31 March 2023, and throughout the financial year ending 31 March 2023, the parent entity of the consolidated entity was Thorn Group Limited. $’000 AUD Result of Parent Entity Profit for the period Other comprehensive income Total comprehensive profit / (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 Fair value investment reserve Total Equity 2023 2022 13,183 (1,677) 11,506 111,882 - (46,271) 117,818 (50,529) (1,677) 65,611 27,167 - 27,167 108,158 - - 158,049 (49,891) - 108,158 The parent entity has entered into a Deed of Cross Guarantee with its trading subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 19. 21. SPECIAL PURPOSE ENTITY Thorn Business Finance receivables are financed by a securitised warehouse (a special purpose entity for accounting). The warehouse is consolidated as set out in note 18 as the Group is exposed or has rights to variable returns and has the ability to affect its returns through its power over the warehouse. The table below presents assets (net of provision) and the underlying liabilities attributable to the warehouse. $’000 AUD Net Receivables Cash held by Trust Derivative financial instruments Total assets Borrowings related to receivables Derivative financial instruments Total liabilities Net asset/ (liabilities) 2023 101,500 11,437 12 112,949 114,890 - 114,890 (1,941) 2022 64,045 18,705 - 82,750 60,591 359 60,950 21,800 The Group provides additional support to the special purpose entity including a liquidity facility of $1.4m (2022: $3.6m) and a bill and collect facility of $0.8m (2022: $1.9m). The securitised warehouse is required to maintain a level of credit enhancement through the Class G Notes investment made by the Group. There are scenarios where the Group could be required to inject cash into the securitised warehouse to maintain this credit enhancement. The warehouse amended certain pool parameters in May 2023. As part of the amendments, the Class G Notes were increased by 2.5%, to provide additional credit enhancement, and the Class A notes were reduced by an equivalent amount. The overall limit did not change. The additional credit enhancement served to ensure that the credit ratings on the externally rated Notes maintained their individual ratings. 48 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 22. DISCONTINUED OPERATIONS In December 2021, the Group’s assets in the Consumer Finance division, Radio Rentals were sold to Credit Corp Group Limited. During the 2023 financial year, Thorn received an additional deferred cash consideration of $2.3m for the sale, taking the total consideration received to $46.2m. Thorn negotiated an extension of the transitional services agreement with Credit Corp for an additional $1.8m. The arrangements concluded on 20 December 2022. The discontinued operations segment recorded a profit after tax of $3.9m (2022: $19.5m). (a) Result of discontinued operations $’000 AUD Revenue Expenses Results from operating activities Income tax Results from operating activities, net of tax Gain on sale of discontinued operation Income tax on sale of discontinued operation Profit from discontinued operations, net of tax (b) Cash flow from /(used in) discontinued operation $’000 AUD Net cash used in operating activities Net cash from investing activities Net cash from financing activities Net cash flows for the year 23. RELATED PARTIES Key management personnel remuneration $ Short-term employee benefits* Post-employment benefits Termination payments** Share-based payments 2023 - - - - - 3,884 - 3,884 2023 - 4,053 - 4,053 2022 33,921 (26,176) 7,745 - 7,745 11,736 - 19,481 2022 33,713 43,876 (799) 76,790 2023 1,473,720 88,110 286,974 - 2022 2,238,685 82,738 - 32,328 1,848,804 2,353,751 * 2022 includes $313,051 that was paid in December 2021 for the STI awarded in relation to 2021 financial year. An additional amount of $234,451 and $98,623 was payable to Peter Lirantzis and Luis Orp respectively. **2023 includes Luis Orp’s termination payment. 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 are provided in the Remuneration Report section of the Directors’ report. There were no loans made or outstanding to Directors or executive KMPs during or at the end of the year. Transactions with related party entities The following table details the total amount of transactions that have been entered into with related parties during the year. $’000 AUD 2023 2022 General Provincial Company Ltd 369 1,868 The transactions relate to insurance premiums for Civil Liability and Professional Indemnity insurance and Directors and Officers Liability insurance. Annual Report 2023 I 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2023 Related Party Loan On 17 October 2022, Thorn Australia Pty Limited entered into a secured loan of $5.0m with a related party, Somers Limited, repayable on 30 December 2022 at the interest rate of 9% per annum. Interest was accrued, compounded daily and the amount of $93,314 was paid. The principal repayment date was extended to 31 March 2023 (Contract signed) at an increased interest rate of 10% per annum. On 31 March 2023, an interest payment of $124,663 was received. On 6 April 2023, the principal repayment date was further extended to 30 June 2023 at the new interest rate of 12% per annum, accrued and compounded daily. The loan is secured by the borrower’s present and future interest in shares on issue by Thorn Group Limited and held by the borrower and any custodian or sub custodian on behalf of borrower. Somers Limited has a shareholding of 49.34% in the Company (based on its last ASX substantial shareholder notification lodged with ASX on 25 July 2022). $’000 AUD Somers Limited 24. SHARE BASED PAYMENTS 2023 5,000 2022 - The Company had a legacy Long Term Incentive (LTI) share plan (2019) - there are no remaining employees in this plan due to forfeiture upon cessation of employment (as all performance rights had lapsed, there was no need to test the plan in September 2022 in accordance with the plan rules). The Company has no active share plan for the 2023 financial year - no performance rights or options were granted during the 2023 financial year. In March 2022, ordinary shares were issued to Peter Lirantzis and are currently held in escrow with a two year hold period until 10 February 2024 (these rights were allocated as part of Peter Lirantzis’ sign-on share plan and do not form part of the LTI plans disclosed above). There are no other performance rights over ordinary shares in Thorn Group Limited held directly, indirectly or beneficially, by any employees. 25. EMPLOYEE BENEFIT EXPENSE AND LIABILITIES Employee benefit expense $’000 AUD Employee benefit expense 2023 9,290 2022 14,137 Employee benefit expense includes redundancy expenses of $459,000 (2022: $145,000) and superannuation expenses of $653,000 (2022: $843,000). Employee benefit liabilities $’000 AUD Current Annual leave liabilities Long service leave liabilities Incentive provision Other employee benefit accruals Non-current Long service leave liabilities 2023 2022 751 1,043 150 177 1,800 3,248 235 622 2,936 5,090 19 77 19 77 The entire amount of the provision of $2,936,000 (2022: $5,090,000) is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. However, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. Total amount of $892,000 is not expected to be paid in the next 12 months (2022: $1,155,000). 50 I Annual Report 2023 NOTES TO THE CONSOLIDATED STATEMENTS For the year ended 31 March 2023 26. AUDITORS’ REMUNERATION In whole AUD Audit services Audit and review of financial reports Total Audit Services Other services Other assurance services Other assurance services Non audit services Tax compliance Total non-audit services Total auditor’s remuneration 27. OTHER EXPENSES 2023 UHY Haines Norton 2022 UHY Haines Norton 447,707 447,707 60,560 60,560 89,532 89,532 597,799 356,283 356,283 100,800 100,800 96,213 96,213 553,296 Included in Other expenses is a credit of $3.8m arising from the reduction in provisions and accruals. 28. SUBSEQUENT EVENTS Related party loan On 6 April 2023, the principal repayment date of Somers Limited’s loan was amended and extended to 30 June 2023 at the new interest rate of 12% per annum, accrued and compounded daily. Refer to note 23. Securitised warehouse facility The warehouse parameters were amended in May 2023 with funders consent to align more closely the Industry parameters with the asset finance business. The current facility is available until August 2023, however Thorn is negotiating a renewal with its funders. Investments On 22 May 2023, Thorn acquired an additional 62,500,000 shares in ASX listed company, Moneyme Limited, for a cost of $5.0m. Following the investment, Thorn holds 64,408,413 ordinary shares in Moneyme Limited. On 24 May 2023, Thorn lodged a notice of initial substantial shareholder with ASX, reflecting that Thorn’s voting power was 8.64%. Asset finance portfolio update Thorn is in negotiations with a party which has expressed interest in acquiring Thorn Australia Pty Ltd's and Thornmoney Pty Ltd’s asset finance portfolio. At this stage, negotiations are incomplete and ongoing and no decision has been made in relation to any potential sale or divestment of Thorn's asset finance portfolio. Thorn is also unable at this stage, to provide shareholders with any estimates or guidance as to the financial impact of such a transaction on Thorn. Should any such decision be made, Thorn will update the market in relation to any specific course of action if and when required. Annual Report 2023 I 51 DIRECTORS’ DECLARATION For the year ended 31 March 2023 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 18 to 51 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 2023 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 18 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 2016/785. 3. This declaration has been made after receiving the declaration required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 31 March 2023. Signed in accordance with a resolution of the directors. Warren McLeland Chairman Dated at Sydney 31 May 2023 52 I Annual Report 2023 INDEPENDENT AUDITOR’S REPORT To the Members of Thorn Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Thorn Group Limited (the Company) and its subsidiaries (the Group) for the year-ended 31 March 2023, which comprises the consolidated statement of financial position as at 31 March 2023, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 31 March 2023 and of its financial performance for the year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. 53 Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001t: +61 2 9256 6600 | f: +61 2 9256 6611sydney@uhyhnsyd.com.auwww.uhyhnsydney.com.auAn association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers PROVISION FOR IMPAIRMENT LOSSES ON LOANS AND RECEIVABLES Why a key audit matter How our audit addressed the risk AASB 9 requires entities to estimate expected future credit losses on its financial assets (including lease and loan receivables). These estimates incorporate both historical and forward including forward economic historical projections and other creditworthiness indicators as appropriate. looking loss rates, information, We considered this a key audit matter due to the high level of estimation uncertainty inherent in the calculations, and the scope for subjectivity in significant judgements made by their provisioning rates, such as: in determining the Group • • • • • groups Assumptions made with respect of loss rates for projected forward varying customers of including industry type and location; Judgements assumptions and involved in utilizing complex credit loss models; Judgements involved in determining whether have experienced a significant increase in credit risk; Assumptions of how the Group’s existing receivables will perform in regards to potential future economic downturns; Judgements the calculation of overlays over provision balances; customers involved in We performed the following audit procedures, amongst others: • We assessed the appropriateness of the Group’s estimation methodologies applied, including changes from prior periods; • We assessed the mathematical accuracy of the calculations on a sample basis; • We agreed a sample of key input data to supporting documentation, including signed contracts and cash payment data; • We assessed the reasonability of significant the assumptions with requirements of AASB 9, and the consistency of assumptions across different elements of the expected credit loss calculations; respect to • We assessed the accuracy of management’s historical expected credit loss provisioning by comparing the prior year provision to actual incurred losses in the current year, adjusting for the expected timing of these losses; • We reviewed the performance of the receivables book post balance date and compared this to management balance date estimates; We also assessed the reasonability and completeness of the Group’s disclosures against the requirements of Australian Accounting Standards. Refer to note 13 of the financial statements information on the Group’s for further expected credit loss provisioning. 54 An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers OPERATION OF IT SYSTEMS AND CONTROLS Why a key audit matter How our audit addressed the risk We evaluated the design and implementation of key controls over relevant IT systems, which included assessing: the governance of the Group’s technology control environment, IT change management controls, security and access controls, system development controls and IT operations controls. Based on the results of our IT control design assessment, we were required to perform additional direct testing, on a sample basis, over the accuracy of relevant data inputs, automated calculations and reports in order to obtain sufficient audit evidence. The Group is reliant on its IT systems for the processing and recording of significant volumes of transactions. This was a key audit matter because a number of key financial controls we seek to rely on are related to IT systems and automated controls. Controls relating to the management of IT systems are important because they are intended to ensure changes to applications and data are appropriately implemented and authorised. Ensuring staff have appropriate access to IT systems and that access is monitored are key controls in mitigating the potential for fraud or error as a result of underlying changes to an application or data. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 March 2023, 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, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 55 An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers 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 this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. 56 An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 15 of the directors’ report for the year ended 31 March 2023. In our opinion, the Remuneration Report of Thorn Group Limited for the year ended 31 March 2023, 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. Mark Nicholaeff Partner Sydney 31 May 2023 UHY Haines Norton Chartered Accountants 57 An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms.UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826Liability limited by a scheme approved under Professional Standards Legislation.Passion beyond numbers SHAREHOLDER INFORMATION AS AT 30 MAY 2023 VOTING RIGHTS 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. HOLDINGS The issued capital of Thorn Group Limited is as below. Equity Class Fully Paid Ordinary Shares 20 LARGEST SHAREHOLDERS Rank Registered Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 19 20 J P Morgan Nominees Australia Pty Limited Moat Investments Pty Ltd Mr Sean Patrick Martin Ace Property Holdings Pty Ltd Jet Invest Pty Ltd Mr Sunny Yang + Mrs Connie Yang Mast Financial Pty Ltd Netwealth Investments Limited Trober No 57 Pty Ltd Mr Sunny Li Sheng Yang + Mrs Connie Cong Huan Yang Mr Warwick Sauer ADC (Investing) Pty Ltd Huntingdale Management Pty Ltd Mr Jason Bradley Whelan Mr Kim Bee Tan + Mrs Verna Suat Wah Tan Mr Hongbin Chen JT Management Co Pty Ltd HSBC Custody Nominees (Australia) Limited - A/C 2 Davelle Investment Consulting Pty Ltd Mr Robert Bruce Sauverain Totals: Top 20 holders of Fully Paid Ordinary Shares (Total) Total Remaining Holders Balance Number of Holders Total Ordinary Shares Issued 2,899 34,764,019 Number of Ordinary Shares Held 18,581,872 % of Ordinary Shares 53.45 2,512,021 1,103,640 860,000 401,905 372,153 276,724 190,391 185,027 179,866 170,000 150,000 145,000 134,947 125,000 113,333 112,500 111,913 110,363 100,046 25,936,288 8,827,731 7.23 3.17 2.47 1.16 1.07 0.80 0.55 0.53 0.52 0.49 0.43 0.42 0.39 0.36 0.33 0.32 0.32 0.32 0.29 74.61 25.39 DISTRIBUTION OF SHAREHOLDERS Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and Over Rounding Total Fully Paid Ordinary Shares (Total) Number of Holders Number of Ordinary Shares Held % of Ordinary Shares 1,707 837 171 164 20 843,569 1,958,170 1,233,867 4,792,267 25,936,288 2,899 34,764,019 2.43 5.63 3.55 13.79 74.61 -0.01 100.00 Annual Report 2023 I 58 SHAREHOLDER INFORMATION AS AT 30 MAY 2023 UNMARKETABLE PARCELS Minimum $500.00 parcel at $1.03 per unit 485 856 220,122 Minimum Parcel Size Number of Holders Number of Ordinary Shares Held THE NAMES OF THE SUBSTANTIAL SHAREHOLDERS LISTED IN THE COMPANY’S REGISTER Rank Registered Shareholder 1 2 Somers Limited Moat Investments Pty Ltd Number of Ordinary Shares Held 17,157,163* 2,512,021 % of Ordinary Shares 49.3% 7.2% *Somers Limited lodged a substantial holder notice with the Company on 27 July 2022, disclosing it held 171,571,633 shares. This was prior to the 10:1 share consolidation approved by shareholders on 30 September 2022 and completed on 14 October 2022. The number of shares disclosed above has been calculated on 10:1 consolidation ratio (there may be rounding changes and Somers may have acquired or disposed of shares after the date of lodgement of the notice). Please refer to ASX for up-to-date information about Thorn’s securities and change of interests of substantial holders. Annual Report 2023 I 59 COMPANY INFORMATION NON-EXECUTIVE DIRECTORS Warren McLeland Chairman, Non-Executive Director Paul Oneile Non-Executive Director Allan Sullivan Non-Executive Director CHIEF EXECUTIVE OFFICER Peter Lirantzis COMPANY SECRETARY Alexandra Rose THORN GROUP LIMITED REGISTERED OFFICE - Level 11, 1 York Street, Sydney NSW 2000 PRINCIPAL ADMINISTRATIVE OFFICE - Level 13, 333 George Street, Sydney NSW 2000 www.thorn.com.au Telephone: 1800 975 075 AUDITOR TO THORN GROUP LIMITED UHY Haines Norton Level 11, 1 York Street Sydney, NSW 2000 SHARE REGISTRY Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Telephone: 1800 420 909 Annual Report 2023 I 60

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