Annual Report 2009 TABLE OF CONTENTS A FOCUSED, GLOBAL BUSINESS A GROWTH COMPANY GROWTH OPPORTUNITIES FOR THE FUTURE EXECUTIVE CHAIRMAN & CEO REPORT TRADING RESULTS UPDATE CORPORATE & SOCIAL RESPONSIBILITY DELIVERING VALUE FINANCIAL REPORT 2 4 6 10 12 15 16 17 ANNUAL GENERAL MEETING 2009 Annual General Meeting of ThinkSmart Limited will be held at Level 36, 250 St George’s Tce, Perth, Western Australia on Friday 21st May at 2.30 pm. ThinkSmart Limited is a leading international financial services company in the provision of finance to small businesses and consumers shopping in electrical retailing stores. ThinkSmart’s products fill the gap between a credit card and a bank loan, enabling its customers to get on-the-spot approval for the technology they need via a tax and cash flow friendly operating lease. It’s a niche in which ThinkSmart has a leading international footprint. 1 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A A FOCUSED, GLOBAL BUSINESS Matters which are specifically reserved for the Board or its Directors’ Meetings The following table sets out the number of directors’ Committees under the Board Charter include: meetings held during the financial year. During the financial ThinkSmart has long term distribution agreements with year 7 Board meetings were held. � appointment and removal of the CEO; � appointment of a chair; � appointment of directors to fill a vacancy or as additional Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A Board Meetings B A some of the world’s leading electrical retailers and banking � establishment of Board Committees, their membership directors; Director institutions across Europe and Australasia, exposing its and delegated authorities; Peter Mansell 7 7 2 2 1 1 � approval of dividends; David Griffiths 1 products to over 243 million people and 17.3 million 1 principles and policies; Ned Montarello 6 7 2 2 1 1 - � approval of operational budgets, major capital � development and review of corporate governance 2* small businesses. 1* Steven Penglis 7 7 7 7 - 1 1 expenditure, acquisitions and divestitures in excess of A – Number of meetings attended B – Number of meetings held during the time the director held office during the year * – Attendance by invitation from the Committee Corporate Governance Statement authority levels delegated to management; � calling of meetings of shareholders; and � any other specific matters nominated by the Board from time to time. It is also responsible for approving and monitoring financial This statement outlines the main corporate governance and other reporting. Detail of the Board’s charter is located in practices in place throughout the financial year, which comply the Company’s website (www.thinksmartworld.com). with the ASX Corporate Governance Council recommendations, unless otherwise stated. BOARD OF DIRECTORS Role of the Board The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board has adopted a charter which establishes the relationship between the Board and management and describes their functions and The Board, together with the Nomination and Remuneration Committee, determines the size and composition of the Board, subject to the terms of the constitution. The Board has delegated responsibility for operations and administration of the Company to the Chief Executive Officer and executive management. Responsibilities are delineated by formal authority delegations. Board process To assist in the execution of its responsibilities, the Board has responsibilities. The Board’s responsibilities, as set out in the established a Nomination and Remuneration Committee, as Board Charter, include: � working with management to establish ThinkSmart’s strategic direction; � monitoring management and financial performance; � monitoring compliance and risk management; � reviewing procedures in place for appointment of senior management and monitoring of its performance and for well as an Audit and Risk Committee. These Committees have written mandates and operating procedures, which are reviewed on a regular basis. The Board has also established framework for management of the Group including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. Independent professional advice and access to company succession planning; and information � ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may seek independent professional advice at the Company’s expense. Generally, this advice will be available to all directors. 212 ThinkSmart’s funding agreements are contracted to dates between 2011 and 2013 THINKSMART’S NICHE MODEL What Are Customers Shopping For? Where Do They Shop? What’s the Product? What’s The Customer Experience Laptops and Electricals PC Superstores Rental Operating leases Fast in-store Process • 12 week product lifecycles • “Take away” service • Delivered in store at the point of sale • High obsolescence factor for users. • Highly accessible locations • Monthly payments – Good for cash flow • Selects equipment • Sub 10 minutes online approval • Executes agreement • Driven by the “latest” technology. • On the spot environment • 100% tax deductible for business • Leaves store • Bundle equipment and high value services into consumer contract – circa 25% of added invoice value at no extra cost • Helps customer keep up to date with technology 3 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A A GROWTH COMPANY Directors’ Meetings Matters which are specifically reserved for the Board or its The following table sets out the number of directors’ In FY 2009, ThinkSmart delivered a record profit of $12.2m meetings held during the financial year. During the financial � appointment of a chair; Committees under the Board Charter include: year 7 Board meetings were held. � appointment and removal of the CEO; underlying EBITDA, exceeding full year expectations. Nomination and Remuneration Committee Meeting B A Audit and Risk Committee Meetings B A Board Meetings B A and delegated authorities; directors; Director � establishment of Board Committees, their membership � appointment of directors to fill a vacancy or as additional Peter Mansell WHAT WE DID IN 2009 & TO DATE • Made good strategic decisions to manage our business through a very � development and review of corporate governance principles and policies; David Griffiths 7 7 2 2 1 1 6 7 2 2 1 1 � approval of dividends; Ned Montarello 2* tough global retail trading period 1* Steven Penglis 7 7 1 1 7 7 1 1 - - � approval of operational budgets, major capital expenditure, acquisitions and divestitures in excess of • A – Number of meetings attended Implemented a suite of sustainable operating improvements to authority levels delegated to management; B – Number of meetings held during the time the director held improve scalability and reduce our cost of doing business by 14% � calling of meetings of shareholders; and office during the year � any other specific matters nominated by the Board from • Strengthened our global position, adding new funding and distribution * – Attendance by invitation from the Committee time to time. Corporate Governance Statement relationships across Europe This statement outlines the main corporate governance and other reporting. Detail of the Board’s charter is located in • Developed our core product range in all territories to pave the way for practices in place throughout the financial year, which comply continued strong growth. It is also responsible for approving and monitoring financial the Company’s website (www.thinksmartworld.com). with the ASX Corporate Governance Council The Board, together with the Nomination and Remuneration recommendations, unless otherwise stated. Committee, determines the size and composition of the BOARD OF DIRECTORS HOW WE DID IN 2009 Role of the Board The Board’s primary role is the protection and enhancement • Grew Cash NPAT 54% to $7.5m to deliver a record profit and exceed and executive management. Responsibilities are delineated of long-term shareholder value. The Board has delegated responsibility for operations and administration of the Company to the Chief Executive Officer Board, subject to the terms of the constitution. full year guidance by formal authority delegations. To fulfil this role, the Board has adopted a charter which • Delivered 61% growth in EBITDA from our 14 year old Australian establishes the relationship between the Board and management and describes their functions and Board process To assist in the execution of its responsibilities, the Board has responsibilities. The Board’s responsibilities, as set out in the • Board Charter, include: � working with management to establish ThinkSmart’s established a Nomination and Remuneration Committee, as Achieved 5% growth in EBITDA from our UK business and maintained have written mandates and operating procedures, which are profitability in our Spanish business through a significant recessionary well as an Audit and Risk Committee. These Committees reviewed on a regular basis. The Board has also established business � monitoring management and financial performance; • Grew Gross Margins by 4% which, in combination with our reduced � monitoring compliance and risk management; � reviewing procedures in place for appointment of senior the establishment of appropriate ethical standards. costs of doing business, saw us grow EBITDA Margin by 26% of internal control, a business risk management process and Independent professional advice and access to company framework for management of the Group including a system strategic direction; period succession planning; and management and monitoring of its performance and for • Grew Earnings Per Share by 59% � ensuring effective disclosure policies and procedures. • Paid shareholders 3.5 cents total dividend. information Following consultation with the chairperson, directors may seek independent professional advice at the Company’s Cash NPAT is calculated as NPAT less depreciation, amortisation and unrealised FX gains or losses net of income tax. directors. expense. Generally, this advice will be available to all 4 12 14 12 10 8 6 4 2 0 45 40 35 30 25 20 15 10 5 0 EBITDA Underlying +8% $12.2m Cash NPAT +54% $7.5m 8 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Revenue -6% $36.8m CAGR 2005-2009 Cash NPAT 104%, EDITDA Underlying 153%, Revenue 15% Cash NPAT EDITDA Underlying Revenue 2005 2006 2007 2008 2009 0% 50% 100% 150% 200% FY 2009 FY 2008 % change Cash NPAT NPAT $7.5m $5.2m $4.8m $3.2m EBITDA (excl non recurring items) $12.2m $11.3m EBITDA Margin (pre Corp Dev costs) Cost of Doing Business (pre Corp Dev costs) Total Revenue Gross Margin Earnings Per Share 40% 29% 32% 33% $36.8m $38.9m 69% 5.3¢ 66% 3.3¢ Final Dividend – fully franked† 2.0 cps 1.5cps †Total 2009 dividends of 3.5¢. (2008 = 3.5¢) +54% +61% +8% +26% -14% -6% +4% +59% +33% 5 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A Directors’ Meetings GROWTH OPPORTUNITIES FOR THE FUTURE meetings held during the financial year. During the financial The following table sets out the number of directors’ Committees under the Board Charter include: � appointment of a chair; Matters which are specifically reserved for the Board or its year 7 Board meetings were held. ThinkSmart is targeting 20% growth in EBITDA in FY 2010. � appointment and removal of the CEO; � appointment of directors to fill a vacancy or as additional Director Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A Board Meetings B A directors; � establishment of Board Committees, their membership and delegated authorities; � approval of dividends; ThinkSmart has successfully positioned its business through the challenging global economic environment of the Peter Mansell 2 past two years by staying true to three guiding principles for growth: 2 David Griffiths 7 7 2 1 1 6 7 2 1 1 � development and review of corporate governance 1 1 � approval of operational budgets, major capital principles and policies; Ned Montarello 7 7 2* - - Steven Penglis A – Number of meetings attended 1* 7 7 Growth through cash flow B – Number of meetings held during the time the director held office during the year 1 1 Pace of expansion governed by performance authority levels delegated to management; expenditure, acquisitions and divestitures in excess of Alignment with market leading � calling of meetings of shareholders; and retailers � any other specific matters nominated by the Board from * – Attendance by invitation from the Committee Corporate Governance Statement time to time. It is also responsible for approving and monitoring financial This statement outlines the main corporate governance During FY 2010, ThinkSmart is targeting to achieve 20% growth in EBITDA, through a set of strategies that will practices in place throughout the financial year, which comply see it grow its distribution channels, improve its core product offerings and improve its product delivery. Over and with the ASX Corporate Governance Council above that, ThinkSmart also has the opportunity to increase it’s UK market four fold through the delivery of a recommendations, unless otherwise stated. consumer rental product in the UK. BOARD OF DIRECTORS and other reporting. Detail of the Board’s charter is located in The Board, together with the Nomination and Remuneration Committee, determines the size and composition of the the Company’s website (www.thinksmartworld.com). Board, subject to the terms of the constitution. Role of the Board Six core growth strategies The Board’s primary role is the protection and enhancement 1 2 3 The Board has delegated responsibility for operations and administration of the Company to the Chief Executive Officer 4 5 and executive management. Responsibilities are delineated of long-term shareholder value. Organic Growth Recurring Revenue Expand Distribution Improve Product by formal authority delegations. Improve Delivery To fulfil this role, the Board has adopted a charter which 6 Consumer Rental establishes the relationship between the Board and management and describes their functions and • Improved performance • Improved trading conditions • $55m Inertia run-off over next 4 years • Recurring revenue from Insurance • New European retail partnerships • Grow the Internet responsibilities. The Board’s responsibilities, as set out in the Board Charter, include: Board process • Deploy new services based product in key To assist in the execution of its responsibilities, the Board has markets • Significantly expands total available market in UK • QuickSmart & Eclipse systems improve delivery at stores and significantly reduced established a Nomination and Remuneration Committee, as costs of doing business. • Potential to introduce in other European territories well as an Audit and Risk Committee. These Committees have written mandates and operating procedures, which are � working with management to establish ThinkSmart’s Organic Growth strategic direction; reviewed on a regular basis. The Board has also established ThinkSmart enters 2010 with strong momentum across the Group, having posted positive gains in the second � monitoring management and financial performance; half of 2009 in all mature territories. It has long term, deepening partnerships with each of its retailers and � monitoring compliance and risk management; is focused on continued improvements in performance. A forecast rise in global computer shipments through � reviewing procedures in place for appointment of senior 2010 bodes well for the sector. Independent professional advice and access to company framework for management of the Group including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. management and monitoring of its performance and for succession planning; and information Recurring Revenue � ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may ThinkSmart receives income on each customer contract at varying points over the contract’s life. This means seek independent professional advice at the Company’s that approximately $55 million of future recurring revenue has already been written, of which we would expect expense. Generally, this advice will be available to all $42 million to flow into the business over the coming three years. directors. 6 12 Expand Distribution Multi channel in Europe - ThinkSmart is currently expanding its distribution relationships in Europe, where it already operates with 4 of the 6 leading electrical retailers. It is targeting to have 3 to 4 retail partnerships in each Continental European territory. This strategy positions the business well for the recovery in European markets, and leverages ThinkSmart’s existing low cost operating base. Growing the Internet - ThinkSmart grew its Internet channel in Australia in 2009 to now account for up to 27% of new contracts each month, with customers applying online for credit before visiting a store. This acquisition strategy aligns strongly to customer behaviour for using the Internet to research purchases in advance of visiting store, and it is being expanded in Australia and through Europe during FY 2010. Improve Product In the first two months of 2010, ThinkSmart rolled out new product developments in Australia, the UK and Spain, each based around delivering the end user customer additional value added services as a part of their core rental. The goal is to improve customer acquisition and retention through the provision of high perceived value service offerings that the customer benefits from over the life of their contract. 7 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A Directors’ Meetings GROWTH OPPORTUNITIES FOR THE FUTURE (continued) meetings held during the financial year. During the financial The following table sets out the number of directors’ Committees under the Board Charter include: � appointment of a chair; Matters which are specifically reserved for the Board or its year 7 Board meetings were held. � appointment and removal of the CEO; Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A Board Meetings B A In Australia, for example, this sees that in addition to the core financial benefits gained from the RentSmart � appointment of directors to fill a vacancy or as additional product, customers now also benefit from free online data transfer and data backup; remote data access; a free directors; � establishment of Board Committees, their membership loan laptop; and the last three months payments free when they upgrade. In all this provides more than $500 Director worth of high perceived added value benefits to the customer over their contract life on an average $2,000 deal. and delegated authorities; Peter Mansell Improve Delivery David Griffiths 7 6 7 7 2 2 2 2 1 1 1 1 � approval of dividends; � development and review of corporate governance 7 7 2* Steven Penglis Ned Montarello During 2009, ThinkSmart reduced its cost of doing business in Australia by 20%, largely through the � approval of operational budgets, major capital implementation of its new “QuickSmart” in store application portal. Using QuickSmart in stores moves the expenditure, acquisitions and divestitures in excess of application process away from being phone based, to fully online and streamlines the generation of customer A – Number of meetings attended documentation. Its implementation has delivered in excess of a 300% efficiency gain per call centre operator. B – Number of meetings held during the time the director held � calling of meetings of shareholders; and authority levels delegated to management; 1* 1 1 7 7 1 1 - - principles and policies; office during the year � any other specific matters nominated by the Board from Through 2010, the business is moving to QuickSmart implementations in mainland Europe, as well as integrating * – Attendance by invitation from the Committee time to time. the system into DSG’s “Eclipse” till system in the UK. The Eclipse integration, will not only deliver significant Corporate Governance Statement It is also responsible for approving and monitoring financial processing efficiencies to the UK business, but will also provide the platform for ThinkSmart to potentially expand This statement outlines the main corporate governance and other reporting. Detail of the Board’s charter is located in across the whole DSG store network in the UK. practices in place throughout the financial year, which comply with the ASX Corporate Governance Council the Company’s website (www.thinksmartworld.com). The Board, together with the Nomination and Remuneration recommendations, unless otherwise stated. Consumer Rental BOARD OF DIRECTORS Committee, determines the size and composition of the Board, subject to the terms of the constitution. Role of the Board The entry into consumer rental in the UK could be game changing for ThinkSmart The Board has delegated responsibility for operations and The Board’s primary role is the protection and enhancement administration of the Company to the Chief Executive Officer Over and above its core growth strategies, ThinkSmart has the stated strategy of introducing its consumer rental and executive management. Responsibilities are delineated of long-term shareholder value. product into its mature European territories, particularly the UK. To fulfil this role, the Board has adopted a charter which by formal authority delegations. establishes the relationship between the Board and Board process management and describes their functions and The planned move into consumer rental in Australia 4 years ago has driven a 51% CAGR in consumer volumes, To assist in the execution of its responsibilities, the Board has responsibilities. The Board’s responsibilities, as set out in the with Australian consumer rental volumes now accounting for more than 60% of Australian new business established a Nomination and Remuneration Committee, as Board Charter, include: volumes. � working with management to establish ThinkSmart’s well as an Audit and Risk Committee. These Committees have written mandates and operating procedures, which are strategic direction; ThinkSmart’s partner in the UK, DSG International, had sales through its PC World and Currys chains of over framework for management of the Group including a system � monitoring management and financial performance; A$7bn in 2009 (£4.2bn). The planned introduction of consumer rental in the UK would provide ThinkSmart the of internal control, a business risk management process and � monitoring compliance and risk management; opportunity to grow its UK market four fold by opening up both the consumer customer base in DSG’s PC World the establishment of appropriate ethical standards. � reviewing procedures in place for appointment of senior stores - where ThinkSmart already provides its business product - plus introduce ThinkSmart to the 500+ store Independent professional advice and access to company management and monitoring of its performance and for reviewed on a regular basis. The Board has also established Currys chain for the first time. succession planning; and information � ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may The timing of the launch will be dependent on securing a consumer funder, with the business targeting to rollout seek independent professional advice at the Company’s initially through the PC World chain during the second half of this year. expense. Generally, this advice will be available to all directors. 8 12 PREDICTABLE, RECURRING REVENUE LINES ThinkSmart generates revenue from multiple sources over the life of its customers’ contracts: • Brokerage income is earned upfront; • Insurance income is earned on an annuity basis; and • Inertia income is earned at the end of term. This structure means ThinkSmart already has around $55m of future revenue already secured through existing contacts. The revenue build from Inertia & Insurance Predicted Inertia & Insurance Income from contracts already written 2010 2011 2012 2013 2014 Likely inertia & Insurance “build” from new contracts written over the next three years 9 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A DIRECTORS’ REPORT EXECUTIVE CHAIRMAN & CEO REPORT Directors’ Meetings Dear Shareholders The following table sets out the number of directors’ Matters which are specifically reserved for the Board or its Committees under the Board Charter include: meetings held during the financial year. During the financial I am pleased to be able to report that, for the Financial Year ended 31 December 2009, ThinkSmart delivered a year 7 Board meetings were held. record full-year EBITDA (excluding non recurring items) of $12.2 million, exceeding market expectations. Cash � appointment of directors to fill a vacancy or as additional � appointment and removal of the CEO; � appointment of a chair; NPAT grew 54% to $7.5m, gross margins grew 4% and we reduced our costs of doing business by 14% to see directors; our underlying EBITDA margin grow 26%. Director Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A Board Meetings B A � establishment of Board Committees, their membership and delegated authorities; Not only have we proven our model’s resilience through the challenges of the global economic downturn, but we Peter Mansell 7 7 2 2 1 1 have also reinforced with investors that ThinkSmart continues to be a growth company. � approval of dividends; � development and review of corporate governance David Griffiths 6 A Growth Company Ned Montarello 7 7 7 2 2* 2 - 1 1 1 1 principles and policies; � approval of operational budgets, major capital Steven Penglis 7 7 Nowhere has this been more apparent than in our 14 year old Australian business, which posted a 61% growth expenditure, acquisitions and divestitures in excess of 1* - 1 1 in EBITDA. Through 2009, we continued to deepen our relationships with our key retail partners, extending our A – Number of meetings attended B – Number of meetings held during the time the director held agreements with Officeworks and JB Hi-Fi in the first half of the year. � calling of meetings of shareholders; and authority levels delegated to management; office during the year � any other specific matters nominated by the Board from time to time. * – Attendance by invitation from the Committee The deployment of our new “QuickSmart” online application portal in stores was a test case for all other markets Corporate Governance Statement in which we trade. The QuickSmart system made the application experience easier and faster for store sales It is also responsible for approving and monitoring financial people; delivered in excess of a 300% efficiency gain for our call centre teams; and reduced our overall cost of This statement outlines the main corporate governance doing business in Australia by 20%. practices in place throughout the financial year, which comply with the ASX Corporate Governance Council The Board, together with the Nomination and Remuneration We also expanded our distribution channel significantly through the growth of our Internet business. Through a recommendations, unless otherwise stated. set of improvements to our online process and marketing, we have grown the Internet channel in Australia to BOARD OF DIRECTORS account for up to 27% of all incoming customer applications in a month. Role of the Board and other reporting. Detail of the Board’s charter is located in Committee, determines the size and composition of the the Company’s website (www.thinksmartworld.com). Board, subject to the terms of the constitution. The Board has delegated responsibility for operations and Reduced Cost of Doing Business The Board’s primary role is the protection and enhancement of long-term shareholder value. By contrast to the Australian economy, retailing in Europe has been far more suppressed, with all our partners To fulfil this role, the Board has adopted a charter which posting negative like-for-like sales through a deep recessionary period. establishes the relationship between the Board and and executive management. Responsibilities are delineated by formal authority delegations. administration of the Company to the Chief Executive Officer Board process management and describes their functions and However, coming in to 2009, we made a set of solid strategic decisions to manage our business through responsibilities. The Board’s responsibilities, as set out in the this very tough retail trading period. As a result of delivering sustainable cost savings and establishing new, Board Charter, include: well as an Audit and Risk Committee. These Committees supportive funding relationships, we grew profitability in the UK by 5% and maintained profitability in our Spanish � working with management to establish ThinkSmart’s business. To assist in the execution of its responsibilities, the Board has have written mandates and operating procedures, which are established a Nomination and Remuneration Committee, as reviewed on a regular basis. The Board has also established strategic direction; � monitoring management and financial performance; In mainland Europe, we have the published strategy of expanding our retail distribution channels and have � monitoring compliance and risk management; already strengthened our position adding Fnac and The Phone House in Spain and we are poised to add more � reviewing procedures in place for appointment of senior retail partners in Italy. We are now working with 4 of the 6 leading electrical retailers in Europe and remain Independent professional advice and access to company committed to our multi-channel strategy and are targeting to have 3 to 4 retail partnerships in each Continental European territory. � ensuring effective disclosure policies and procedures. of internal control, a business risk management process and Following consultation with the chairperson, directors may management and monitoring of its performance and for the establishment of appropriate ethical standards. succession planning; and information framework for management of the Group including a system On the European funding front, we entered into new funding relationships with Société Générale in Spain and seek independent professional advice at the Company’s Secure Trust Bank in the UK. The relationships are contracted to 2011 and 2013 respectively and provide expense. Generally, this advice will be available to all continuity of funding to support our key retailer relationships. directors. 10 12 Growth Opportunities We enter 2010 with a good wind blowing in our sails. In the second half of 2009, all territories posted positive organic growth which has given us the momentum we need. Our strategy of enhancing our product offering has already seen us roll out new products in the UK, Spain and Australia in the first two months of 2010 and this has seen us post solid like for like gains in this first part of the year. Thanks to our recurring income lines of inertia and insurance, growing global PC shipments, and a set of solid strategies relating to growing our distribution, improving our product and improving delivery, we are confident in targeting to deliver a 20% growth in EBITDA in 2010. Expanding Consumer Rental in Mature Territories Over and above this we are also targeting to launch into the consumer rental market in the UK in 2010. We estimate that entry into this market would have the potential to increase ThinkSmart’s UK market four fold, as it will open up both the consumer customer base in DSG’s PC World stores - where we already trade with our B2B product - plus for the first time, it will introduce ThinkSmart to the 500+ store Currys chain. The timing of the launch will be dependent on securing a consumer funder, with the business targeting to rollout initially through the PC World chain during the second half of this year. The entry into consumer rental in the UK quite simply has the potential to be game changing for ThinkSmart. New Board Appointments I am also pleased to advise that Fernando de Vicente, the former International Managing Director of DSG International PLC, has joined the ThinkSmart board as a Non-Executive Director. Mr de Vicente spent nine years at DSG where he most recently held the role of International Managing Director, with responsibility for DSG’s Central & Southern European operations, a A$3 billion business with 350 stores across six countries. Fernando has an intimate understanding of our business having worked closely with us for the last five years and will clearly add significant value to our business, especially as we enter a new phase of planned growth in Europe with the DSG group. There are also two further movements on ThinkSmart’s board: ThinkSmart non-executive director, Peter Mansell, has announced his retirement from the board and will not sit for re-election at ThinkSmart’s AGM on 21 May; and long-term non-executive director, David Griffiths, has been appointed deputy chairman. I’d like to thank Peter for his contribution. His experience has been invaluable and he leaves a strong legacy with the board. I welcome David to the role of deputy chairman. Final Dividend Finally, on 23 April 2010 we paid a final dividend of 2.0 cents per share fully-franked, taking 2009’s total dividends to 3.5 cents. We thank all our staff for their continued hard work and enthusiasm and look forward to continuing to grow together in 2010. Sincerely NED MONTARELLO Executive Chairman & CEO 11 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A TRADING RESULTS UPDATE Directors’ Meetings Matters which are specifically reserved for the Board or its The following table sets out the number of directors’ Australia - Strong Growth & Sustainable Cost Efficiencies meetings held during the financial year. During the financial year 7 Board meetings were held. � appointment of a chair; � appointment and removal of the CEO; Committees under the Board Charter include: ThinkSmart’s 14 year old Australian business delivered an exceptional result in FY 2009, growing EBITDA 61% � appointment of directors to fill a vacancy or as additional to $7.6m with revenue increasing 14% to $21.1m. Over the last three years, the Australian business has Nomination and Remuneration Committee Meeting A B consumer rental four years ago seeing consumer volumes grow by 51% on a CAGR basis. Audit and Risk Committee Meetings B A delivered a Compound Annual Growth Rate (CAGR) of 41% on EBITDA, with the businesses’ conscious move into � establishment of Board Committees, their membership Board Meetings B A and delegated authorities; directors; Director 7 7 2 2 2 2 7 - Revenue up 14% to $21.1m - 1* 7 EBITDA up 61% to $7.6m 2* 7 Peter Mansell 7 David Griffiths Steven Penglis Ned Montarello 6 Results Highlights 7 s s s s s t office during the year A – Number of meetings attended EBITDA margin up 9% to 36% B – Number of meetings held during the time the director held Gross margin unchanged at 62% Volumes up by 6% * – Attendance by invitation from the Committee Corporate Governance Statement ATV down 4% to $2,003 1 1 1 1 1 1 Income Mix 1 1 � approval of dividends; � development and review of corporate governance principles and policies; � approval of operational budgets, major capital expenditure, acquisitions and divestitures in excess of Other authority levels delegated to management; 3% � calling of meetings of shareholders; and Inertia & Warranty 30% � any other specific matters nominated by the Board from Brokerage & Insurance time to time. 67% It is also responsible for approving and monitoring financial This statement outlines the main corporate governance and other reporting. Detail of the Board’s charter is located in practices in place throughout the financial year, which comply the Company’s website (www.thinksmartworld.com). with the ASX Corporate Governance Council Trading through 2009 with ThinkSmart’s primary Australian partners, JB Hi-Fi and Woolworth’s Dick Smith was The Board, together with the Nomination and Remuneration recommendations, unless otherwise stated. solid with both partners exhibiting sales growth over the same period. ThinkSmart continued to improve its Committee, determines the size and composition of the penetration into rentable sales. In the first half of 2009, ThinkSmart extended its agreements in Australia with BOARD OF DIRECTORS Board, subject to the terms of the constitution. both JB Hi-Fi and Officeworks. Role of the Board The Board has delegated responsibility for operations and The Board’s primary role is the protection and enhancement Through 2009 to date, the Australian business has implemented three key initiatives that have, and will continue of long-term shareholder value. and executive management. Responsibilities are delineated administration of the Company to the Chief Executive Officer to drive growth: To fulfil this role, the Board has adopted a charter which establishes the relationship between the Board and by formal authority delegations. Board process management and describes their functions and Improved delivery - The launch of the new “QuickSmart” processing platform in late April 2009 delivered responsibilities. The Board’s responsibilities, as set out in the significant improvements in the customer experience in store, reducing processing times and increasing Board Charter, include: salesperson efficiency. In addition, the automation of the QuickSmart system has enabled the business to � working with management to establish ThinkSmart’s significantly reduce its costs of doing business by over 20%. well as an Audit and Risk Committee. These Committees established a Nomination and Remuneration Committee, as have written mandates and operating procedures, which are To assist in the execution of its responsibilities, the Board has reviewed on a regular basis. The Board has also established strategic direction; � monitoring management and financial performance; Growth of the Internet - Alongside solid growth from the store network, the business also saw a significant of internal control, a business risk management process and � monitoring compliance and risk management; increase in applications through its online channel. With customers able to get automatically pre-approved for � reviewing procedures in place for appointment of senior finance via its website, ThinkSmart grew its online business to now account for up to 27% of credit applications Independent professional advice and access to company the establishment of appropriate ethical standards. management and monitoring of its performance and for framework for management of the Group including a system each month. The growth of the online channel has helped the business reduce customer acquisition costs, information succession planning; and and attracts a higher average spend. However, this is partially offset by a 20 percentage points lower � ensuring effective disclosure policies and procedures. conversion rate. Following consultation with the chairperson, directors may seek independent professional advice at the Company’s expense. Generally, this advice will be available to all directors. 12 12 Product improvements – With the goal of improving customer acquisition and retention, in January 2010, ThinkSmart rolled out a major new enhancement to its core rental product in Australia to include a suite of added value service offerings that the customer benefits from over the life of their contract. This provides more than $500 worth of added value on an average $2,000 deal. The Australian business is strongly positioned entering 2010. It achieved an 11% growth in application volumes in the second half of 2009 and this has been compounded by a strong first three months of trade in 2010. Solid margins, predictable Inertia income, a burgeoning Warranty Services channel and new product launch to market all position the business well for continued growth in FY 2010. United Kingdom - Solid EBITDA Growth in UK In the face of a significant retail downturn, ThinkSmart’s UK business delivered operating cost reductions, margin improvements and a sustained performance from Inertia and Insurance channels to deliver an overall growth of 5% EBITDA, seeing a CAGR of 23% on EBITDA over last 3 years. Revenue down 11% to £7.3m EBITDA up 5% to £3.8m EBITDA margin up 8% to 52% Gross margin up 6% to 82% Results Highlights t s s s t s Volumes down by 39% ATV up 1% to £787 Income Mix Other 3% Inertia & Warranty 39% Brokerage & Insurance 57% Against a backdrop of significantly lower B2B sales in the UK through 2009, the business has grown its profitability, and laid the foundations for growth in 2010. Bolstering its funding proposition in the UK, ThinkSmart secured a new three and a half year funding agreement with Secure Trust Bank, part of the 170 year old Arbuthnot Banking Group, to be its primary business-to- business contract funder in the UK. A new B2B product was launched in February this year, aligning ThinkSmart’s “SmartPlan” product with a range of service offerings through PC World’s TechGuys channel. This has served to increase the attraction of the SmartPlan product to customers by bundling in services such as data transfer and online data backup, at no additional cost. Alongside the new product roll out, ThinkSmart has also commenced a trial of its B2B product in a select number of DSG International’s Currys stores, including their 2 in 1 format stores. 13 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A Expansion into Currys is being targeted in 2010 through the planned launch of a consumer rental product with the DSG group. The successful launch would potentially enable ThinkSmart to trade across the 500+ store Directors’ Meetings Currys network for the first time. The following table sets out the number of directors’ Matters which are specifically reserved for the Board or its Committees under the Board Charter include: meetings held during the financial year. During the financial Encouragingly, the UK business’ second half applications volumes (over the first half) returned to growth and our year 7 Board meetings were held. partner, DSG, posted an 11% growth over the Christmas period. � appointment and removal of the CEO; � appointment of a chair; � appointment of directors to fill a vacancy or as additional Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A directors; Mainland Europe - Positioned for Retail recovery. and delegated authorities; Board Meetings B A Director � establishment of Board Committees, their membership Spain - ThinkSmart’s Spanish business maintained positive EBITDA in FY 2009, with a strong second half � approval of dividends; performance seeing nearly double the number of applications over the first half. This was driven by positive � development and review of corporate governance Peter Mansell David Griffiths Ned Montarello 7 6 7 7 7 7 2 2 2* 2 2 - 1 1 1 1 1 1 application growth off the back of a new funding arrangement with Société Générale, and strong underlying principles and policies; Inertia performance which continues to underpin earnings. � approval of operational budgets, major capital Steven Penglis 7 7 1* - 1 1 expenditure, acquisitions and divestitures in excess of A – Number of meetings attended ThinkSmart’s strategy to develop Spain into a multi-channel territory is on course. The business added The B – Number of meetings held during the time the director held Phone House and Fnac to its retail stable plus Société Générale as a funder. We remain optimistic of a steady � any other specific matters nominated by the Board from � calling of meetings of shareholders; and office during the year authority levels delegated to management; growth in Spain, despite the continued economic challenges in the territory. * – Attendance by invitation from the Committee time to time. Corporate Governance Statement It is also responsible for approving and monitoring financial Italy - In Italy, ThinkSmart currently trades through DSG’s UniEuro stores and has a strong supportive funding This statement outlines the main corporate governance arrangement with Santander. The business remains focused on securing additional retail partners to grow this practices in place throughout the financial year, which comply territory. with the ASX Corporate Governance Council the Company’s website (www.thinksmartworld.com). and other reporting. Detail of the Board’s charter is located in The Board, together with the Nomination and Remuneration recommendations, unless otherwise stated. Committee, determines the size and composition of the France - France currently remains a challenging market for ThinkSmart, and its success is dependant upon BOARD OF DIRECTORS aligning with the right retail partners in the territory and our ability to secure a supportive funding partner. This is Role of the Board our focus for France in 2010. The Board’s primary role is the protection and enhancement administration of the Company to the Chief Executive Officer The Board has delegated responsibility for operations and Board, subject to the terms of the constitution. of long-term shareholder value. and executive management. Responsibilities are delineated To fulfil this role, the Board has adopted a charter which establishes the relationship between the Board and management and describes their functions and by formal authority delegations. Board process To assist in the execution of its responsibilities, the Board has responsibilities. The Board’s responsibilities, as set out in the established a Nomination and Remuneration Committee, as Board Charter, include: � working with management to establish ThinkSmart’s strategic direction; � monitoring management and financial performance; � monitoring compliance and risk management; � reviewing procedures in place for appointment of senior management and monitoring of its performance and for well as an Audit and Risk Committee. These Committees have written mandates and operating procedures, which are reviewed on a regular basis. The Board has also established framework for management of the Group including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. Independent professional advice and access to company succession planning; and information � ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may seek independent professional advice at the Company’s expense. Generally, this advice will be available to all directors. Reprinted with permission from DSG international 14 12 CORPORATE & SOCIAL RESPONSIBILITY People ThinkSmart recognises the value of its staff in delivering on its corporate goals. Accordingly, ThinkSmart is committed to providing the right training, tools, leadership and professional support, required to enable its employees to develop into highly productive, knowledgeable, and loyal individuals ThinkSmart also seeks to create a values based culture, providing the guiding principles within which our employees can develop and excel. These goals are primarily fostered through our “PeopleSmart” programme in Australia and the “Investor in People” accreditation of our European business. The PeopleSmart programme aims to build a great place to work and cultivate the values of “people, performance, and culture”. PeopleSmart is made up of a committee of employees from various departments to organize activities that align employees to the ThinkSmart values. PeopleSmart also acts as a forum for the discussion of workplace issues, in order to improve the work environment for ThinkSmart’s employees. Community At a corporate level, and through its PeopleSmart initiative, ThinkSmart looks to give back to the community both financially and by donating time. At a corporate level ThinkSmart is a contributor to the St John of God Cancer Centre for the treatment of cancer patients, as well as the provision of hospitality to their families. At a team level, ThinkSmart supports employee driven charitable initiatives both by making the time available and in most cases, matching employee donations. Employees in the business have given generously and participated actively in a range of community based initiatives including: blood and financial donations to the Red Cross; Australia’s Biggest Morning Tea (the Cancer Council); National Ride to Work Day; Make a Wish Foundation; and Movember (Prostate Cancer Foundation and Beyond Blue). Responsible Lending ThinkSmart has been a practitioner of responsible lending practices for a number of years. Primarily these practices are reflected within its lending criteria; however ThinkSmart is also a member of an approved external dispute resolution scheme and regularly reviews the competence of its lending staff and its end to end processes as it strives to achieve best practice. ThinkSmart regularly undertakes research and elicits customer feedback to ensure that it’s product offering is aligned to community needs and that its customer service is the best it can be. 15 DIRECTORS’ REPORT 9 9 0 0 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A DELIVERING VALUE Directors’ Meetings Matters which are specifically reserved for the Board or its The following table sets out the number of directors’ 1. meetings held during the financial year. During the financial Proven track record of growth – ThinkSmart has delivered a 21% CAGR in underlying EBITDA over the last three years (2007-2009), delivering a very strong EBITDA and Margin performance during a tough � appointment of a chair; Committees under the Board Charter include: � appointment and removal of the CEO; � appointment of directors to fill a vacancy or as additional directors; year 7 Board meetings were held. global trading period. Director yield. Board Meetings B A Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A 2. 3. 4. No Net Debt – ThinkSmart is a low capital intensive, strong cash generation business with a high dividend � establishment of Board Committees, their membership and delegated authorities; � approval of dividends; Peter Mansell 7 7 2 2 1 1 Leading International Footprint – ThinkSmart has exclusive and entrenched partnerships with market � development and review of corporate governance David Griffiths 6 7 2 2 1 1 leading retailers and funders across the globe, providing it with a diverse platform for growth. principles and policies; Ned Montarello 7 7 2* - 1 1 � approval of operational budgets, major capital Steven Penglis 7 7 Strong Customer Value Proposition – ThinkSmart’s products provide a compelling and highly profitable expenditure, acquisitions and divestitures in excess of 1* - 1 1 A – Number of meetings attended value proposition for retail partners, customers and funders. authority levels delegated to management; B – Number of meetings held during the time the director held � calling of meetings of shareholders; and office during the year 5. * – Attendance by invitation from the Committee Predictable recurring income lines – The timing of ThinkSmart’s income model provides predictable, � any other specific matters nominated by the Board from recurring income lines across the life of each customer contract, thereby managing ThinkSmart’s exposure time to time. Corporate Governance Statement to demand fluctuations in any one year. This statement outlines the main corporate governance It is also responsible for approving and monitoring financial and other reporting. Detail of the Board’s charter is located in practices in place throughout the financial year, which comply 6. with the ASX Corporate Governance Council Shrinking cost of doing business – The delivery of ThinkSmart’s products through in store portals is the Company’s website (www.thinksmartworld.com). The Board, together with the Nomination and Remuneration recommendations, unless otherwise stated. significantly reducing its cost of doing business and thereby improving EBITDA margins. Committee, determines the size and composition of the Board, subject to the terms of the constitution. BOARD OF DIRECTORS 7. Role of the Board Highly scalable model - ThinkSmart operates a simple, highly scalable model with processing centres in The Board has delegated responsibility for operations and Europe and Australasia which can be leveraged to enable it to enter new markets at a very low cost. administration of the Company to the Chief Executive Officer The Board’s primary role is the protection and enhancement and executive management. Responsibilities are delineated Strong Second Half Momentum - ThinkSmart is targeting 20% growth in EBITDA in FY 2010, with all of long-term shareholder value. 8. To fulfil this role, the Board has adopted a charter which by formal authority delegations. mature territories displaying positive volume growth in H2 2009. establishes the relationship between the Board and Board process management and describes their functions and 9. responsibilities. The Board’s responsibilities, as set out in the Global PC market growth – The computer industry is predicting a return to growth with global PC established a Nomination and Remuneration Committee, as To assist in the execution of its responsibilities, the Board has Board Charter, include: shipments in FY2010 forecast to increase by 20%. (Gartner Group, March 2010) well as an Audit and Risk Committee. These Committees � working with management to establish ThinkSmart’s 10. Significant Growth Opportunities – ThinkSmart’s planned entry into Consumer Rental in the UK has the reviewed on a regular basis. The Board has also established have written mandates and operating procedures, which are strategic direction; � monitoring management and financial performance; opportunity to grow the UK market four fold which would be game changing for the business. framework for management of the Group including a system � monitoring compliance and risk management; � reviewing procedures in place for appointment of senior management and monitoring of its performance and for of internal control, a business risk management process and the establishment of appropriate ethical standards. Independent professional advice and access to company succession planning; and information � ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may seek independent professional advice at the Company’s expense. Generally, this advice will be available to all directors. 16 12 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 17 Annual Report 2009 FINANCIAL YEAR ENDED 31 DECEMBER 2009 Corporate Information Directors’ Report Auditor’s Independence Declaration Directors’ Declaration Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Cash Flow Statements Notes to the Financial Statements Independent Audit Report Shareholder Information 18 19 35 36 37 38 39 40 41 86 88 17 Share Register Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth, WA 6000 Australia Phone: 1300 850 505 ThinkSmart Limited shares are listed on the Australian Securities Exchange (ASX code: TSM) Solicitors Freehills 250 St Georges Terrace Perth, WA 6000 Australia Bankers ANZ West Perth Australia Auditors KPMG Australia TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 18 CORPORATE INFORMATION 9 0 0 2 t r o p e R l a u n n A ABN 24 092 319 698 Directors N R Montarello (Chairman and Chief Executive Officer) P Mansell D Griffiths S Penglis Company Secretary N Barker Registered Office Level 1, The West Centre 1260 Hay Street West Perth, WA 6005 Australia Principal place of business Level 1, The West Centre 1260 Hay Street West Perth, WA 6005 Australia Phone: 61 8 9463 7500 18 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 19 DIRECTORS’ REPORT The Directors of ThinkSmart Limited (the “Company”) submit PETER MANSELL (Age 63) herewith the annual financial report of the Company and the B.Com, LLB, H. Dip Tax, FAICD Group for the financial year ended 31 December 2009. In Non-Executive Director order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. NED MONTARELLO (Age 48) Peter Mansell joined the Board on 12 April 2007. He was appointed Chairman on the 7 May 2007 and resigned as Chairman on 22 May 2009. Mr Mansell practiced as a business lawyer for over 40 years and has a wide range of experience in corporate matters. He was at various times the Freehills National Chairman (1995-2000), Managing Partner of the Perth office (1992-2002) and a member of the firm’s National Board (1989-2002). Mr Mansell is a Fellow of the Australian Institute of Company Directors, having been Executive Chairman and Chief Executive Officer President of the Western Australian division and having sat on Ned Montarello has over 20 years experience in the finance industry and joined the Board on 7 April 2000 and was appointed Chairman on 22 May 2009. Mr Montarello founded ThinkSmart over 14 years ago and through this vehicle has been credited with elevating the Nano-Ticket rental market sector in Australia, receiving the Telstra and Australian Government’s Entrepreneur of the Year Award in its National Board from 2001 to 2003. He is currently a director of the following Australian listed companies: Oz Minerals Limited and Bunnings Property Management Limited (responsible entity for the Bunnings Warehouse Property Trust). In the past three years Mr Mansell has been a director of the following listed companies: Great Southern Limited, West Australian Newspaper Holdings Ltd and Zinifex Ltd. 1998. He steered the expansion of the business into Europe STEVEN PENGLIS (AGE 49) in 2002/2003, establishing agreements with the UK’s largest electrical retailer, DSG International and the Halifax Bank of Scotland. Following the establishment of a beachhead European operations centre in Manchester, England, Mr Montarello has driven its growth across Europe where it now also operates in Spain, France and Italy. DAVID GRIFFITHS (Age 59) B. Juris and B. Law Non-Executive Director Steven Penglis joined the Board on 1 July 2000 and stepped down as Chairman on the 6 May 2007. Mr Penglis is a Partner at Freehills since 1987 and former Chairman of the Legal Practice Board of Western Australia. Mr Penglis specialises in the area of Corporate and Corporations Law B. Ec (Hons), M. Ec, D. Ec (Hon), FAICD Litigation, advising many public companies, including Non-Executive Director David Griffiths joined the Board on 28 November 2000 and has served in a wide range of senior finance roles, most recently as Division Director of Macquarie Bank Limited and previously as Executive Chairman of Porter Western Limited. Mr Griffiths holds an Honours Degree in Economics from The ThinkSmart, before his appointment to the Board. He is a part-time Senior Member of the Commonwealth Administrative Appeals Tribunal; an elected member of the Legal Practice Board of Western Australia and former chairman; and an elected member of the Council of the Law Society of Western Australia. University of Western Australia, a Masters Degree in Company Secretary Economics from Australian National University and is a Fellow of the Australian Institute of Company Directors. David also sits on the Board of the Perth International Arts Festival. Mr NEIL BARKER B.Bus, FCPA Griffiths is currently a deputy chairman of Automotive Holdings Group Limited and a non-executive director of Northern Iron Limited. In the past three years Mr Griffiths has been a director of the following listed companies: ARC Energy Limited, Great Southern Limited and Antaria Limited. Neil Barker is a Certified Practicing Accountant (Fellow) with over 25 years experience in banking and finance. Prior to joining ThinkSmart, Mr Barker was the Group Financial Controller of Alinta Limited, an Australian public listed company. Prior to joining Alinta, he was employed with the NAB Group in senior finance roles based in the UK and Australia. 19 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 20 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A Directors’ Meetings The following table sets out the number of directors’ Matters which are specifically reserved for the Board or its Committees under the Board Charter include: meetings held during the financial year. During the financial (cid:2) appointment of a chair; year 7 Board meetings were held. (cid:2) appointment and removal of the CEO; Director Audit and Risk Committee Meetings B A Nomination and Remuneration Committee Meeting B A Board Meetings B A Peter Mansell David Griffiths Ned Montarello Steven Penglis 7 6 7 7 7 7 7 7 2 2 2* 1* 2 2 - - 1 1 1 1 1 1 1 1 A – Number of meetings attended B – Number of meetings held during the time the director held office during the year * – Attendance by invitation from the Committee Corporate Governance Statement (cid:2) appointment of directors to fill a vacancy or as additional directors; (cid:2) establishment of Board Committees, their membership and delegated authorities; (cid:2) approval of dividends; (cid:2) development and review of corporate governance principles and policies; (cid:2) approval of operational budgets, major capital expenditure, acquisitions and divestitures in excess of authority levels delegated to management; (cid:2) calling of meetings of shareholders; and (cid:2) any other specific matters nominated by the Board from time to time. It is also responsible for approving and monitoring financial This statement outlines the main corporate governance and other reporting. Detail of the Board’s charter is located in practices in place throughout the financial year, which comply the Company’s website (www.thinksmartworld.com). with the ASX Corporate Governance Council recommendations, unless otherwise stated. BOARD OF DIRECTORS Role of the Board The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board has adopted a charter which establishes the relationship between the Board and management and describes their functions and The Board, together with the Nomination and Remuneration Committee, determines the size and composition of the Board, subject to the terms of the constitution. The Board has delegated responsibility for operations and administration of the Company to the Chief Executive Officer and executive management. Responsibilities are delineated by formal authority delegations. Board process To assist in the execution of its responsibilities, the Board has responsibilities. The Board’s responsibilities, as set out in the established a Nomination and Remuneration Committee, as Board Charter, include: (cid:2) working with management to establish ThinkSmart’s strategic direction; (cid:2) monitoring management and financial performance; (cid:2) monitoring compliance and risk management; (cid:2) reviewing procedures in place for appointment of senior management and monitoring of its performance and for well as an Audit and Risk Committee. These Committees have written mandates and operating procedures, which are reviewed on a regular basis. The Board has also established framework for management of the Group including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. Independent professional advice and access to company succession planning; and information (cid:2) ensuring effective disclosure policies and procedures. Following consultation with the chairperson, directors may seek independent professional advice at the Company’s expense. Generally, this advice will be available to all directors. 20 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 21 Composition of the Board NOMINATION AND REMUNERATION COMMITTEE The names of the directors of the Company in the office at the date of this report are set out in the Directors’ report on page 19 of this report. The composition of the Board is determined using the following principles: (cid:2) The Board does not believe that it should establish a limit on tenure. While tenure limits can help to ensure that there are fresh ideas and viewpoints available to the Board, they hold the disadvantage of losing the The objective of the Nomination and Remuneration Committee is to help the Board ensure that ThinkSmart has a Board of an effective composition, size and the commitment to adequately discharge its responsibilities and duties, and to determine and review the compensation arrangements for the Directors and senior management team. The Nomination and Remuneration Committee is responsible for reviewing the Board’s and its Committees’ performance. contribution of directors who have been able to develop, On an annual basis: over a period of time, increasing insight in the Company (cid:2) Directors will provide written feedback in relation to the and its operation and, therefore, an increasing contribution to the Board as a whole. Board and its Committees against an agreed set of criteria and each Committee will do the same regarding (cid:2) It is intended that the Board should comprise a majority its own performance; of independent non executive directors and comprise (cid:2) Feedback will be collected by the chair of the Board, or directors with a broad range of skills, expertise and experience from a diverse range of backgrounds. an external facilitator, and discussed by the Board, with consideration being given as to whether any steps should (cid:2) The Board regularly reviews the independence of each be taken to improve performance of the Board or its director in light of the interests disclosed to the Board. Committees; On 22 May 2009, Mr Mansell retired from his role as Chairman of the Board after leading the Company through a successful transition to being a publicly listed company, and Mr Montarello was subsequently appointed Executive Chairman. The Board acknowledges the ASX (cid:2) The CEO will also provide feedback from senior management in connection with any issues that may be relevant in the context of the Board performance review; and (cid:2) Where appropriate to facilitate the review process, Recommendation that the Chairman be an Independent assistance may be obtained from third party advisers. Director, however, the Board views the appointment of Mr Montarello as an advantage given his history of leadership in the Company and finance industry, and his clear incentive to maximize the interests of the Company. Mr Montarello founded the Company over 14 years ago, and has been involved in expanding the business through Australia and overseas. His experience and insights continue to be invaluable to the Group. The Board is conscious of the ASX Corporate Governance Recommendation stipulates that the roles of Chair and Chief Executive Officer should not be exercised by the same individual. Given the breadth of the Group’s operations and the Executive Chairman’s extensive business experience, the Board considers it appropriate that the Executive Chairman be considered the most senior executive overseeing and supervising the Group as well as managing the Group’s small executive team in regard to this. The current members of the Committee are P Mansell (Chair), N Montarello, S Penglis and D Griffiths. The Committee will meet as often as the Committee members deem necessary in order to fulfil their role. However, it is intended that the Committee will normally meet at least annually. The Committee consists of a minimum of 3 members, majority being non-executive directors, and an independent director as chair. The Nomination and Remuneration Committee has a documented charter, approved by the Board, which is available on the website (www.thinksmartworld.com). 21 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 22 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A REMUNERATION REPORT – AUDITED Compensation packages include a mix of fixed and variable The remuneration report for 2009, as presented below, has compensation and short- and long-term performance-based been prepared for consideration by shareholders. The incentives. remuneration report is set out under the following main Linking Executive Remuneration to Group Performance headings: A: Principles of compensation B: Directors’ and executive officers’ remuneration C: Service agreements D: Share-based compensation E: Bonus remuneration A. PRINCIPLES OF COMPENSATION – AUDITED Remuneration is referred to as compensation throughout this report. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the Group, including directors of the Company and other executives. Key management personnel comprise the directors of the Company and executives for the Company and the Group including the five most highly remunerated s300A executives. Compensation levels for key management personnel and secretaries of the Company, and key management personnel of the Group are competitively set with a view to: (cid:2) Maintain alignment with shareholders’ interests; and (cid:2) Ensure remuneration remains competitive to retain and attract talented people who are key to delivering sustained profitable growth of the Company The Nomination and Remuneration Committee obtains independent advice on the appropriateness of compensation packages of both the Company and the Group given trends in The Directors of ThinkSmart Limited understand that linking executive remuneration to Group performance is a driver of performance. Since the Company raised equity and listed in 2007, it has delivered consistent growth in EBITDA before listing costs and basic EPS. The graph below demonstrates the Group's consistent growth in net profit after taxation measured on a like for like basis. The calculations for each year exclude on a net of tax basis amortisation costs, depreciation costs, and unrealised foreign exchange costs. In addition, non recurring items net of any applicable taxation are excluded being redundancy costs in 2009, US operating costs in 2008 and IPO costs in 2007. Cash NPAT & Non-recurring Items ($000s) 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2007 2008 2009 comparative companies both locally and internationally and Cash NPAT Non-recurring Items the objectives of the Company’s compensation strategy. The compensation structures explained below are designed to In addition, the following partly franked dividends have been attract suitably qualified candidates, reward the achievement or will be paid: of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account: (cid:2) the capability and experience of the key management personnel (cid:2) the key management personnel’s ability to control the relevant segment/s’ performance (cid:2) the Group’s performance (cid:2) 2.0 cents per share paid on 13 October 2008 (cid:2) 1.5 cents per share paid on 14 April 2009 (cid:2) 1.5 cents per share paid on 16 October 2009 (cid:2) 2.0 cents per share will be paid on 23 April 2010 Consistent with the steady growth in performance, the level of Executives’ (including the Executive Chairman) remuneration has increased over this period. 22 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 23 The Directors of ThinkSmart Limited consider that a variety of The purpose of STIs is to make a significant contribution to factors, including the broad economic environment, market the total reward package subject to meeting various targets sentiment and financial performance, contribute to the linked to the Company’s business objectives. An incentivised Company’s share price. In addition, there are no closely reward structure is necessary to ensure a competitive comparable companies that would provide a meaningful package in Australian and global marketplace for executives. relative share price measure. As a result, the Executive Incentives are designed to focus and motivate employees to remuneration, other than the long-term incentive, is linked to achieve outcomes beyond the expectation of normal the Group’s financial performance, rather than the professional competence. Company’s share price which has been: Date 30 June 2008 31 December 2008 30 June 2009 31 December 2009 Per Ordinary Share $0.82 $0.19 $0.48 $0.90 Non-Executive Directors Fees and payments to Non-Executive Directors reflect the demands which are made on and the responsibilities of the Non-Executive Directors. Non-Executive Directors’ fees and Remuneration is reviewed annually. In reviewing each Executives’ salary, consideration is given to external competitiveness, position responsibilities and individual skills and experience. The STI component of Executive remuneration is based on annual performance targets and delivered in the form of cash. In 2009, the Company has also introduced a new Long Term Incentive Plan which recognises performance and behaviour that delivers sustainable long term shareholder value and seeks to align the interests of management with those of the shareholders. Base pay payments are reviewed annually by the Board. Non-Executive Executives are offered a competitive salary that comprises Directors do not receive Share Options. Non-Executive Director’s fees The non-executive directors shall be paid by way of fees for services the maximum aggregate sum as may be approved from time to time by ThinkSmart in general meeting. The fees include Director’s fee as well as Board Committee membership fee. The current maximum aggregate annual sum approved by shareholders at a previous general meeting the components of base pay and benefits that reflects the applied professional competence of each Executive according to his/her knowledge, experience and accountabilities. Base pay for Senior Executives is reviewed annually by the Remuneration Committee to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion. Short-term performance incentive is $600,000 (2008: $600,000). Any change to that Short-term performance incentives (STIs) vary according to aggregate annual sum needs to be approved by the individual contracts, however, for Executives they are broadly shareholders. The constitution also makes provision for based as follows: ThinkSmart to pay all reasonable expenses of directors in attending meetings and carrying out their duties. Executive pay The Company’s remuneration is market competitive and aims to attract, retain and motivate high calibre employees who contribute to the sustained growth of the ThinkSmart business with a mix of the following four components: (cid:2) base pay and benefits (cid:2) short-term performance incentives (STIs) (cid:2) long-term incentives through participation in the ThinkSmart Long Term Incentive Plan (cid:2) other remuneration such as superannuation. (cid:2) a component of the STI is linked to the individual performance of the executive (this is based on a number of factors, including performance against budgets, achievement of key performance indicators (KPIs) and other personal objectives) (cid:2) a component of the STI is linked to the financial performance of the business or measured against budgets determined at the beginning of each financial year. 23 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 24 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A Using various profit performance targets and personal During 2009, the Company completed a comprehensive performance objectives assessed against KPIs which are review of current remuneration arrangements for senior aligned with achievement of the Board’s strategic objectives, executives to determine an appropriate structure to support the Company ensures variable reward is only paid when value the Company’s short term and long term business strategies has been created for shareholders. For middle and lower level and be aligned to corporate governance principles. The management, total STIs are linked to individual performance review included input from external consultants on measures and also to the financial performance of the comparative remuneration levels, trends and practices. As business. The STI is delivered in the form of cash. part of the review, the Board has agreed to reactivate the For the 2009 financial year, STI performance targets for Executives were based on the respective territories’ targets of Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”), penetration rate, application volumes, settlement volumes, Average Transaction Value and territory expansion targets. These targets were selected on the basis that the ESOP which recognises performance and behaviour that delivers sustainable long term shareholder value and seeks to align the interests of management with those of the shareholders. Consequently, options are issued to executives, and the ability to exercise the options is conditional on the Group achieving the following performance criteria: Group has, and is likely to have for sometime, a small (cid:2) 50% of options are subject to achievement of Earnings number of experienced executives and ensuring that Per Share (EPS) performance condition; and employment practices support and encourage continuity of team engagement with sustained and profitable growth of the Company. The short-term bonus payments may be adjusted up or down in line with under or over achievement against the target performance levels. This is at the discretion of the Senior Executives. The STI target annual payment is reviewed annually. Information on the STI is detailed on section E of the Remuneration Report. Long term incentive Long-term incentives to the Chief Executive Officer and certain senior employees were historically provided via the (cid:2) 50% of options are subject to Total Shareholder Return (TSR) performance condition. The EPS measure ensures greater focus on improved earnings, while the TSR measure ensures an alignment with shareholder expectations. Information on the pre-existing plan is detailed on section D of the Remuneration Report. B. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION – AUDITED Amount of remuneration Details of the remuneration of the Directors and the Key ThinkSmart Limited Executive Share Option Plan (“ESOP”) as Management Personnel (as defined in AASB 124 Related a retention based reward. The Company has a pre-existing ESOP, as an equity-based long-term incentive, which was Party Disclosures) of ThinkSmart Limited and its subsidiaries are set out in the following tables. The cash bonuses are initiated before the Company was listed. Given the retention dependent on the satisfaction of performance conditions as focus of these grants, vesting of the options is subject to set out in the section headed Short-term performance service conditions and not linked to satisfaction of incentives above. performance targets. There have been no retention based options granted since the Company’s listing in June 2007. The Key Management Personnel of ThinkSmart Limited are the Directors and certain executives that report directly to the Chief Executive Officer. This includes the five Group executives who received the highest remuneration for the year ended 31 December 2009. 24 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 25 Key management personnel and other executives of the Group Details of the nature and amount of each major element of remuneration of each director of the Company, each of the five named Company executives and relevant Group executives who receive the highest remuneration and other key management personnel are: Short Term Post employment Share- based payments Salary & fee $ STI cash bonus $ Non- monetary benefits $ Super- annuation benefits $ Term- ination benefits $ Options and rights $ Total $ Proportion of Value of remuneration options performance related as proportion of remuneration % Total $ % Directors Non-Executive Directors P Mansell S Penglis D Griffiths 2009 2008 2009 2008 2009 2008 Executive Director 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 N Montarello Executives N Barker M Radotic S McDonagh G Varma G Parry Total Total 64,599 70,000 55,000 50,000 58,750 50,000 594,444 537,545 - - - - - - - - 321,330 10,000 277,294 - - - - - - - - - - - 64,599 70,000 55,000 50,000 58,750 50,000 5,814 6,300 4,950 4,500 5,288 4,500 594,444 40,318 537,545 48,379 331,330 29,820 277,294 24,956 233,922 34,692 20,653 289,267 21,410 277,093 20,000 3,068 300,160 13,853 259,231 6,500 112,500 - 251,487 50,000 231,826 18,000 - - - - 265,731 23,916 112,500 10,039 301,487 27,134 249,826 22,484 248,790 19,824 11,686 280,300 12,439 259,962 32,723 12,099 304,783 12,998 - - - - - - 70,413 76,300 59,950 54,500 64,038 54,500 14,174 648,936 8,775 594,699 369,997 309,604 316,825 292,238 334,446 282,284 295,330 - 122,539 8,847 7,354 2,591 2,812 2,591 5,825 9,974 2,591 2,812 - - - - - - - - - - - - - - - - - - - - 313,268 12% 2009 2,087,553 121,016 32,339 2,240,908 171,089 2008 1,866,219 70,723 15,166 1,952,108 148,009 36,619 2,448,616 31,727 2,131,845 6% 5% 320,594 11% The following are executives who are considered to be Key Management Personnel of the Group: (cid:2) N Barker (Group Chief Operating Officer, ThinkSmart Ltd) (cid:2) S McDonagh (Executive General Manager, RentSmart Unit Trust) (cid:2) M Radotic (General Manager Sales and Marketing – Continental Europe, ThinkSmart Europe Ltd) (cid:2) G Varma (Group Chief Information Officer, ThinkSmart Ltd) (cid:2) G Parry (Managing Director – UK, RentSmart Limited) - - - - - - 2% 1% 5% 2% 7% 3% 0% 2% 4% 8% - - - - - - 2% 1% 2% 2% 1% 1% 1% 0% 2% 4% 1% 1% 1% 1% 25 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 26 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A C. SERVICE AGREEMENTS – AUDITED Service agreements can provide for the provision of short-term performance incentives, eligibility for the ThinkSmart ESOP, other benefits including the use of a Company motor vehicle, tax advisory fees, payment of benefits forgone at a previous employer, relocation, living, tax equalisation, travel and accommodation expenses whilst an executive is required to live away from their normal place of residence. Only remuneration and other terms of employment for the Managing Director are formalised in a service agreement. The Managing Director’s employment agreement has been extended to a fixed term of 3 years to 28 August 2012. All other employment agreements are unlimited in term but capable of termination with one to three months’ notice by either the Company or the executive. The Company can make a payment in lieu of notice. In the event of retrenchment, the executives listed in the table on page 25 are entitled to the payment provided for in the service agreement, where applicable. The employment of the executives may be terminated by the Company without notice by payment in lieu of notice. The service agreements also contain confidentiality and restraint of trade clauses. D. SHARE BASED COMPENSATION – AUDITED All options refer to options over ordinary shares of ThinkSmart Limited, which are exercisable on a one-for-one basis under the Employee Share Options Plan (“ESOP”). Options and rights over equity instruments granted as compensation – audited Details on options over ordinary shares in the Company that were granted as compensation to each key management person during the reporting period and details on options that vested during the reporting period are as follows: No of options granted during 2009 Grant date Fair value per option at grant date ($) Exercise price per option ($) No of options vested during 2009 Expiry date 1,000,000 30/06/2009 0.0683 0.62 31/12/2013 500,000 30/06/2009 300,000 30/06/2009 300,000 30/06/2009 150,000 30/06/2009 300,000 30/06/2009 0.0683 0.0683 0.0683 0.0683 0.0683 0.62 0.62 0.62 0.62 0.62 31/12/2013 31/12/2013 31/12/2013 31/12/2013 31/12/2013 - - - - - - Directors N Montarello Executives N Barker M Radotic S McDonagh G Varma G Parry No options are granted since the end of the financial year. The options are provided at no cost to the recipients. 26 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 27 Modification of terms of equity-settled share-based payment transactions - audited No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period or the prior period. Exercise of options granted as compensation – audited During the reporting period, there were no shares issued as a result of the exercise of options previously granted as compensation. Analysis of options and rights over equity instruments granted as compensation – audited Details of vesting profiles of the options granted as remuneration to each director of the Company and each of the five named Company executives and relevant Group executives and other key management personnel are detailed below. Director N Montarello Executives N Barker M Radotic S McDonagh G Varma G Parry Options granted Number of shares Grant Date % vested in year % forfeited in year (a) Financial year in which grant vest 1,400,000 28/08/2006 100% 1,000,000 30/06/2009 -% *280,000 05/01/2006 160,000 17/04/2007 120,000 17/04/2007 500,000 30/06/2009 160,000 17/04/2007 120,000 17/04/2007 300,000 30/06/2009 300,000 30/06/2009 *280,000 05/01/2006 150,000 30/06/2009 160,000 17/04/2007 120,000 17/04/2007 300,000 30/06/2009 33% 100% 100% -% 100% 100% -% -% 33% -% 100% 100% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% 28/08/2009 01/01/2012 01/01/2009 01/01/2009 01/01/2009 01/01/2012 01/01/2009 01/01/2009 01/01/2012 01/01/2012 01/01/2009 01/01/2012 01/01/2009 01/01/2009 01/01/2012 (a) The % forfeited in the year represents the reduction from the maximum number of options available to vest due to the highest level performance criteria not being achieved. Option series vest equally over 3 years on 1 January 2008, 2009 and 2010. * 27 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 28 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A Analysis of movement of options – audited The movement during the reporting period, by value of options over ordinary shares in the Company held by each Company director and each of the five named Company executives and relevant Group executives and other key management personnel is detailed below. Directors N Montarello Executives N Barker M Radotic S McDonagh G Varma G Parry Granted in year $ (a) 68,300 34,150 20,490 20,490 10,245 20,490 174,165 Exercised in year $ (b) Lapsed in year $ (c) - - - - - - - - - - - - - - (a) The value of options granted in the year is the fair value of the options calculated at grant date using a binominal option-pricing model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period. (b) The value of options exercised during the year is calculated as the market price of shares of the Company on the Australian Securities Exchange as at close of trading on the date the options were exercised after deducting the price paid to exercise the option. (c) The value of the options that lapsed during the year represents the benefit forgone and is calculated at the date the option lapsed using a binominal option-pricing model with no adjustments for whether the performance criteria had been achieved. In 2009, lapsed options have nil value as they were out of the money when they expired. E. BONUS REMUNERATION – AUDITED Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company, each of the five named Company executives and relevant Group executives and other key management personnel are detailed below: Directors N Montarello Executives N Barker S McDonagh M Radotic G Varma G Parry Short term incentive bonus Included in remuneration $ (a) % vested in year % forfeited in year (b) - - 10,000 6,500 34,692 50,000 19,824 9% 26% 29% 100% 21% - 91% 74% 71% - 79% (a) Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on achievement of personal goals and satisfaction of specified performance criteria. No amounts vest in future financial years in respect of the bonus schemes for the 2009 financial year. (b) The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year. 28 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 29 AUDIT AND RISK COMMITTEE Internal audit The Audit and Risk Committee has a documented charter, approved by the Board, which is available on the website (www.thinksmartworld.com). All members must be non- executive directors with a majority being independent. The Chairperson may not be the Chairperson of the Board. The Committee advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the Group. The members of the Audit Committee during the year were non-executive directors, and are D Griffiths (Chair) and P Mansell. The Committee’s primary roles are: The Committee has the responsibility of: (cid:2) reviewing the internal auditor’s objectives, competence and resourcing (including determining whether the internal audit function is to be provided by an internal or external party provider); (cid:2) ensuring an appropriate program of internal audit activity is conducted each financial year; (cid:2) reviewing and monitoring the progress of an internal audit and work program (without the presence of management); (cid:2) overseeing the coordination of the internal and external (cid:2) to assist the Board in relation to the reporting of financial audit; and information; (cid:2) the appropriate application and amendment of accounting policies; (cid:2) the appointment, independence and remuneration of the external auditor; and (cid:2) to provide a link between the external auditors, the Board and management of the Company. The Committee will meet as often as the Committee members deem necessary in order to fulfil their role. The internal and external auditors, CEO and CFO, are invited to the Audit Committee meetings at the discretion of the Committee. The external auditor met with the Audit (cid:2) evaluating and critiquing management’s responsiveness to internal auditor’s finding and recommendations. Financial reporting The Chief Executive Officer and the Chief Financial Officer have declared in writing to the Board that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and is operating efficiently and effectively in all material aspects. Environmental regulation The Group’s operations are not subject to any significant environmental regulation under both Commonwealth and Committee and the Board of Directors twice during the year State legislation in relation to its activities. without management being present. Assessment of effectiveness of risk management Risk management The Committee’s specific function with respect to risk management is to review and report to the Board that: (cid:2) the Company’s ongoing risk management program effectively identifies all areas of potential risk; (cid:2) adequate policies and procedures have been designed and implemented to manage identified risks; During the year, the Group has introduced the role of internal auditors to assist the Board in ensuring compliance with internal controls and risk management plans by regularly reviewing the effectiveness of the above-mentioned compliance and control systems. The Audit and Risk Committee is responsible for approving the internal audit plan to be conducted each financial year and for the scope of the work to be performed. An independent review to assess and (cid:2) a regular program of audits is undertaken to test the evaluate the quality of the internal audit function is adequacy of and compliance with prescribed policies; and undertaken once every two years. The Audit and Risk (cid:2) proper remedial action is undertaken to redress areas of weakness. The risk management policy can be found on the Company’s website (www.thinksmartworld.com). Committee is responsible for recommending to the Board the appointment and dismissal of the internal auditor. 29 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 30 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A ETHICAL STANDARDS The Guidelines establish a ‘window period’, where, generally, All directors, managers and employees are expected to act Relevant Persons may buy or sell ThinkSmart’s securities on with the utmost integrity and objectivity, striving at all times to ASX in the period from 31 days from the day following: enhance the reputation and performance of the Group. Every (cid:2) the announcement of half-yearly results; employee has a nominated supervisor to whom they may refer any issues arising from their employment. Conflict of interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. The Board has developed procedures to assist directors to disclose potential conflicts of interest. Where the Board believes that a significant conflict exists for a director on a Board matter, the director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of director (cid:2) the announcement of annual results; or (cid:2) the holding of the annual general meeting, provided they are not in possession of inside information. Outside the window period, Relevant Persons must receive clearance for any proposed dealing in ThinkSmart’s securities on ASX as follows: (cid:2) a director must receive approval from the Chair of the Board; (cid:2) the Chair must receive approval from the Board or the most senior director; related entity transactions with the Company and the Group (cid:2) executives and senior management must receive approval are set out in note 31 to the financial statements. from the CEO; and Code of conduct (cid:2) all other Relevant persons must receive approval from the ThinkSmart has developed a Code of Conduct which states Company Secretary. ThinkSmart’s and its employees’ commitment to the conduct The Guidelines also prohibit short term dealing (buying and of its business with employees, customers, funders, retailers selling within 3 months) in ThinkSmart securities by Relevant and other external parties. Persons. The Code is directed at maintaining high ethical standards DISCLOSURE POLICY and integrity. Employees are expected to adhere to ThinkSmart’s policies, perform their duties diligently, properly use company resources, protect confidential information and avoid conflicts of interest. ThinkSmart understands its obligations under the ASX Listing Rules and Corporations Act 2001 to keep the market fully informed of information which may have a material effect on the price or value of ThinkSmart’s securities. ThinkSmart has The Code sets out the reporting lines where there is a adopted a Disclosure Policy which sets out its policy to strictly potential breach of the Code, ThinkSmart’s commitment to comply with the continuous disclosure requirements. the Code and the consequences of breaching the Code. The Code is acknowledged by all employees. Trading in general Company securities by directors and employees ThinkSmart’s Disclosure Policy is summarised below. (cid:2) The Company Secretary has the primary responsibility for all communication with the ASX in relation to Listing Rule matters including lodging announcements with ASX. The ThinkSmart’s Guidelines for Dealing in Securities explain and Company Secretary is also responsible for ensuring senior reinforce the Corporations Act 2001 requirements relating to management is aware of the Disclosure Policy and that insider trading. The Guidelines are summarised below. the Disclosure Policy is updated. The Guidelines apply to all directors and employees of the (cid:2) If management becomes aware of any information at any ThinkSmart group, and their associates (“Relevant Persons”). time that should be considered for release to the market, The Guidelines expressly prohibit Relevant Persons buying or selling ThinkSmart securities where the Relevant Person or it must be reported immediately to the CEO, or the Group CFO / Company Secretary. ThinkSmart is in possession of price sensitive or ‘inside’ (cid:2) Operating and divisional heads and group functional information. 30 heads must ensure they have appropriate procedures in place within their areas of responsibility to ensure that all relevant information is reported to them so it can be dealt with in accordance with the Disclosure Policy. TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 31 COMMUNICATION WITH SHAREHOLDERS Operating and Financial Review The Board provides shareholders with information using a comprehensive Continuous Disclosure Policy which includes identifying matters that may have a material effect on the The after tax net profit of the consolidated entity, being ThinkSmart Limited and its controlled entities (the “Group” or “consolidated entity”), for the year was $5,171,776 (2008: price of the Company’s securities, notifying them to the ASX, $3,210,752). posting them on the Company’s website, and issuing media releases. In summary, the Continuous Disclosure Policy operates as follows: The period has seen the Group improve underlying EBITDA by 8%, from $11.3m to $12.2m, or 15% if the impact of the strengthening Australian dollar on translation of offshore earnings is ignored. The Australian operations has increased (cid:2) Information is communicated to shareholders through its EBITDA contribution by 62% from 6% higher settled ASX announcements, the annual report, annual general volumes and a 19% reduction in operating costs, whilst meeting and half year and full year results announcements. (cid:2) Shareholders are able to access information, including media releases, key policies and the terms of reference of the Board Committees through ThinkSmart’s website. All relevant ASX announcements will be posted on ThinkSmart’s website as soon as they have been released to ASX. increasing revenue by 14%. Operating efficiencies enabled by the successful implementation of the in-store, web based QuickSmart application and approval system were delivered in the second half of the year following the system rollout in March 2009. Australian application volumes grew 10% in the second half of 2009 and operating costs decreased 20% in the same period. The UK operations improved its EBITDA performance by 5% despite a 39% reduction in settled volumes by growing inertia revenues by 20% and reducing (cid:2) ThinkSmart encourages participation of shareholders at operating expenses by 14%. its annual general meeting. The external auditor will attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. Principal Activities The Group’s principal activity in the course of the financial year was to arrange finance for the renting of equipment in Australia and Europe. There have been no significant changes in the nature of these activities during the year. The Group has increased its distribution channels in existing markets through signing of retail operating agreements in Spain with leading European retailer FNAC and Phone House. In Australia we have extended the tenor of existing long term relationships with JB HiFi and Officeworks. The core rental product has been enhanced to include free service based benefits to customers and the evolution of the rental product is expected to increase market share in 2010. Consolidation continues in Australia, UK and Spain with post- rental revenue streams (“inertia”) contributing an increasing share of profitability. Against soft retail trading conditions in Europe, Group application volumes have reduced by 8% year on year, the impact being lessened as a result of improved penetration through existing retail relationships in Europe. Significant Changes in State of Affairs During the financial year there were no significant changes in the state of affairs of the company other than that referred to in the financial statements or notes thereto. 31 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 32 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A Dividend Dividend paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the year 2009 Final 2008 ordinary Interim 2009 ordinary Declared after year end Cents per share Total amount Franked/ unfranked Date of payment 1.5 1.5 1,450,341 Franked 14 April 2009 1,450,341 Franked 16 October 2009 After the year end, the following dividends were proposed by the directors. The dividends have not been provided and there are no income tax consequences. Final 2009 ordinary 2.0 1,933,788 Franked 23 April 2010 The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31 December 2009 and will be recognised in subsequent financial reports. Dividends have been dealt within the financial report as: Declared and paid during the year 2009 Final 2008 ordinary Interim 2009 ordinary Significant Events after the Balance Date Note Total amount ($) 22(c) 22(c) 1,450,341 1,450,341 There has not been any matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial periods. Likely Developments and Expected Results The Group will continue to execute its strategic plan to grow revenue by increasing business volumes through existing retail partnerships in UK, Spain, Italy, France Australia and New Zealand. In mainland Europe the Group will pursue a multi-channel retailer model akin to the Australian business which should deliver market share gains in selected territories. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. Directors’ Interests The relevant interests of each director in the shares and options over such instruments issued by the companies within the Group and other related bodies corporate, as notified by the directors to the Australian Securities Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is as follows: ThinkSmart Limited Number of ordinary shares Number of options granted over ordinary shares 17,404,565 2,400,000 1,550,000 1,060,500 1,800,000 - - - N Montarello P Mansell S Penglis D Griffiths 32 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 33 Share Options OPTIONS GRANTED TO DIRECTORS AND OFFICERS OF THE COMPANY During or since the end of the financial year, the Company granted options for no consideration over unissued ordinary shares in the Company to the following directors and to the following of the five most highly remunerated officers of the Company as part of their remuneration: Directors N Montarello Executives N Barker M Radotic S McDonagh G Varma G Parry No of options granted Exercise price Expiry date 1,000,000 $0.62 31/12/2013 500,000 300,000 300,000 150,000 300,000 $0.62 $0.62 $0.62 $0.62 $0.62 31/12/2013 31/12/2013 31/12/2013 31/12/2013 31/12/2013 All options were granted during the financial year. No options have been granted since the end of the financial year. SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS During or since the end of the year, the Company has issued no ordinary shares as a result of the exercise of options. UNISSUED SHARES UNDER OPTIONS At the date of this report, unissued ordinary shares of the Company under option are: Number of shares under option 1,400,000 1,026,667 480,000 480,000 3,350,000 Exercise price of options $1.63 $0.63 $1.38 $3.00 $0.62 Expiry date of options 27 August 2010 31 December 2010 31 December 2011 31 December 2011 31 December 2013 All options expire on the earlier of their expiry date or termination of the employee’s employment. Further details are included in the remuneration report on pages 22 to 28. These options do not entitle the holder to participate in any share issue of the Company or any other body corporate. Indemnification and Insurance of Directors and Officers In accordance to the Company’s constitution, the Company must indemnify its directors and officers on a full indemnity basis and to the full extent permitted by law against all liabilities incurred by the directors and officers in their capacity as an officer of the Company or of a related body corporate. During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary and all executive officers of the company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred by such an officer or director. 33 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 34 DIRECTORS’ REPORT 9 0 0 2 t r o p e R l a u n n A Non-Audit Services During the year KPMG, the Company auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit Committee, is satisfied that the provision of those non-audit services during the year by the auditors is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: (cid:2) All non-audit services are subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor; and (cid:2) The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its related practices for audit and non-audit services provided during the year are set out in note 27. Auditor’s Independence Declaration The auditor’s independence declaration which forms part of this report, is included in page 35 of the financial report. Signed in accordance with a resolution of the directors made pursuant to s.298 (2) of the Corporations Act 2001. On behalf of the Directors N Montarello Director Perth, 19 February 2010 34 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 35 AUDITOR’S INDEPENDENCE DECLARATION 35 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 36 DIRECTORS’ DECLARATION 9 0 0 2 t r o p e R l a u n n A 1. In the opinion of the Directors of ThinkSmart Limited (the “Company”): a) The financial statements and notes and the remuneration disclosures that are designated as audited in the Remuneration report of the Directors’ report, set out on pages 19 to 85, are in accordance with the Corporations Act 2001, including: I. Giving a true and fair view of the Company’s and the Group’s financial position as at 31 December 2009 and of their performance, for the financial year ended on that date; and II. Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; b) The financial report also complies with International Financial Reporting Standards as disclosed in note 2; 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. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 31 December 2009. Signed in accordance with a resolution of the directors: N Montarello Director Perth, 19 February 2010 36 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 37 STATEMENTS OF COMPREHENSIVE INCOME F O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 9 Revenue Employee benefits expense Sales and marketing costs Occupancy costs Communication costs Doubtful and bad debts Legal and consulting costs Credit bureau costs Corporate development costs Insurance costs Other expenses Notes 6(a) 6(b) Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 36,756,819 38,898,513 1,955,532 3,300,000 (10,522,389) (12,713,514) - - (6,880,869) (8,857,676) (9,663) (8,218) (1,043,357) (1,144,374) - - (590,522) (737,612) (2,124) (1,157) (244,175) (233,259) - - (686,886) (1,753,997) (141,279) (220,425) (475,184) (480,204) (2,046,496) (1,816,118) (150,355) (91,092) 6(f) (2,234,746) (2,170,589) - (81,442) (37,536) (72,632) - (78,671) (13,148) (51,057) EBITDA before restructuring costs 11,881,840 8,900,079 1,610,856 2,927,324 Finance (costs)/benefits Foreign exchange (loss)/gain Depreciation expense EBTA before restructuring costs Amortisation of intangibles Restructuring costs Profit before Tax Income tax (expense)/benefit Profit from continuing operations Other comprehensive income 6(e) 6(c) 6(d) 6(g) (992,980) (475,354) 1,556,370 1,731,091 (603,651) (88,148) (555,159) (409,686) - - - - 9,730,050 7,926,890 3,167,226 4,658,415 (2,096,726) (1,809,768) - (416,184) - - - - 7,633,324 5,700,938 3,167,226 4,658,415 7 (2,461,548) (2,490,186) (1,395,124) (1,246,757) 5,171,776 3,210,752 1,772,102 3,411,658 Foreign currency translation differences for foreign operations (1,065,883) (1,405,155) Other comprehensive income for the period, net of income tax (1,065,883) (1,405,155) - - - - Total comprehensive income for the period, net of income tax 4,105,893 1,805,597 1,772,102 3,411,658 Earnings per share Basic (cents per share) Diluted (cents per share) 33 33 5.35 5.26 3.34 3.22 The attached notes form an integral part of these Income Statements 37 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 38 STATEMENTS OF FINANCIAL POSITION A S AT 3 1 D E C E M B E R 2 0 0 9 9 0 0 2 t r o p e R l a u n n A Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayment Other Total Current Assets Non-Current Assets Trade and other receivables Prepayment Plant and equipment Other financial assets Intangibles Goodwill Deferred tax assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Tax payable Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liability Other Total Non-Current Liabilities Total Liabilities Net (Liabilities)/Assets Equity/(Deficiency) Issued Capital Reserves Accumulated losses Total Equity Notes Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 24(a) 5,468,171 4,547,371 15,426 596,205 8 9 10 11 8 12 13 14 15 16 7 18 19 20 7 21 22 23 1,740,369 1,624,270 74,586 65,520 4,315,120 4,509,891 310,615 193,370 - - 53,526 157 - - 14,164 1,417 11,908,861 10,940,422 69,109 611,786 731,609 210,384 2,953,610 3,648,041 1,091,334 1,260,955 - - - - - - - - 23,324,755 23,913,494 3,775,984 4,552,680 4,177,746 4,861,551 - - - - 100,550 965,568 223,606 1,079,252 12,830,833 15,499,179 23,548,361 24,992,746 24,739,694 26,439,601 23,617,470 25,604,532 3,549,365 4,791,522 96,689 42,229 2,494,222 2,575,440 2,490,679 2,459,304 333,344 1,465,564 (112,476) 884,425 6,376,931 8,832,526 2,474,892 3,385,958 - - 198,387 662,343 493 38,648 198,880 700,991 - - - - - - - - 6,575,811 9,533,517 2,474,892 3,385,958 18,163,883 16,906,084 21,142,578 22,218,574 23,614,091 23,614,091 23,614,091 23,614,091 (2,834,607) (1,821,312) 199,726 147,142 (2,615,601) (4,886,695) (2,671,239) (1,542,659) 18,163,883 16,906,084 21,142,578 22,218,574 The attached notes form an integral part of these Statements of Financial Position 38 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 39 STATEMENTS OF CHANGES IN EQUITY F O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 9 Consolidated Fully paid ordinary shares $ Equity settled employee benefits reserve $ Foreign currency translation reserve $ Attributable to equity holders of the parent $ Accumulated Losses $ Balance at 1 January 2008 22,242,200 92,142 (563,299) (6,163,659) 15,607,384 Exchange differences arising on translation of foreign operations Net income recognised directly in equity Profit for the period Total comprehensive income Dividend paid Recognition of share-based payments Adjustment for tax on capitalised IPO cost Issue of shares under share option plan - - - - - - 74,428 1,297,463 - - - - - 55,000 - - (1,405,155) (1,405,155) - - (1,405,155) (1,405,155) - 3,210,752 3,210,752 (1,405,155) 3,210,752 1,805,597 - - - - (1,933,788) (1,933,788) - - - 55,000 74,428 1,297,463 Balance at 31 December 2008 23,614,091 147,142 (1,968,454) (4,886,695) 16,906,084 Balance at 1 January 2009 23,614,091 147,142 (1,968,454) (4,886,695) 16,906,084 Exchange differences arising on translation of foreign operations Net income recognised directly in equity Profit for the period Total comprehensive income Dividend paid Recognition of share-based payments - - - - - - - - - - - 52,584 (1,065,879) (1,065,879) - - (1,065,879) (1,065,879) - 5,171,776 5,171,776 (1,065,879) 5,171,776 4,105,897 - - (2,900,682) (2,900,682) - 52,584 Balance at 31 December 2009 23,614,091 199,726 (3,034,333) (2,615,601) 18,163,883 Company Balance at 1 January 2008 Profit for the period Total comprehensive income Dividend payment Recognition of share-based payments Adjustment for tax on capitalised IPO cost Issue of shares under share option plan Balance at 31 December 2008 Balance at 1 January 2009 Profit for the period Total comprehensive income Dividend payment Recognition of share-based payments Balance at 31 December 2009 Fully paid ordinary shares $ Equity settled employee benefits reserve $ Accumulated Losses $ Total $ 22,242,200 92,142 (3,020,529) 19,313,813 - - - - 74,428 1,297,463 - - - 3,411,658 3,411,658 3,411,658 3,411,658 (1,933,788) (1,933,788) 55,000 - - - - - 55,000 74,428 1,297,463 23,614,091 147,142 (1,542,659) 22,218,574 23,614,091 147,142 (1,542,659) 22,218,574 - - - - - - - 1,772,102 1,772,102 1,772,102 1,772,102 (2,900,682) (2,900,682) 52,584 - 52,584 23,614,091 199,726 (2,671,239) 21,142,578 The attached notes form an integral part of these Statements of Changes in Equity. 39 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 40 CASH FLOW STATEMENTS F O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 9 9 0 0 2 t r o p e R l a u n n A Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income tax paid Notes Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 37,008,698 37,009,472 - - (27,195,464) (31,947,826) (423,909) (293,441) 67,339 161,787 7,642 (112,694) (58,605) (109,718) 24,191 (40,696) (2,451,419) (2,298,105) (1,400,092) (766,106) Net cash from/(used in) operating activities 24(b) 7,316,460 2,866,723 (1,926,077) (1,076,052) Cash Flows from Investing Activities Payments for plant and equipment Payment for intangible assets Net cash from/(used in) investing activities Cash Flows from Financing Activities (464,937) (1,209,852) (1,526,957) (1,379,907) (1,991,894) (2,589,760) Hire purchase and lease finance repaid (112,593) 16,416 - - - - - - - - Finance charges Borrowings from/(to) subsidiary Proceeds from issue of shares Proceeds of borrowings Repayment of borrowings Dividend paid (930,066) (588,326) (64,674) (44,326) - - - - - 4,310,654 (632,357) 1,297,463 2,459,304 (2,039,891) - - - 1,297,463 2,459,304 - (2,900,682) (1,933,788) (2,900,682) (1,933,788) Net cash from/(used in) financing activities (3,943,341) (788,823) 1,345,298 1,146,296 Net (decrease)/increase in cash and cash equivalents 1,381,225 (511,859) (580,779) 70,244 Effect of exchange rate fluctuations on cash held (460,425) - - - Cash and cash equivalents at beginning of the financial year 4,547,371 5,059,230 596,205 525,961 Net cash and cash equivalents at the end of the financial year 24(a) 5,468,171 4,547,371 15,426 596,205 The attached notes form an integral part of these Cash Flow Statements 40 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 41 NOTES TO THE FINANCIAL STATEMENTS 1. General Information ThinkSmart Limited (the “Company”) is a publicly listed company, incorporated and domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 31 December 2009 comprise of the Company and its subsidiaries (the “Group”). The Group’s principal activity is to arrange finance for renting of equipment in Australia, New Zealand and Europe. 2. Basis of Preparation a) STATEMENT OF COMPLIANCE The financial report is a general purpose financial report which has been prepared in accordance with the Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group and the financial report of the Company comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the Internal Accounting Standards Board (IASB). The financial statements were authorised for issue by the Directors on 19 February 2010. b) BASIS OF MEASUREMENT The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian Dollars unless otherwise noted. c) FUNCTIONAL AND PRESENTATION CURRENCY These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. d) CHANGES IN ACCOUNTING POLICIES Starting as of 1 January 2009, the Group has changed its accounting policies in the following areas: (cid:2) Determination and presentation of operating segments – Note 3(y) (cid:2) Presentation of financial statements – Including the Statement of Comprehensive Income (cid:2) Business combination – Note 3(b) 3. Significant Accounting Policies The following significant policies have been consistently applied to all periods presented in these consolidated financial statements, and have been consistently applied by group entities. a) BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries). Control is achieved when the company has the power to govern the financial and operating policies of an entity so as to obtain the benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those by other members of the Group. All intra-group balances, transactions, income and expenses are eliminated in full on consolidation. 41 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 42 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) b) BUSINESS COMBINATIONS Change in accounting policy The Group has adopted revised AASB 3 Business Combinations (2008) and amended AASB 127 Consolidated and Separate Financial Statements (2008) for business combinations occurring in the financial year starting 1 January 2009. All business combinations occurring on or after 1 January 2009 are accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and has no material impact on earnings per share. For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Measuring goodwill The Group measures goodwill as the fair value of consideration transferred including the recognised amount of any non- controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration transferred includes the fair values of the asset transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). Share-based payment awards When share-based payment awards exchanges (replacement awards) for awards held by acquiree’s employees (acquiree’s awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as post-combination compensation cost. Contingent liabilities A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. Non-controlling interest The group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs Transaction costs that the Group incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred. c) CASH AND CASH EQUIVALENTS Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily converted to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the statements of financial position. 42 TS AR 2009 Fins:Layout 1 7/4/10 4:28 PM Page 43 d) PLANT AND EQUIPMENT Acquisition of assets Items of plant and equipment acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition. Depreciation Depreciation is provided on plant and equipment. Depreciation is calculated on a reducing balance basis so as to write off the net cost or other revalued amount of each asset over its expected useful life. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter. The following estimated useful lives are used in the calculation of depreciation: (cid:2) Office furniture, fittings, equipment and computers 2.5 to 5 years (cid:2) Leasehold improvements (cid:2) Self-funded rental assets (cid:2) Motor vehicles the lease term 2.5 to 5 years 5 years (cid:2) Leased computer equipment and software 2.5 to 5 years Depreciation method, useful lives and residual values are reviewed at each reporting date. Gains and losses on disposal Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment and are recognised net within “other income” in profit and loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. e) LEASED ASSETS Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis. Finance leases Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the consolidated entity are capitalised at the present value of the minimum lease payments and disclosed as plant and equipment under lease. A lease liability of equal value is also recognised. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to the profit and loss. f) TRADE AND OTHER ACCOUNTS PAYABLES Trade payables are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. g) INVESTMENTS Investments in controlled entities are recorded at the lower of cost and recoverable amount. Investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements. Other investments are recorded at the lower of cost and recoverable amount. 43 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 44 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) h) FINANCIAL ASSETS Investments are recognised and derecognised on trade date where purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measures at fair value net of transaction costs. Subsequent to initial recognition, investments in subsidiaries are measured at cost in the company financial statements. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company. Other financial assets are classified into the following specified categories: financial assets at ‘fair value through profit and loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period. Loans and receivables Trade receivables, loans, and other receivables are recorded at amortised cost less impairment. Insurance prepayment In respect to the UK operations, when an equipment insurance policy is issued by Allianz to RentSmart Limited’s customers, RentSmart Limited pays the customer’s insurance premium to Allianz. RentSmart Limited subsequently collects the insurance premium from the customer on a monthly basis over the life of the rental agreement. Where a policy is cancelled, the unexpired premiums are refunded to RentSmart Limited. i) IMPAIRMENT OF ASSETS Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measures at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit and loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit and loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit and loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in other comprehensive income. Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. 44 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 45 The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash- generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of the other assets in the unit (groups of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in the prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. j) INTANGIBLE ASSETS Intellectual property Intellectual property is recorded at cost of acquisition over the fair value of the identifiable net assets acquired, is amortised on a straight line basis over 20 years. Inertia assets and distribution network assets Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. Intangible assets recognised are “inertia” and “distribution networks” acquired on the acquisition of RentSmart Limited on 1 December 2006. Inertia Assets At the conclusion of the initial rental period, the Group is entitled to acquire the equipment from the funders at a nominal value. Inertia represents the expected income streams from the unguaranteed residual interest in equipment on unexpired rental contracts in existence at 1 December 2006. The maximum term of unexpired interest at 1 December 2006 is four years and the intangible asset is amortised over the expected income profile of this revenue stream. Distribution Network Assets Distribution networks represent the value attributable to the retailer network from which rental contracts are originated. The intangible asset is amortised on a straight line basis until the expected expiry of the contract, which is 4.5 years. Funding agreements The contractual rights obtained by the Group under financing agreements entered into with its funding partners constitute intangible assets with finite useful lives. These contract rights are recognised initially at cost and amortised over their expected useful lives (initially contract term or expected period until facility limit is reached – between 5 and 7 years). At each reporting date a review for indicators of impairment is conducted. 45 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 46 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) j) INTANGIBLE ASSETS (continued) Software development Software development relates to the development of the Group’s proprietary SmartCheck credit application processing software system. Software development costs are capitalised only up to the point when the software has been tested and is ready for use in the manner intended by management. Software development expenditure is capitalised only if the development costs can be measured reliably, the product process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. The intangible asset is amortised on a straight line basis over its estimated useful life, which is 4 years. Capitalised software development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. k) GOODWILL Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at its cost less any impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units (CGUs) or groups of CGUs, expected to benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or group of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs) and then to the other assets of the CGU (or group of CGUs) pro-rata on the basis of the carrying amount of each asset in the CGU (or CGUs). The impairment loss recognised for goodwill is recognised immediately in the profit or loss and is not reversed in the subsequent period. On disposal of an operation within a CGU, the attributable goodwill is included in the determination of the profit or loss of disposal on the operation. l) GOVERNMENT GRANTS Government grants are assistance by the Government in the form of transfer of resources to the company in return for past or future compliance with certain conditions to the operating activities of the company. Government grants are not recognised until there is reasonable assurance that the company will or has complied with the conditions attaching to them and the grants will be received. Government grants are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred are recognised as income of the period in which it becomes receivable. m) EMPLOYEE BENEFITS A liability is recognised for benefits accruing to employees in respect of wages and salaries and annual leave when it is probable that settlement will be required and they are capable of being measured reliably. The group’s net obligation in respect of long service leave is the amount of future benefit that employees earned in return for their service in the current and prior periods plus related on-costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. Liabilities recognised in respect of employee benefits, which are expected to be settled within 12 months, are measured at their nominal values, using the remuneration rate expected to apply at the time of settlement. 46 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 47 Liabilities recognised in respect of employee benefits, which are not expected to be settled within 12 months, are measured at their present value of the estimated future cash flows to be made by the group. Share-based payments The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. When the Company grants options over its shares to employees of subsidiaries, the fair value of grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant. n) INVENTORIES Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make use for sale. o) REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable and is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Funder income Commission receivable from funders is recognised at the time finance approval is given, adjusted for an allowance for loans not expected to proceed to a contract. A component of the income where material is deferred and recognised in line with the services provided. As at 31 December 2009 and 2008, this deferred revenue was not considered material. Unguaranteed residual interest in equipment (inertia income) At the conclusion of the initial rental period the consolidated entity is entitled to acquire the equipment from the funders at a nominal value. All risks and rewards of ownership pass to the Group at that point and it has the option to either immediately dispose of the equipment or continue to rent the asset to third parties. (cid:2) Ongoing rental income Where the asset acquired from the funder is rented to third parties the income from that rental is brought to account when the control of the right to receive this income is attained and can be reliably measured, usually on a monthly basis. No ongoing rental income is brought to account in respect of the unexpired rental contracts. (cid:2) Income earned from sale of equipment Where the asset acquired is sold the net sale proceeds are brought to account at the time of the sale. Insurance income Funder income includes commissions received on insurance policies issued by third party insurers to cover theft and damage of rental equipment. In UK, a proportion of the insurance income is recognised at inception on the basis of stage of completion of the service, with the remaining income recognised over the life of the policy. The revenue recognition policy for the Australian insurance income is consistent with the treatment of funder income. 47 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 48 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) p) FINANCIAL INSTRUMENTS Non-derivative financial assets The group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Held-to-maturity investments If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest rate method, less any impairment losses. Available-for-sale financial assets The Group’s investments in equity and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in a separate component of equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Financial asset at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value on accordance with the Group’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and 48 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 49 the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends wither to settle on a net basis or to realise the asset and settle the liability simultaneously. Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. q) INCOME TAX Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except where the Consolidated Entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Consolidated Entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Consolidated Entity intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess purchase consideration. 49 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 50 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) q) INCOME TAX (continued) Tax consolidation The Company and its wholly owned Australian resident entities formed a tax-consolidated group during 2008. As a consequence, all members of the tax-consolidated group are taxed as a single entity from 1 January 2008. The head entity within the tax-consolidated group is ThinkSmart Ltd. 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 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 by the Company 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. The Company 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 arrangement and tax sharing agreement 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 Company equal to the current tax liability/(asset) assumed by the Company and any tax-loss deferred tax asset assumed by the Company, resulting in the Company recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity receivables/(payables) are at call. Contributions to fund the current tax liabilities will be documented in the tax funding arrangement and reflect the timing of the Company’s obligation to make payments for tax liabilities to the relevant tax authorities. The head entity in conjunction with the other members of the tax-consolidated group, will also be required to enter 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 Company default on its tax payment obligations. No amounts will be recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. r) GOODS AND SERVICES TAX Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii) receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. 50 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 51 s) FOREIGN CURRENCY TRANSACTIONS Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the Entity operates (“the functional currency”). The Consolidated financial statements are presented in Australian dollars, which is ThinkSmart Limited’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Group companies and foreign operations The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (cid:2) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet. (cid:2) Income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (cid:2) All resulting exchange differences are recognised in the foreign currency translation reserve as a separate component of equity. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in other comprehensive income in foreign currency translation reserve. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. t) EARNINGS PER SHARE Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 51 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 52 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 3. Significant Accounting Policies (continued) u) CORPORATE DEVELOPMENT COSTS Corporate developments costs are expensed as incurred in investing in new markets and primarily comprise of salary costs, travel, consultancy and trademark protection. v) PROVISIONS A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligations. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. w) LEASE PAYMENTS Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant period rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustments is known. x) FINANCE INCOME AND EXPENSES Finance income comprises interest income on funds invested (included available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets and changes in fair value of financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, dividends on preference shares classified as liabilities, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowings costs are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis. y) SEGMENT REPORTING As of 1 January 2009, the Group determines and presents operating segments based on the information that internally is provided to the CEO, who is the Group’s chief operating decision maker. This change in accounting policy is due to adoption of AASB 8 Operating Segments. Previously, operating segments were determined and presented in accordance to AASB 114 Segment Reporting. The new accounting policy in respect to segment operating disclosures is presented as follows. Comparative segment information has been re-presented in conformity with the transitional requirements of such standard. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results, assets and liabilities include items attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items compromise mainly investments and related revenue, loans and borrowings and related expenses, and head office expenses, and income tax assets and liabilities. 52 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 53 Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. z) DETERMINATION OF FAIR VALUE A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset and liability. Intangible assets The fair value of intangible assets as a result of business combination is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets (refer to note 3(j)). Investment in equity and debt securities The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements. Share-based payment transactions The fair value of employee stock options is measured using a binomial model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Financial guarantees For financial guarantee contract liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. This method takes into account the probability of default by the guaranteed party over the term of the contract, the loss given default (being the proportion of the exposure that is not expected to be recovered in the event of default) and exposure at default (being the maximum loss at the time of default). aa) ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS At the date of authorisation of the financial report, the following are Standards and Interpretations were in issue but not yet effective, that may be applicable to the Group. The Group has not early adopted any of these standards: (cid:2) AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes to presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Group’s 31 December 2010 financial statements, are not expected to have a significant impact on the financial statements. 53 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 54 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates. 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. Except as described below, in preparing this consolidated financial report, the significant judgements made by management in applying the consolidated entity’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report as at and for the year ended 31 December 2008. a) KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL JUDGEMENTS IN APPLYING THE ENTITY’S ACCOUNTING POLICIES The preparation of financial statements 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. Actual results may differ from these estimates. 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 and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant affect on the amount recognised in the financial statements are described in the following notes: (cid:2) Note 16 – measurement of the recoverable amounts of cash-generating units containing goodwill (cid:2) Note 15 – recoverable amount of intangible assets (cid:2) Note 7 – utilisation of tax losses (cid:2) Note 22 – measurement of share based payments (cid:2) Note 28 and 29 – contingent assets and liabilities (cid:2) Note 18 – Provision for employee entitlements 5. Financial Risk Management OVERVIEW The Company and the group have exposure to the following risks from their use of financial instruments: (cid:2) Credit risk (cid:2) Liquidity risk (cid:2) Market risk (cid:2) Operational risk This note presents information about the Company’s and group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risks, and the management of capital. Further quantitative disclosures are included throughout this financial report. 54 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 55 The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit and Risk Management Committee, which is responsible for developing and monitoring risk management policies. The Committee reports to the Board of Directors on its activities. Risk management policies are established to identify and analyse the risks faced by the Company and the Group, to set appropriate limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect the changes in market conditions and the Company’s and Group’s activities. The Company and Group, through their training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit and Risk Committee oversees how management monitors compliance with the Company’s and Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and the Group. The Audit and Risk Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Risk Committee. CREDIT RISK Credit risk refers to the risk that a counterparty or customer will default on its contractual obligations resulting in financial loss to the Group and arise principally from the Group’s assessment of recoverability from debtors. The Group has adopted a policy of only dealing with credit worthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group has minimal concentrations of credit risk in relation to trade receivables. In most cases, credit risk arising from customer rental contracts are not borne by the Group but by the funding institutions. The day to day management of credit risk is undertaken by ensuring counterparties fall within specific risk criteria prepared by our financiers and the Board. The Company and Group assess impairment of receivables on an individual basis. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk. Guarantees Group policy is to provide financial guarantees only to wholly-owned subsidiaries. Details of outstanding guarantees are provided in note 18. LIQUIDITY RISK Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The consolidated entity manages liquidity risk by maintaining adequate reserve facilities by continuously reviewing its facilities and cash flows. The Group ensures that it has sufficient cash on demand to meet expected operational expenses. In addition, the Group maintains the following lines of credit: (cid:2) Secured bank overdraft facility of $250,000. Interest would be payable at ANZ’s reference rate. (cid:2) Secured bill acceptance facility of $5,000,000, in which $2,500,000 was drawn down during 2008. Interest would be payable at prevailing bank rate. (cid:2) Other operational facilities are set out in note 24 (c). 55 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 56 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 5. Financial Risk Management (continued) MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising return. Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities, primarily the Australian dollar (AUD), but also the Euro (EUR), Sterling (GBP) and US dollars (USD). The currencies in which these transactions primarily are denominated are AUD, EUR, GBP and USD. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily AUD, but also GBP and EUR. This provides an economic hedge and no derivatives are entered into. Liabilities incurred in each respective geographical territory are paid for by the cash flows of the functional currency of that territory. Exposures for singular transactions greater than $50,000 are considered for hedging by management, with forward exchange contracts to mitigate exchange rate risk and are considered separately as they arise. The consolidated entity has no forward exchange contracts as at reporting date (2008: nil) Intercompany borrowings are denominated in the currency of the lender. Transaction recharges between the companies provides an economic hedge and timing of payments are within the control of the Group to ensure economic viability, as a result no derivatives are entered into. In respect of other monetary assets and liabilities denominated in foreign currencies, the management ensures that the Group’s net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address the short term imbalances. Interest rate risk The Group has no significant non-current borrowings. The terms and conditions of current borrowings are set out above. Exposure to interest rate risk on any future borrowings will be assessed by the Board and where appropriate, the exposure to movement in interest rates may be hedged by entering into interest rate swaps, when considered appropriate by the management and the Board. OPERATIONAL RISK Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. 56 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 57 The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall group standards for the management of operational risk in the following areas: (cid:2) Requirements for appropriate segregation of duties, including the independent authorisation of transactions (cid:2) Requirements for the reconciliation and monitoring of transactions (cid:2) Compliance with regulatory and other legal requirements (cid:2) Documentation of controls and procedures (cid:2) Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified (cid:2) Development of business continuity plans (cid:2) Training and professional development (cid:2) Ethical and business standards (cid:2) Risk mitigation, including insurance where this is effective Compliance with group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group. CAPITAL MANAGEMENT The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management aims to maintain a capital structure that ensures the lowest cost of capital available to the group. Management constantly reviews the capital structure to ensure an increasing return on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return of capital to shareholders, issue new shares or sell assets to reduce debt. The Group’s debt-to-adjusted capital ratio at the end of the reporting period was as follows: Total liabilities Less cash and cash equivalents Net debt Total equity Less adjustments Adjusted capital Debt-to-adjusted capital ratio at 31 December Consolidated 2009 $ 2008 $ 8,799,115 9,533,517 5,468,171 4,547,371 3,330,944 4,986,146 18,163,883 16,906,084 - - 18,163,883 16,906,084 0.18 0.30 The Board encourages employees to hold shares in the Company. At present employees hold 23.7% (2008: 23.7%) of ordinary shares. Neither the Company not any of its subsidiaries are subject to externally imposed capital requirements. Refer to note 22 for items comprising capital. 57 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 58 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 6. Profit Profit is arrived at after crediting/(charging) the following items: a) REVENUE Distribution income Funder income Revenue received on sale of equipment Rental income Insurance brokerage income Other revenue b) EMPLOYEE BENEFITS EXPENSE Payments to employees Share options cost Provision for employee entitlements c) DEPRECIATION EXPENSE Depreciation of plant and equipment Depreciation of leasehold improvements Depreciation of self funded rentals Depreciation of web sites Depreciation of lease equipment & software d) AMORTISATION EXPENSE Amortisation of software Amortisation of funding agreement Amortisation of distribution network Amortisation of inertia contracts Amortisation of intellectual property e) FINANCE (COSTS)/BENEFITS Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ - - 1,955,532 3,300,000 20,047,793 23,223,026 4,959,253 4,479,536 5,542,288 5,968,474 5,120,648 4,396,117 1,086,836 831,360 - - - - - - - - - - 36,756,819 38,898,513 1,955,532 3,300,000 9,921,477 11,973,216 52,584 55,000 548,328 685,298 10,522,389 12,713,514 320,891 104,626 3,344 565 125,733 555,159 586,788 205,423 124,427 216,853 22,847 6,053 1,023 162,909 409,686 210,389 173,012 131,082 1,147,994 1,263,194 32,094 32,091 2,096,726 1,809,768 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Interest revenue – other entities 67,339 163,724 7,641 24,191 – related parties Total finance benefits Interest expense – other entities – related parties Total interest costs Finance charges Total finance benefit/(cost) 58 - - 1,713,800 1,759,365 67,339 163,724 1,721,441 1,783,556 (130,253) (50,752) (100,397) (8,139) - - - - (130,253) (50,752) (100,397) (8,139) (930,066) (588,326) (64,674) (44,326) (992,980) (475,354) 1,556,370 1,731,091 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 59 6. Profit (continued) f) OTHER EXPENSES Loss on sale of property and equipment Other expenses Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ - 26,845 2,234,746 2,143,744 2,234,746 2,170,589 - 72,632 72,632 - 51,057 51,057 Other expenses comprise of other administrative expenses including postage, travel and training. g) RESTRUCTURING COST Impairment of plant and equipment Impairment of intangible assets Other - - - - 40,278 197,398 178,508 416,184 - - - - - - - - Restructuring costs relate to expenses incurred in exiting the USA market. Other restructuring costs mainly comprise redundancy costs. 7. Income Tax The major components of income tax expense for the year ended 31 December are: Current income tax Current income tax charge Adjustment for prior period Deferred income tax 1,940,806 2,435,166 620,457 884,425 (139,865) (711,493) (80,849) (711,493) Origination and reversal of temporary differences Adjustment for prior period Change in unrecognised temporary differences 237,447 203,476 219,684 248,940 398,260 119,313 652,040 203,476 - 675,564 398,260 - Income tax expense/ (benefit) reported in income statement 2,461,548 2,490,186 1,395,124 1,246,756 59 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 60 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 7. Income Tax (continued) A reconciliation between tax expense and the product of accounting profit/(loss) before income tax multiplied by the applicable income tax rate is as follows: Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ Accounting profit/(loss) before tax Less: Distribution from RentSmart Unit Trust Add: RentSmart Unit Trust profit before tax Adjusted accounting profit/(loss) before tax At the statutory income tax rate of 30% Effect of tax rates in foreign jurisdictions Non deductible expenses: – – corporate development other Exempt income Adjustment on entry into tax consolidation group Overseas tax losses not recognised/ (recognised) 7,633,324 5,700,938 3,167,226 4,658,415 - - - - (1,955,532) (3,300,000) 3,895,866 3,484,833 7,633,324 5,700,938 5,107,560 4,843,248 2,289,997 1,710,281 1,532,268 1,452,974 (63,389) (56,563) - - 91,034 53,791 4,873 (31,132) (105,697) (19,390) - - 238,649 - 335,970 865,639 - - - 14,524 14,341 (257,817) 335,970 - Adjustments in respect of prior periods (63,611) (313,235) (122,627) (313,235) Income tax expense/(benefit) reported in the income statement 2,461,548 2,490,186 1,395,124 1,246,757 INCOME TAX RECOGNISED DIRECTLY IN EQUITY - 74,428 - 74,428 357,444 229,988 595,340 2,702 398,939 159,434 890,451 6,079 357,444 229,988 595,340 2,702 398,939 159,434 890,451 6,079 1,076,351 945,020 1,076,351 945,020 62,029 59,864 17,731 30,188 2,323,854 2,459,787 2,279,556 2,430,110 - 93,039 4,249 35,470 337,274 796,080 - 19,993 - 93,039 91,870 - 4,249 35,470 - - 1,515,399 1,190,494 1,515,399 1,190,494 331,628 144,351 98,510 11,766 331,628 24,014 98,510 22,135 2,421,691 2,156,562 2,055,950 1,350,858 100,550 198,387 965,568 662,343 223,606 1,079,252 - - Listing cost DEFERRED TAX ASSET Corporate development cost Employee entitlements Listing cost Consulting cost Plant & equipment Other Total DEFERRED TAX LIABILITY Prepayments Deals awaiting settlement Intangible assets Government grant Plant & equipment ABL servicer fee Other debtors Total Net deferred tax asset Net deferred tax liability 60 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 61 Notes Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ UNRECOGNISED DEFERRED TAX ASSETS Deferred tax assets have not been recognised in respect of the following items: Tax losses 1,256,608 1,256,608 865,639 865,639 - - - - The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets that relate to tax losses in overseas jurisdictions have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the group can utilise the benefits there from. TAX CONSOLIDATION ThinkSmart Ltd and its 100% owned Australian resident subsidiaries have formed a tax consolidated group during the 2008 financial year. 8. Trade and Other Receivables Current Trade receivables (i) Allowance for doubtful debts Sundry debtors Non-current Trade receivables (i) 1,893,771 1,882,885 (214,448) (258,615) 61,044 - 1,740,369 1,624,270 731,609 731,609 210,384 210,384 - - - - - - - - - - - - (i) No interest is charged on trade receivables. The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 30. 9. Inventories Promotional stock on hand Rental asset inventory 10.Prepayment – Current Insurance prepayment Retailer marketing prepayment Other prepayment 11.Other Current Assets Deals awaiting settlement Other 1,826 72,760 74,586 - 65,520 65,520 3(h) 2,393,154 3,037,015 1,148,961 773,005 761,838 711,038 4,315,120 4,509,891 - - - - - - - - - - 53,526 53,526 14,164 14,164 310,131 118,233 484 75,137 310,615 193,370 - 157 157 - 1,417 1,417 61 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 62 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A Notes Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 12.Prepayment – Non Current Insurance prepayment 3(h) 2,953,610 3,648,041 2,953,610 3,648,041 Consolidated - - - - Plant & Equipment $ Leasehold improvements $ Self funded rentals $ Web Sites $ Lease equipment & software $ Total $ 13.Plant & Equipment Gross Carrying Amount Cost or deemed cost Balance at 1 Jan 2008 1,137,924 512,313 149,958 76,450 1,945,763 3,822,408 Net foreign currency translation differences Additions Disposals - - 757,878 125,117 - (298,631) - - - - - - - - 326,857 1,209,852 - (298,631) Balance at 31 Dec 2008 1,895,802 338,799 149,958 76,450 2,272,620 4,733,629 Net foreign currency translation differences Additions Disposals (154,602) (62,110) 382,680 - - - - - - - - - (22,594) (239,306) 82,257 464,937 - - Balance at 31 Dec 2009 2,123,880 276,689 149,958 76,450 2,332,283 4,959,260 Accumulated Depreciation Balance at 1 Jan 2008 Net foreign currency translation differences Disposals Depreciation expense Impairment loss (928,011) (389,823) (133,958) (74,134) (1,741,708) (3,267,634) (8,262) - - 271,786 - - - - (18,600) (26,862) - 271,786 (216,853) (22,847) (6,053) (1,023) (162,909) (409,686) - - - - (40,278) (40,278) Balance at 31 Dec 2008 (1,153,126) (140,884) (140,011) (75,157) (1,963,495) (3,472,674) Effect of movement in exchange rate 98,799 38,513 Disposals - - - - - - 22,594 159,906 - - Depreciation expense (320,891) (104,626) (3,344) (565) (125,733) (555,159) Balance at 31 Dec 2009 (1,375,218) (206,997) (143,355) (75,722) (2,066,634) (3,867,926) Net Book Value At 31 Dec 2008 At 31 Dec 2009 742,676 748,662 197,915 69,692 9,947 6,603 1,293 728 309,125 1,260,955 265,649 1,091,334 ThinkSmart Limited, the parent company holds no plant & equipment. 62 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 63 % of Equity Consolidated Company 2009 $ 2008 $ 2009 $ 2009 $ 2008 $ 2009 $ 14.Other Financial Assets Interest in Subsidiaries Country of Incorporation RentSmart Unit Trust RentSmart Pty Ltd Australia Australia RentSmart Limited UK SmartCheck Ltd Australia RentSmart Pty Ltd New Zealand RentSmart Pte Ltd Singapore ThinkSmart Europe Ltd UK ThinkSmart Financial Services Ltd SmartCheck Ltd ThinkSmart Insurance Administration Ltd SmartCheck Finance Spain SL(iii) SmartPlan Spain SL UK UK UK Spain Spain ThinkSmart France SARL France ThinkSmart Sweden AB Sweden ThinkSmart Italy Srl (i) ThinkSmart Inc Italy USA Investment in controlled entities Loan to ThinkSmart Europe Ltd (ii) Loan to RentSmart Unit Trust (ii) Loan to RentSmart Ltd (iii) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23,526 23,526 162,304 109,720 - - - - - - - - - - - - - - - - - - - - - - - - - - 113 113 185,943 133,359 9,057,465 8,493,800 12,889,811 12,805,950 1,191,536 2,480,385 23,324,755 23,913,494 Investments in subsidiaries are measured at cost. The ultimate controlling entity in Australia is ThinkSmart Ltd. (i) On the 9 January 2008, ThinkSmart Italy Srl has changed its name to SmartCheck Italy Srl. (ii) The receivables are unsecured, payable on demand and attract an interest rate of RBA rate plus a margin of 3% per annum (2008: RBA rate plus a margin of 2.55%). (iii) The receivable is unsecured, payable on demand and attracts no interest (2008: nil percent). 63 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 64 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A Funding Agreements $ Software $ Consolidated Distribution Network $ Intellectual Property $ Inertia Contracts $ Total $ 15.Intangible Assets Gross carrying amount At cost Balance at 1 January 2008 Additions Effect of movement in exchange rate 393,979 503,527 - 938,421 876,380 612,858 641,816 4,344,191 6,931,264 - - (49,069) - - - 1,379,907 (347,825) (396,895) Balance at 31 December 2008 897,506 1,814,801 563,789 641,816 3,996,366 7,914,277 Additions 300,403 1,169,748 Effect of movement in exchange rate (73,029) - 56,806 (79,300) - - - 1,526,957 (562,112) (714,441) Balance at 31 December 2009 1,124,880 2,984,549 541,295 641,816 3,434,254 8,726,793 Accumulated amortisation and impairment Balance at 1 January 2008 (22,039) (155,247) (147,539) (240,683) (877,495) (1,443,002) Amortisation expense Impairment loss (173,012) (210,389) (131,082) (32,091) (1,263,194) (1,809,768) Effect of movement in exchange rate (55,128) (197,398) - - - 17,608 - - - (197,398) 126,095 88,571 Balance at 31 December 2008 (447,578) (365,636) (261,013) (272,774) (2,014,593) (3,361,597) Amortisation expense (205,423) (586,788) (124,427) (32,094) (1,147,994) (2,096,726) Effect of movement in exchange rate 65,028 - 48,655 - 393,823 507,506 Balance at 31 December 2009 (587,973) (952,424) (336,785) (304,868) (2,768,764) (4,950,814) Net book value At 31 December 2008 At 31 December 2009 449,928 1,449,165 536,907 2,032,125 302,775 204,510 369,042 1,981,772 4,552,680 336,948 665,490 3,775,980 The Company did not hold any intangible assets during the current or comparative reporting period. 16. Goodwill Balance at beginning of financial year Effect of movement in exchange rate Balance at end of financial year Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 4,861,551 5,284,678 (683,805) (423,127) 4,177,746 4,861,551 - - - - - - IMPAIRMENT TESTING FOR CASH-GENERATING UNITS CONTAINING GOODWILL For the purpose of impairment testing, goodwill is allocated to the UK operations, RentSmart Limited and ThinkSmart Insurance and Administration Ltd, which represents the lowest level within the Group at which goodwill is monitored for internal management purposes. The goodwill arose on the acquisition of RentSmart Limited. The recoverable amount of the RentSmart Limited and ThinkSmart Insurance and Administration Ltd cash-generating unit were based on its value in use, and was determined by using future cash flows generated from the continuing use of the unit. The recoverable amount of the unit was determined to be significantly higher than the carrying amount, therefore no impairment of goodwill is required, and no further sensitivity analysis is considered necessary. 64 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 65 Value in use is determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: (cid:2) Cash flows were projected based on the forecast operating results for 2010, 5% year-on-year growth to 2014, and conservative estimated terminal growth at 2.5%. (cid:2) A post tax discount rate of 13.66% was applied in determining the recoverable amount of the unit. The discount rate was based on the weighted average cost of capital (WACC) for the Group. The WACC is predominantly a factor of the cost of equity which has been set at 15% consistent with independent determinations of the Group’s cost of equity. 17.Assets Pledged as Security RentSmart Unit Trust and ThinkSmart Ltd have pledged all its present and future assets to ANZ as security for the used financing facilities ANZ has provided, as disclosed in note 24(c). 18.Trade and Other Payables Trade and other payables (i) 2,365,369 3,448,588 96,689 42,229 Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ Product plan GST Payable Provision for employee entitlement: Annual leave Long service leave (ii) Other 185,429 497,321 326,971 483,140 264,766 214,501 21,980 325,342 192,638 14,843 - - - - - - - - - - 3,549,366 4,791,522 96,689 42,229 (i) Trade liabilities are normally settled on 30 day terms. (ii) The pro rate entitlement of long service leave is provided for after 7 years of service. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 30. The Company has guaranteed the lease, performance and bank loans of its subsidiaries. Under the terms of the financial guarantee contracts, the Company will make payments to reimburse the lenders upon failure of the guaranteed entity to make payments when fall due. The Company does not expect the financial guarantees to be called on. Refer to note 28 for contingent liabilities which includes the parental guarantees provided to subsidiaries. Terms and face values of the liabilities guaranteed were as follows: IBM equipment lease Performance guarantee of a subsidiary Year of Maturity 2009 Face Value $ 2008 Face Value $ 2009 2014 - 85,696 7,000,000 5,200,000 The method used in determining fair value of these guarantees has been disclosed in note 3(z) determination of fair values. 65 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 66 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 19.Current Borrowings This note provides information about the contractual terms of the Company’s and Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Company’s and Group’s exposure to interest rate, foreign currency and liquidity risk, see note 30. Term loans (ii) Hire purchase and lease liabilities (i) 2,490,679 2,459,304 2,490,679 2,459,304 3,543 116,136 - - 2,494,222 2,575,440 2,490,679 2,459,304 (i) The hire purchase and lease liabilities are secured by a charge over the respective assets (refer note 25). (ii) The $2,490,679 fixed term loan relates to a $2,500,000 180-day commercial bill denominated in Australian Dollar with a fixed interest of 4.64% pa. The loan was payable on the 20 January 2010. The Company has subsequently rolled the $2,500,000 commercial bill for another 180-day ending 19 July 2010 with a fixed interest of 4.58%. 20.Non-Current Borrowings Hire purchase and lease liabilities (i) - - - - - - The carrying amount of the borrowings recorded in the financial statements approximate their aggregate fair values. (i) The hire purchase and lease liabilities are secured by a charge over the respective assets (refer note 25). 21.Other – Non-Current Payable Product Plan (i) 493 493 38,648 38,648 - - (i) Premiums for insurance and warranty are funded in advance and remitted to the underwriter at each anniversary date. - - - - 22.Issued Capital (a) ISSUED AND PAID UP CAPITAL 96,689,390 Ordinary Shares fully paid (2008: 96,689,390) 23,614,091 23,614,091 23,614,091 23,614,091 Company 2009 Company 2008 Number $ Number $ Fully Paid Ordinary Shares Balance at beginning of the financial year 96,689,390 23,614,091 95,030,164 22,242,200 Issue of new shares following exercise of options Adjustment for tax on capitalised IPO cost Balance at end of the financial year - - - - 1,659,226 1,297,463 - 74,428 96,689,390 23,614,091 96,689,390 23,614,091 During the year, no employee share options were exercised (2008: 1,659,226 employee share options were exercised for total proceeds of $1,297,463). Ordinary Shares entitle the holder to participate in dividends and the proceeds on winding up the Company in proportion to the number of and amount paid on the Shares held. On a show of hands, every holder of Ordinary Shares present in the meeting in person or by proxy, is entitled to one vote, and upon a poll Share is entitled to one vote. The Company does not have authorised capital or par value in respect to its issued shares. 66 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 67 (b) SHARE OPTIONS – EMPLOYEE OPTIONS The Company has an ownership-based compensation scheme for executives and senior employees. Each employee share option converts to one ordinary share of ThinkSmart Limited on exercise and payment of the exercise price. The options carry neither rights or dividends nor voting rights. Options may be exercised at any time within the specified exercise period to the date of their expiry. Options issued in previous periods: (cid:2) 840,000 options over ordinary shares were issued 5 January 2006 and exercisable at $0.4375, vesting and exercisable on 1 January 2008 exercisable until 31 December 2008. (cid:2) 1,400,000 options over ordinary shares were issued 5 January 2006 and exercisable at $0.625, vesting and exercisable equally over 3 years on 1 January 2008, 1 January 2009 and 1 January 2010, and exercisable until 31 December 2010. (cid:2) 4,000,000 options over ordinary shares were issued 28 August 2006 and exercisable at $1.125, vesting and exercisable on 28 August 2007 exercisable until 27 August 2008. (cid:2) 1,400,000 options over ordinary shares were issued 28 August 2006 and exercisable at $1.375, vesting and exercisable on 28 August 2008 exercisable until 27 August 2009. (cid:2) 1,400,000 options over ordinary shares were issued 28 August 2006 and exercisable at $1.625, vesting and exercisable on 28 August 2009 exercisable until 27 August 2010. (cid:2) 640,000 options over ordinary shares were issued 17 April 2007 and exercisable at $1.38, vesting and exercisable on 1January 2009 exercisable until 31 December 2011. (cid:2) 720,000 options over ordinary shares were issued 17 April 2007 and exercisable at $3.00, vesting and exercisable on 1January 2009 exercisable until 31 December 2011. Options issued in the current period: (cid:2) 3,350,000 options over ordinary shares were issued 30 June 2009 and exercisable at $0.62, with an exercise period between 1 January 2012 to 31 December 2013. Vesting of the options is subject to achievement of the following performance conditions: – 50% of options are subject to achievement of Earnings per Share (“EPS”) performance conditions; and – 50% of options are subject to achievement of Total Shareholder Return (“TSR”) performance condition. The value of these options will be expensed over the vesting period in accordance with AASB 2. There were no options issued in 2008. Below are options that were issued in 2009: Options series issued in 2009 Number Grant date Exercise period Exercise price $ Fair value at grant date Employee options 3,350,000 30/06/2009 1 January 2012 to 31 December 2013 $0.62 $0.0683 The weighted average fair value of the share options granted in 2009 is $0.0683. Options were priced using a binomial option pricing model. Expected volatility is based on that observed for comparable listed companies over the time period appropriate to the option grant in question. 67 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 68 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 22.Issued Capital (continued) (b) SHARE OPTIONS – EMPLOYEE OPTIONS (continued) Below are the input used to measure the fair value of the options: Issued in 2009 Fair value at grant date Grant date share price Exercise price Expected volatility Option life (days) Dividend yield Risk-free interest rate Employee options $0.0683 $0.48 $0.62 40.0 4.0 years 9.01% 4.96% The following reconciles the outstanding share options granted under the employee share option plan and the beginning and end of the financial year: Balance at beginning of the financial year Granted during the financial year Forfeited during the financial year Exercised during the financial year Expired during the financial year Balance at the end of financial year Exercisable at end of the financial year Number of options 5,186,667 3,350,000 (400,000) 2009 2008 Weighted average exercise price $ Number of options Weighted average exercise price $ $1.52 10,120,000 $1.27 $0.62 $2.35 - - - - (1,659,226) (1,400,000) 6,736,667 3,106,667 $1.38 $1.05 $1.56 (3,274,107) 5,186,667 1,773,334 - - $0.78 $1.13 $1.52 $1.22 The options outstanding at 31 December 2009 have an exercise price in the range of $0.62 to $3.00 (2008: $0.625 to $3.00) and a weighted average contractual life of 2.56 years (2008: 1.81 years). No options were exercised in 2009. The weighted average share price at the date of exercise for share options exercised during the year ended 31 December 2008 was $1.39. The following is the total expense recognised for the period arising from share-based payment transactions. Share options granted in 2006 – equity settled Share option granted in 2007 – equity settled Share option granted in 2009 – equity settled Total expense recognised as employee costs Consolidated Company 2009 $ 23,656 - 28,928 52,584 2008 $ 43,240 11,760 - 55,000 2009 $ 2008 $ - - - - - - - - 68 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 69 (c) DIVIDENDS Dividends recognised in the current year by the Group are: 2009 Final ordinary 2008 Interim ordinary 2009 2008 Interim 2008 ordinary Cents per share Total amount Franked/ unfranked Date of payment 1.5 1.5 $1,450,341 $1,450,341 100% franked 14 April 2009 100% franked 16 October 2009 2 $1,933,788 40% franked 13 October 2008 Franked dividend declared or paid during the year was 100% franked at the tax rate of 30% (2008: 40% franked at the tax rate of 30%). After 31 December 2009, the following dividends were proposed by the directors for 2009. The dividends have not been provided for. The declaration and subsequent payment of dividends has no income tax consequences. Cents per share Total amount Franked/ unfranked Date of payment Final ordinary 2009 2.0 $1,933,788 100% franked 23 April 2010 The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31 December 2009, and will be recognised in subsequent financial reports. (d) FRANKING CREDITS Franking credit account balance as at the beginning of the financial year at a tax rate of 30% (2008: 30%) Franking credits from the payment of income tax paid and payable as at the end of the financial year Franking debits from the payment of dividends in the financial year Franking credits available for subsequent financial years based on a tax rate of 30% (2008: 30%) Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 434,600 - 434,600 - 1,400,092 766,106 1,400,092 766,106 (1,289,624) (331,506) (1,289,624) (331,506) 545,068 434,600 545,068 434,600 The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $828,766 (2008: $621,575). A tax instalment has been paid in January 2010 and another instalment will be paid in April 2010, which will provide sufficient franking credit for the payment of fully franked dividend on 23 April 2010. In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated group is allowed to assume the relevant subsidiaries’ franking credits. As at 31 December 2009, the subsidiaries have no franking credits for the benefit for the Company (2008: nil). 69 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 70 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 23. Reserves Equity settled employee benefits reserve (i) Foreign currency translation reserve (ii) Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 199,726 147,142 199,726 147,142 (3,034,333) (1,968,454) - - (2,834,607) (1,821,312) 199,726 147,142 (i) The share-based compensation reserve arises on the grant of share options to executives under the employee share option plan. Amounts are transferred out of the reserves and into issued capital when the options are exercised. Further information about the share-based payments is made in note 22(b) to the financial statements. (ii) The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. 24.Notes to the Cash Flow Statement (a) For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows: Reconciliation of cash and cash equivalents Cash balance comprises: - cash and cash equivalents 5,468,171 4,547,371 15,426 596,205 The Group’s exposure to interest rate and sensitivity analysis of the financial assets and liabilities are discussed in note 30. (b) RECONCILIATION OF THE PROFIT /(LOSS) FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES: Profit after tax Depreciation Amortisation Loss on disposal of plant and equipment Impairment costs Provision for doubtful debts Provision for employee entitlements Equity settled share based payment Distribution income 5,171,776 3,210,752 1,772,101 3,411,658 555,158 409,686 2,096,726 1,809,768 - - 244,175 (31,576) 52,584 26,845 237,676 233,259 53,300 55,000 - - - - - - - - - - - - - - - - (1,955,532) (3,300,000) Finance charges recognised as financing activity 930,066 588,326 64,674 44,326 (Increase) / decrease in assets: Trade receivables Prepayments Deferred tax asset Other assets Rental asset inventory Increase / (decrease) in liabilities: Trade and other creditors Provision for income tax Deferred tax liability Other payable (759,941) (562,073) - 1,010,760 (1,991,457) (39,363) 8,697 965 865,018 1,146,153 855,646 1,152,792 (117,243) (237,497) (1,712,540) (1,759,365) (9,066) (2,087) - - (1,057,647) (897,455) 54,460 37,016 (1,132,219) (665,013) (996,901) (672,140) (463,956) (482,132) - (38,155) (66,328) 31,377 - - Net cash from/(used in) operating activities 7,316,460 2,866,723 (1,926,078) (1,076,052) 70 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 71 (c) FINANCING FACILITIES Secured bank overdraft facility reviewed annually and payable at call: - - amount used amount unused Hire purchase and/or leasing facilities: - - amount used amount unused Secured bill acceptance facility: - - amount used amount unused Other finance facilities (business credit card, payroll facility, term loan, multi-option facility): - - amount used amount unused Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ - 250,000 250,000 3,543 10,000 13,543 - 250,000 250,000 116,136 10,000 126,136 - 250,000 250,000 - 250,000 250,000 - - - - - - 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 5,000,000 5,000,000 5,000,000 5,000,000 108,500 86,000 7,536,500 6,259,000 7,645,000 6,345,000 - - - - 500,000 500,000 Total Financing Facility 12,908,544 11,721,136 5,250,000 5,750,000 The total financing facility of $12,908,544 (2008: $11,721,136) identified above is reviewed annually and secured over the assets of the group. (d) NON-CASH FINANCING TRANSACTIONS The consolidated entity entered into no non-cash finance transactions during the period (2008: Nil). 71 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 72 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 25.Leases and Hire Purchase Obligations FINANCE LEASES – LEASING ARRANGEMENTS Finance leases relate to computer equipment with lease terms of between 3 to 5 years. The consolidated entity has options to purchase the equipment for a nominal amount at the conclusion of the lease agreements. Finance lease liabilities 31 December 2009 No later than 1 year Later than 1 year and not later than 5 years 31 December 2008 No later than 1 year Consolidated Interest $ 490 - 490 Present value of minimum lease payments $ 3,544 - 3,544 Future minimum lease payments $ 4,033 - 4,033 119,836 119,836 3,700 3,700 116,136 116,136 The carrying amounts recorded in the financial statements approximate their aggregate net fair values. The Company has no finance lease liabilities. OPERATING LEASES – LEASING ARRANGEMENTS Operating leases relate to office facilities with lease terms of between 1 and 6 years. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period. Non-cancellable operating lease payments: No later than 1 year Later than 1 year and not later than 5 years Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 809,814 816,380 2,614,348 3,563,997 3,424,162 4,380,377 - - - - - - No provisions have been recognised in respect of non-cancellable operating leases. 72 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 73 26.Segment Information The Group has 3 reportable segments, which are the group’s strategic business units. The strategic business units offer the same products and services, and are based on geographical location. For each of the strategic business units, the CEO reviews the internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments: (cid:2) Europe: Includes UK, Spain, Italy and France (cid:2) Australasia: Includes Australia and New Zealand (cid:2) USA Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis. Comparative segment information has been represented in conformity with the requirement of AASB 8 Operating Segments. 73 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 74 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 26.Segment Information (continued) OPERATING SEGMENTS Information about reportable segments For the year ended 31 December External revenues Intersegment revenue Interest income Interest expense Depreciation and amortisation Europe Australasia 2009 $ 2008 $ 2009 $ 2008 $ 15,244,638 20,157,084 21,510,686 18,648,361 $ $ $ $ - 2,374 - 2,061,806 43,816 950,438 (100,397) (961,219) 2,615,158 1,061,438 (8,139) (532,471) (915,329) (984,145) (1,690,667) (1,602,841) Reportable segment profit before income tax 3,984,700 4,899,901 8,065,567 7,189,225 Other material non-cash items: Impairment on plant and equipment and intangible assets - - Reportable segment assets Capital expenditure 15,591,339 17,532,962 414,377 879,609 - 8,817,925 1,577,518 - 8,480,497 1,314,148 Reconciliation of reportable segment revenues Total revenue for reportable segments Elimination of inter-segment revenue Consolidated revenue Reconciliation of reportable segment profit or loss Total profit or loss for reportable segments Elimination of inter-segment profits Unallocated expenses Consolidated profit before tax Reconciliation of reportable segment assets Total assets for reportable segments Other unallocated amounts Consolidated total assets Reconciliation of reportable segment liabilities Total liabilities for reportable segments Other unallocated amounts Consolidated total liabilities There has been no change to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2008. 74 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 75 2009 $ 1,495 - - - - USA Total 2008 $ 2009 $ 2008 $ 93,069 36,756,819 38,898,514 - - - 2,061,806 952,812 2,615,158 1,105,254 (1,015,726) (992,284) 84,142 (2,651,886) (2,051,170) (27,210) (2,493,053) 12,023,058 9,596,073 - 6,456 - 237,676 61,110 396,003 - 237,676 24,415,720 26,074,569 1,991,895 2,589,760 38,818,625 41,513,672 (2,061,806) (2,615,158) 36,756,819 38,898,514 12,023,058 9,596,073 (2,284,082) (2,023,938) (2,105,652) (1,871,197) 7,633,324 5,700,938 24,415,720 26,074,569 323,974 365,032 24,739,694 26,439,601 6,626,777 9,533,517 (50,966) - 6,575,811 9,533,517 75 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 76 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 27.Remuneration of Auditors Audit services: Auditors of the Company: Audit and review of financial reports (Australia) Audit and review of financial reports (Overseas) Services other than statutory audit: Other assurance services Tax The Group’s auditors are KPMG in 2009 and 2008. 28.Commitments and Contingent Liabilities Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 181,330 86,902 268,232 276,312 102,312 378,624 79,952 146,728 - - 79,952 146,728 33,896 33,896 77,385 77,385 11,620 11,620 34,150 34,150 Under the terms of the UK funder agreement, the Group is potentially liable to refund part of its brokerage income in the event that the funder’s bad debts exceed certain pre-agreed levels. As at 31 December 2009, the maximum amount of brokerage income that the Group may potentially have to refund in the future is $485,516 (2008:$268,974). The parent Company has provided guarantees to its subsidiaries, which are contingent liabilities. Refer to note 18 for the guarantees provided. 29.Contingent Inertia Assets Under the Group’s accounting policy (note 3(o)), inertia revenue is not recognised until the conclusion of the initial rental period. At this point, the Group is entitled to acquire the equipment from the funders at a nominal value, and the equipment can be disposed of, or continue to be rented to third parties. The Group does not have control over these future revenue streams and accordingly the revenue is not brought to account until it is received. A conservative estimate of its realisable value has been made by estimating expected sales proceeds through the least profitable sales channel and public auction. The after-tax cash flows, calculated from rental contracts in existence at 31 December 2009, are discounted using appropriate risk factors. The estimated value of future cash flows is $10,635,969 (2008: $10,932,373), representing the discounted after tax value of assets as determined by reference to auction sales history. At 1 December 2006, the Group acquired RentSmart Limited. Inertia income of $4,803,652 was recognised as an intangible asset as part of the business combination. At 31 December 2009, this asset is carried at amortised cost of $665,490. This inertia intangible is not included in the contingent asset disclosed above. 76 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 77 30.Financial Instruments 30(a) INTEREST RATE RISK Profile At the reporting date, the interest rate profile of the Company’s and the Group’s interest-bearing financial instrument were: Fixed rate instruments Loan receivable from related parties Financial asset Term loan Consolidated Carrying amount 2009 $ 2008 $ Company Carrying amount 2009 $ 2008 $ - - - - 21,947,276 21,299,750 21,947,276 21,299,750 2,490,679 2,459,304 2,490,679 2,459,304 Hire purchase and finance lease liability 3,543 116,136 - - Financial liability Variable rate instruments Cash and cash equivalent Financial asset Sensitivity analysis Fixed rate instruments 2,494,222 2,575,440 2,490,679 2,459,304 5,468,171 4,547,371 5,468,171 4,547,371 15,426 15,426 596,205 596,205 The Group has drawn a $2,500,000 180-day commercial bill payable on 20 January 2010 at a fixed rate of 4.64% per annum (2008: $2,500,000 at a fixed rate of 4.04% per annum). Variable rate instruments The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The Group does not have derivative instruments, therefore a change in interest rates at the reporting date would not affect equity. A change in 1% in interest rates would have increased or decreased the Group’s profit by $8,171 (2008: $11,399) and the Company’s profit by $200,928 (2008: $179,471). 30(b) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their aggregate net fair values. 30(c) CREDIT RISK MANAGEMENT Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum credit exposure to credit risk at reporting date was: 77 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 78 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 30.Financial Instruments (continued) 30(c) CREDIT RISK MANAGEMENT (continued) Cash and cash equivalent Trade receivables (current) Trade receivables (non-current) Sundry debtors Deals awaiting settlement Prepayment (current) Prepayment (non-current) Loan receivables from related parties Impairment losses Note 8 8 8 11 10 12 14 Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 5,468,171 4,547,371 15,426 596,205 1,893,772 1,882,885 731,609 210,384 61,044 - 310,131 118,233 - - - - - - - - 4,315,120 4,509,891 53,526 14,164 2,953,610 3,648,041 - - - - 23,324,755 23,913,494 15,733,457 14,916,805 23,393,707 24,523,863 None of the Company’s receivables are past due (2008: nil). The ageing of the Group’s trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-120 days Past due 120-365 days More than 1 year Gross 2009 $ 2,145,578 98,626 93,604 Impairment 2009 $ 23,246 32,494 26,927 209,286 125,820 78,288 5,961 Gross 2008 $ 1,131,155 404,643 313,964 140,477 103,030 Impairment 2008 $ - 107,575 63,899 87,140 - 2,625,382 214,448 2,093,269 258,615 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 January Impairment loss recognised Write back for the year Bad debt written off Effect of exchange rate Balance at 31 December 2009 $ 258,615 214,448 141,488 2008 $ 265,704 258,616 (21,839) (375,983) (232,596) (24,120) (11,270) 214,448 258,615 Trade receivables are reviewed and considered for impairment on a periodical basis, based on the number of days outstanding and number of payments in arrears. 55% (2008: 50%) of net trade receivables balance is owed by the Group’s most significant financiers, and 21% (2008: 25%) of the remaining net receivables balance is owed by debtors with a good credit history with the Group. In 2009, 73% (2008: 82%) of the total prepayment relates to RentSmart Limited’s upfront insurance premiums payment to Allianz on behalf of the rental customer. The premiums are recovered from the customer on a monthly basis. In the event the customer defaults, the policy is cancelled and Allianz refunds the unexpired premium. 78 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 79 Exposure to currency risk The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: In AUD Cash and cash equivalent Trade and other receivables Trade and other payables Gross exposure In AUD Cash and cash equivalent Trade and other receivables Trade and other payables Gross exposure 31 December 2009 GBP EUR 3,253,711 236,491 360,190 66,145 NZD 60,560 76,681 (1,345,557) (211,075) (89,336) 2,268,344 91,561 47,905 31 December 2008 GBP EUR NZD 1,567,454 378,717 239,583 110,251 102,122 198,402 USD 6,129 - (430) 5,699 USD 53,994 - (2,432,023) (415,987) (92,959) (245,857) (485,852) (66,153) 207,565 (191,863) The Company’s foreign currency risk is nil as it is only exposed to the Australian dollar. The following significant exchange rates applied during the year: AUD EUR GBP USD Sensitivity analysis Average rate 2009 0.5664 0.5044 0.7927 2008 0.5772 0.4584 0.8525 Reporting date spot rate 2008 2009 0.6241 0.5581 0.8969 0.4919 0.4796 0.6928 A 10% strengthening of the Australian dollar against the following currencies at 31 December would have increased/(decreased) equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2008: 31 December 2009 EUR GBP USD 31 December 2008 EUR GBP USD Consolidated Company Equity $ Profit or loss $ Equity $ Profit or loss $ 70,836 69,065 (1,215,251) (133,817) 548 2,473 (35,938) (40,969) (1,210,519) (271,569) 16,795 221,783 - - - - - - - - - - - - A 10% weakening of the Australian dollar against the above currencies at 31 December would have had equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. 79 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 80 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 30.Financial Instruments (continued) 30(e) LIQUIDITY RISK MANAGEMENT The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the Carrying Amount Contractual cash flow Less than 1 year 1-2 years 2-5 years - - - (492) (492) - - - (38,648) (38,648) - - - - - - - - - - - - - - - - - - - - - - impact of netting agreements: CONSOLIDATED 31 December 2009 Trade and other payables Term loans Hire purchase and lease liabilities Product plan (non-current) 31 December 2008 Trade and other payables Term loans 3,048,126 (3,048,126) (3,048,126) 2,490,679 (2,490,679) (2,490,679) 3,543 492 (3,543) (492) (3,543) - 5,542,840 (5,542,840) (5,542,348) 4,258,699 (4,258,699) (4,258,699) 2,459,304 (2,500,000) (2,500,000) Hire purchase and lease liabilities 116,136 (119,836) (119,836) Product plan (non-current) 38,648 (38,648) - 6,872,787 (6,917,183) (6,878,535) COMPANY 31 December 2009 Trade and other payables Term loans 31 December 2008 Trade and other payables Term loans 96,689 (96,689) (96,689) 2,490,679 (2,490,679) (2,490,679) 2,587,368 (2,587,368) (2,587,368) 42,229 (42,229) (42,229) 2,459,304 (2,500,000) (2,500,000) 2,501,533 (2,542,229) (2,542,229) 80 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 81 31.Related Party Disclosures The following were key management personnel (“KMP”) of the group are any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-Executive Directors P Mansell S Penglis D Griffiths Executive Directors N Montarello (Chairman, Managing Director and Chief Executive Officer) Executives N Barker (Group Chief Operating Officer, ThinkSmart Ltd) S McDonagh (Executive General Manager, RentSmart Unit Trust) M Radotic (General Manager Sales and Marketing - Continental Europe, ThinkSmart Europe Ltd) G Varma (Group Chief Information Officer, ThinkSmart Ltd) G Parry (Managing Director - UK, RentSmart Limited) The KMP compensation included in ‘employee benefits expense’ in note 6(b) is as follows: Short-term employee benefits Post-employment benefits Share-based payment Consolidated Company 2009 $ 2008 $ 2009 $ 2008 $ 2,240,908 2,231,883 171,089 165,462 36,619 34,541 2,448,616 2,431,886 - - - - - - - - The KMP receive no compensation in relation to management of the Company (2008: nil). The compensation disclosed above represents an allocation of the KMP’s estimated compensation from the Group in relation to their services rendered to the Company. INDIVIDUAL DIRECTORS AND EXECUTIVES COMPENSATION DISCLOSURES Information regarding individual directors and executives compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ report. Apart from the details disclosed in this note, no director has entered into a material contract with the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. LOANS TO KMP AND THEIR RELATED PARTIES There has been no loan provided to KMP and their related parties as at 31 December 2009 (2008: nil). OTHER KMP TRANSACTIONS During the year and previous year, there has been no transaction with entities in which the KMP has significant influence over those entities’ financial or operating policies. OPTIONS AND RIGHTS OVER EQUITY INSTRUMENTS The movement during the reporting period in the number of options over ordinary shares in ThinkSmart Ltd held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: 81 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 82 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 31.Related Party Disclosures (continued) EMPLOYEE OPTIONS Held at 1 January 2009 Granted as compensation Exercised Lapsed or forfeited Held at 31 December 2009 Vested during the year Vested and exercisable at 31 December 2009 - - - - - - 2,800,000 1,000,000 560,000 500,000 - 300,000 280,000 300,000 186,667 150,000 280,000 300,000 - - - - - - - - - - - - - - - - - - - - - (1,400,000) 2,400,000 1,400,000 1,400,000 - - - - - 1,060,000 373,333 560,000 300,000 - - 580,000 280,000 280,000 336,667 93,333 186,667 580,000 280,000 280,000 Held at 1 January 2008 Granted as compensation Exercised Lapsed or forfeited Held at 31 December 2008 Vested during the year Vested and exercisable at 31 December 2008 - - - 6,800,000 560,000 - 280,000 560,000 280,000 280,000 - - - - - - - - - - - - - - - - - - - - - - - - - (805,893) (3,194,107) 2,800,000 1,400,000 1,400,000 - - - (373,333) - - - - - - - - 560,000 93,333 186,667 - 280,000 186,667 280,000 280,000 - - - - 93,333 93,333 - - - - Directors P Mansell S Penglis D Griffiths N Montarello Executives N Barker S McDonagh M Radotic G Varma G Parry Directors P Mansell S Penglis D Griffiths N Montarello Executives N Barker S McDonagh M Radotic G Varma G Parry J Rozenbroek No options were held by key management person related parties. 82 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 83 MOVEMENT IN SHARES The movement during the reporting period in the number of ordinary shares in ThinkSmart Ltd held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: 2009 Directors P Mansell S Penglis D Griffiths N Montarello Executives N Barker S McDonagh M Radotic G Varma G Parry 2008 Directors P Mansell S Penglis D Griffiths N Montarello Executives N Barker S McDonagh M Radotic G Varma G Parry Purchases Sales Received on exercise of options Held at 31 December 2009 Held at 1 January 2009 1,300,000 1,610,500 1,613,360 17,253,192 172,999 51,000 35,000 398,333 25,357 Held at 1 January 2008 250,000 - - (550,000) 186,640 151,373 - 60,000 - - - Purchases Sales 1,288,192 1,360,500 1,463,360 11,808 250,000 150,000 13,742,732 2,704,567 22,999 - 35,000 25,000 25,357 150,000 51,000 - - - - - - - - - - - - 1,550,000 1,060,500 1,800,000 17,404,565 172,999 111,000 35,000 398,333 25,357 Received on exercise of options Held at 31 December 2008 - - - 1,300,000 1,610,500 1,613,360 805,893 17,253,192 - - - 172,999 51,000 35,000 373,333 398,333 - 25,357 - - - - - - - - - - - - - - - - No shares were granted to key management personnel during the reporting period as compensation in 2009 or 2008. No shares were held by related parties of key management personnel. PARENT The parent entity of the Group is ThinkSmart Limited. SUBSIDIARIES Transactions between ThinkSmart Limited and its subsidiaries, and amongst the various subsidiaries, consists of the payment and receipt of royalty fee, investment in subsidiaries, interest on intercompany loans, dividend distribution, management fee and transfer of funds amongst the companies for day to day financing and intercompany loans. 83 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 84 NOTES TO THE FINANCIAL STATEMENTS 9 0 0 2 t r o p e R l a u n n A 31.Related Party Disclosures (continued) Details of related party transactions, balances and amounts are set out below: Investments in controlled entities Amount owed by ThinkSmart Europe Ltd (i) Amount owed by RentSmart Unit Trust (i) Amount owed by RentSmart Ltd (ii) Company 2009 $ 2008 $ 185,943 133,359 9,057,465 8,493,800 12,889,811 12,805,950 1,191,536 2,480,385 23,324,755 23,913,494 (i) Amounts receivable by the parent entity from and to subsidiaries are unsecured, repayable on demand in cash and at an interest rate of RBA rate plus a margin of 3% per annum. The amount of interest revenue recognised from subsidiaries is $1,713,800 (2008:$1,759,365) for the year ended 31 December 2009. (ii) Amounts receivable by the parent entity from and to subsidiaries are unsecured, repayable on demand in cash and interest free. The receivable from ThinkSmart Europe Ltd relates to funding for the acquisition of the remaining interest of RentSmart Ltd in UK in 2006. The receivable from RentSmart Unit Trust relates to the funding to repay external borrowings. The receivable from RentSmart Ltd relates to the funding of the US operation during the year. OTHER RELATED PARTIES KMP related parties For details of these transactions, refer to KMP related disclosures. 32.Subsequent Events There has not been any matter or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 2009 Cents per share 2008 Cents per share 5.35 5.26 3.34 3.22 33.Earnings Per Share Basic earnings per share From continuing operations Diluted earnings per share From continuing operations 84 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 85 BASIC EARNINGS PER SHARE The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Profit after tax from continuing operations Earnings used in the calculation of basic EPS from continuing operations 2009 $ 2008 $ 5,171,776 3,210,752 5,171,776 3,210,752 2009 Number 2008 Number Weighted average number of ordinary shares for the purposes of basic earnings per share 96,689,390 96,028,963 DILUTED EARNINGS PER SHARE The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows: Profit after tax from continuing operations Earnings used in the calculation of diluted EPS from continuing operations 2009 $ 2008 $ 5,171,776 3,210,752 5,171,776 3,210,752 2009 Number 2008 Number Weighted average number of ordinary shares for the purposes of diluted earnings per share are as follows: Weighted average number of ordinary shares used in the calculation of basic EPS 96,689,390 96,028,963 Shares deemed to be issued for no consideration in respect of: Employee options 1,693,407 3,635,142 Weighted average number of ordinary shares used in the calculation of diluted EPS 98,382,797 99,664,105 At 31 December 2009, 3,386,667 options (2008: 4,160,000) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive. 85 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 86 INDEPENDENT AUDIT REPORT 9 0 0 2 t r o p e R l a u n n A 86 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 87 87 TS AR 2009 Fins:Layout 1 7/4/10 4:29 PM Page 88 SHAREHOLDER INFORMATION 9 0 0 2 t r o p e R l a u n n A The shareholder information set out below was applicable as at 31 March 2010. Substantial shareholder The number of shares held by substantial shareholders and their associates are set out below: Include those above 5% UBS Wealth Management Australia Nominees Pty Ltd JP Morgan Nominees Australia Ltd HSBC Custody Nominees (Australia) Ltd ANZ Nominees Limited Cogent Nominees Pty Ltd Voting rights ORDINARY SHARES Refer to note 22 of the financial statements. OPTIONS There are no voting rights attached to the options. Distribution of equity security shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over No. of ordinary shares Percentage % 17,654,565 10,315,221 8,359,415 5,422,900 5,177,456 18.22 10.65 8.63 5.60 5.34 Number of equity security holders Ordinary Shares Options 90 291 176 234 43 - - - - 13 The number of shareholders holding less than a marketable parcel of ordinary shares is 10. Unquoted equity securities Options issued under the ESOP to take up ordinary shares The Company has no other unquoted equity securities. On-market buy-back There is no current on-market buy-back. No. on issue 6,736,667 No. of holders 13 88 TS AR 2009 Inside Back Cover:Layout 1 7/4/10 3:52 PM Page 1 Twenty largest shareholders Name UBS Wealth Management Australia Nominees Pty Ltd JP Morgan Nominees Australia Ltd HSBC Custody Nominees (Australia) Ltd ANZ Nominees Limited Cogent Nominees Pty Ltd Wroxby Pty Ltd JAWP Pty Ltd National Nominees Limited Citicorp Nominees Pty Ltd Kemast Investments Pty Ltd Phoenix Properties International Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Ltd Aileendonan Investments Pty Ltd Darju Pty Ltd Osborne Properties Pty Ltd Moat Investments Pty Ltd Wulura Investments Pty Ltd Manfam Pty Ltd Mrs Kelyna Margaret Penglis Bradgale Nominees Pty Ltd No. of ordinary shares held 17,654,565 10,315,221 Percentage of capital held (%) 18.22 10.65 8,359,415 5,422,900 5,177,456 4,717,364 4,200,000 4,002,514 3,445,943 3,300,000 3,000,000 2,999,492 1,970,140 1,463,360 1,274,000 1,226,732 1,119,248 1,100,000 764,000 700,000 8.63 5.60 5.34 4.87 4.33 4.13 3.56 3.41 3.10 3.10 2.03 1.51 1.31 1.27 1.16 1.14 0.79 0.72 89