ANNUAL REPORT
2010
DIRECTORS’ REPORT
ANNUAL REPORT 2010
Table of Contents
A FOCUSED, GLOBAL BUSINESS
AN INNOVATIVE GROWTH COMPANY
GROWTH OPPORTUNITIES FOR THE FUTURE
EXECUTIVE CHAIRMAN & CEO REPORT
TRADING RESULTS UPDATE
CORPORATE & SOCIAL RESPONSIBILITY
DELIVERING VALUE THROUGH.....
FINANCIAL REPORT
2
4
6
10
12
15
16
17
ANNUAL GENERAL MEETING
2010 Annual General Meeting of ThinkSmart Limited will be
held at Level 36, 250 St George’s Tce, Perth, Western Australia
on Monday 16th May at 3.30 pm.
ANNUAL REPORT 2011
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.
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ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
A Focused, Global Business
Directors’ Meetings
Matters which are specifically reserved for the Board or its
The following table sets out the number of directors’
meetings held during the financial year. During the financial
year 7 Board meetings were held.
Committees under the Board Charter include:
(cid:31)
(cid:31)
(cid:31)
appointment of a chair;
appointment and removal of the CEO;
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;
Director
Peter Mansell
Board
Meetings
B
A
ThinkSmart has long term distribution agreements
with some of the world’s leading electrical retailers
and banking institutions across Europe and
Australasia.
establishment of Board Committees, their membership
development and review of corporate governance
approval of operational budgets, major capital
and delegated authorities;
principles and policies;
approval of dividends;
2*
1
1
6
7
1
2
2
7
7
2
2
1
7
1
7
1
(cid:31)
(cid:31)
(cid:31)
(cid:31)
-
Ned Montarello
David Griffiths
Steven Penglis
7
7
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
expenditure, acquisitions and divestitures in excess of
authority levels delegated to management;
calling of meetings of shareholders; and
any other specific matters nominated by the Board from
(cid:31)
(cid:31)
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.
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.
ThinkSmart’s funding agreements are contracted
to dates between 2011 and 2014
2
ANNUAL REPORT 2011
Product and technology innovation delivers growth,
profit and new opportunities.
Product innovation
delivers services based
rental product
PRODUCT
FUNDING
CAPACITY
New funding platforms
significantly increase
growth opportunities
Australian Patented
QuickSmart
technology platform
facilitates fast and
efficient instore and
online approval process
DELIVERY
SYSTEMS
• Volume growth
• Access to new markets
• Efficiency
• Customer satisfaction
• Shareholder Value
3
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
An Innovative Growth Company
In FY 2010, ThinkSmart increased net profit
after tax by 31% to a record result of $6.8m
Recent Achievements
• Completed a $16m equity raising, providing capital to support $160m of new funding lines in
UK and Australia.
• Executed funding agreement with Secure Trust Bank in UK to provide GBP40m revolving
facility for Business and Consumer customers. In Australia, $200m Multi Funder
Securitisation platform on track for completion in first half of 2011.
•
Implemented “Infinity” services based rental product for Consumers in UK market.
• Enhanced the online application and approval web portal leading to the grant of an Australian
Innovation Patent on the online rental process and creating a technological competitive
advantage in ThinkSmart’s chosen markets.
• Extended key retail agreements in UK and Australia.
• Delivered sustainable operating efficiencies through systems capabilities resulting in the
cost of doing business reducing by 17%.
•
Integrated ThinkSmart’s application and approval system into Dixons retail point of sale
system across all UK retail franchises.
2010 Financial Highlights
• Grew NPAT 31% to $6.8m to deliver a record profit at the top end of market EBITDA
guidance.
• Delivered EBITDA CAGR of 17% from 2007 to 2010.
• Achieved 34% growth in EBITDA from our Australian business with a 45% uplift in new
business volumes.
• Grew EBITDA Margins by 5% delivered by reducing the cost of doing business by 17%.
• Grew Earnings Per Share by 23%.
• Paid shareholders 3.5 cents total dividend for the 2010 year.
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}} ANNUAL REPORT 2011
Revenue +14%
$42.1m
NPAT +31%
$6.8m
9000
8000
7000
6000
5000
4000
3000
2000
1000
$0
2007
2008
2009
2010
2007
2008
2009
2010
Cost of Doing Business -17%
CAGR
(2007 - 2010)
Cost of Doing
Business
NPAT
Revenue
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2007
2008
2009
2010
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0% 120.0%
The Cost of Doing Business is the difference between the
gross margin and EBITDA margin.
NPAT
Total Revenue
Earnings Per Share
EBITDA
EBITDA Margin (pre Corp Dev costs)
Cost of Doing Business
Final Dividend - partly franked
FY2010
$6.8m
$42.1m
6.5¢
$13.3m
42%
22%
3.5cps
FY2009
$5.2m
$36.8m
5.3¢
$11.9m
40%
27%
3.5cps
% change
+31%
+14%
+23%
+12%
+5%
-17%
no change
5
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Growth Opportunities
For The Future
Execution of complimentary strategic
projects in 2011 for product, funding and
delivery systems creates further significant
growth opportunities.
ThinkSmart has successfully positioned its business through the challenging global economic environment by
staying true to three guiding principles for growth:
Governing Principles
1. Growth Through Cash
Flow Not Debt
2. Pace of Expansion
Governed by Performance
3. Alignment with Market
Leading Retailers
Strategic Focus
Expand Accessible
Market through
Consumer Rental
Grow Distribution
in New and Existing
Territories
Grow Revenue
Lines and Continue
to Diversify Income
Improve Delivery
and Customer
Experience
• Significantly
• Targeting
• Follow
• QuickSmart &
expands total
available market
in UK
new Retail
partnerships
• Grow the
• Potential to
introduce to
other existing
territories
internet
acquisition
channel in all
markets
Australian
mature territory
model
• Repeat
customer
strategy
Eclipse systems
automate
process at
stores and
significantly
reduce costs of
doing business
ThinkSmart adopted a strategic plan in 2009 with the aim of cementing its position as the leading international
provider of point-of-sale finance in its chosen markets. The plan involved innovative product design to provide
a compelling value proposition to customers, enhancing web based application and approval systems to
deliver a simple, fast and efficient platform for retail staff and customers, and finally to create funding
capacity to support future growth arising from these leading edge developments. Elements of the plan have
been implemented and have contributed to the Group’s 37% growth in new business volumes in 2010.
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ANNUAL REPORT 2011
Expand Accessible Market through Consumer Rental
ThinkSmart launched consumer rental in to the UK market in November 2010 with the Infinity product. This
services based product is a compelling value proposition for customers. A similar move into Consumer in
Australia over 5 years ago has seen consumer volumes increase at a compound annual growth rate of around
50% and this segment of the market now accounts for 70%+ of new business volumes in Australia.
Consumer rentals in the UK represent a material growth opportunity for 2011 and beyond, evidenced by the
relative size of the currently available Business segment across Dixons and the Consumer segment which is
4 times larger.
Outside of the UK, ThinkSmart is exploring the appetite from existing and potential retail partners to expand
ThinkSmart’s operations to include Consumer.
Grow Distribution in New and Existing Territories
ThinkSmart currently originates 32% of new business volumes in Australia online where the customer applies
through ThinkSmart’s website and once approval is notified the customer can execute the rental agreement
and collect the rental equipment instore. In addition to expanding distribution through traditional channels,
ThinkSmart is looking to increase its customer acquisition through Internet sales.
Recent technology developments in the UK market have seen ThinkSmart’s systems integrated with its retail
partner Dixons point of sale systems. When a customer is approved for rental finance at home they can print
out an approval confirmation that carries a unique barcode. This document can be scanned by any Dixons
point of sale terminal to authenticate the approved application and allow the customer to select equipment
up to the pre-approved limit. Equipment details are automatically captured by Dixons point of sale process
and added to the rental contract prior to execution by the customer.
The next phase of this evolution will deliver electronic signature technology to the application and approval
process creating the opportunity for ThinkSmart to offer rental finance to customers choosing to purchase
technology products through the Internet without visiting a traditional retail store. This innovative and leading
edge development will allow ThinkSmart to expand the distribution reach with existing retail partners in
addition to creating new relationship opportunities with participants in the online retail space. ThinkSmart’s
opportunity to expand distribution into new territories using online capability will reduce the establishment
costs and operating risks of expanding the Group’s international footprint.
7
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Growth Opportunities
For The Future (continued)
Grow Revenue Lines and Continue to Diversify Income
ThinkSmart’s existing territories create opportunities to diversify the revenue base and grow total income. The
RentSmart business in Australia was established in 1996 and generates income from brokerage (Commercial
and Consumer rental finance), insurance, inertia and warranty services. In contrast, Italy operations were
established in 2007 and generate income from Commercial rental finance only. As each territory matures
the opportunity to grow revenue lines increases as demonstrated by the UK business which has recently
introduced the Consumer product.
Australia
(est 1996)
United Kingdom
(est 2003)
Spain
(est 2005)
Italy
(est 2007)
13%
19%
11%
20%
37%
35%
41%
5%
19%
49%
51%
100%
Commercial
Consumer
Insurance
Warranty
Inertia
Maturity Of Business Model
Improve Delivery and Customer Experience
ThinkSmart has transitioned from a telephone based applications and approval process to a web portal that
allows the customer to apply for rental finance from instore or from the comfort of their home or office. This
innovative approach has seen the time to complete the end to end process reduced to a few minutes thereby
delivering a significantly improved experience for customers and retailers alike. In addition, ThinkSmart has
achieved operating efficiencies that has led to a 17% reduction in the cost of doing business in 2010.
The QuickSmart system has been developed inhouse and has recently been awarded an Australian Innovation
Patent. Further developments including e-signature technology will further improve efficiency and the overall
experience for customers and retailers. The process establishes ThinkSmart as a global leader in this niche
and strengthens its competitive advantage in the markets it chooses to operate in.
8
ANNUAL REPORT 2011
To effectively capture the growth opportunities it has created, ThinkSmart has negotiated material increases
in funding capacity. Delivering increased funding facilities at a lower overall cost was achieved by ThinkSmart
developing in conjunction with banks an alternate funding model that can co-exist with the traditional funding
structures. In Australia, ThinkSmart is well advanced in the implementation of a Master Trust Multi Funder
Securitisation Program that doubles existing capacity. Key elements of the transformation plan are:
•
Leases are written “on balance sheet” rather than initiated under a brokerage model on behalf of funding
banks.
• Master Trust structure is non-recourse to ThinkSmart.
• Platform supports additional funders on as needs basis and provides access to securitization markets
to further increase future capacity.
•
Improved margins delivered through a transition to an annuity revenue stream and lower funding costs.
• No refinancing risk – all facilities pay down in line with repayments from customers.
• $160m in additional funding capacity initially created across UK and Australia.
• New and existing funding sufficient to settle 3x 2010 business volumes in all territories going forward.
UK Funding Capacity (GBPm)
Australian Funding Capacity ($Am)
80
70
60
50
40
40
30
20
10
-
225
200
175
150
125
100
75
50
25
-
2009
2010
2009
2010
Drawn
Undrawn
Cash
Drawn
Undrawn
Cash
9
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Executive Chairman & CEO Report
Dear Shareholders
I am pleased to be able to report that, for the Financial Year ended 31st December 2010, ThinkSmart delivered
a record full-year Net Profit after Tax of $6.8 million, up 31% on the previous year and delivering to the top end
of the full year EBITDA target. This result was achieved through increased revenue of 14% and a 17% reduction
in the cost of doing business.
Not only have we continued to prove our model’s resilience through the challenges of the global economic
downturn evidenced by 4 consecutive years of record profit growth since listing on the ASX in 2007, but we
have also reinforced with investors that ThinkSmart continues to be a growth company with a 37% uplift in new
business volumes in the year.
A Growth Company
To support the growth momentum ThinkSmart has successfully accessed increased global funding capacity to
support significant levels of future growth. In recent months ThinkSmart has captured $160 million in additional
funding capacity across Australia and UK which together with pre-existing capacity is sufficient to settle 3 times
2010 business volumes. The new funding arrangements provide flexibility and the structure supports additional
funders when growth in demand requires increased capacity, and overall lower funding costs will grow margins
over time.
Access to global funding lines requires a level of capital support and given the magnitude of additional funding
this lead to ThinkSmart raising $16m of additional equity in October 2010. It is expected that any future capital
requirements to support organic growth will be satisfied by internally generated capital.
Systems
The Australian deployment of our new “QuickSmart” online application portal in 2009 has been followed by
deployment to the UK in October 2010. The recently patented QuickSmart system makes the application
experience easier and faster for store sales people; delivering notable efficiency gains for our call centre teams;
and reduced our overall cost of doing business by 17%. The instore experience for the sales person and the
customer is vastly improved leading to increased penetration rates on computer sales. QuickSmart also creates
the opportunity to expand our distribution channels significantly through the growth of our Internet business.
Through a set of improvements to our online process and marketing, we have grown the Internet channel in
Australia to account for up to 32% of all volume in a month, up from 27% a year earlier.
Product
The introduction of services to the rental product in Australia has contributed to increases in volumes of 45% in
2010, far in excess of the computer sales growth of our retail partners. Following the success of the Australian
product initiatives, a more comprehensive services based consumer rental product was introduced to the
UK market in November 2010 though our long term retail partner Dixons. Together with the integration of
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ANNUAL REPORT 2011
ThinkSmart’s systems into Dixons point of sale system, the Company is optimistic that the new Infinity consumer
product will drive growth and increased profitability in our UK operations in 2011 and beyond.
Markets
Retailing in Europe continues to be challenging however there are opportunities to grow the UK operations
leveraging the Infinity consumer product delivered through more efficient online systems and stable funding
capacity at an appropriate pricing structure. In Australia, the retailing outlook is stable however ThinkSmart sees
opportunities to leverage online capability together with lower delivery costs and increased funding capacity to
further grow future new business volumes.
ThinkSmart will continue to work towards leveraging and adapting its existing business model to capitalise on
opportunities in new territories. Further development of expansion opportunities will occur in 2011 with a view to
target new markets in 2012.
Growth Opportunities
ThinkSmart has successfully delivered the key elements of a successful growth strategy being:
•
•
•
•
•
distribution through leading international retailers across global markets;
capital to support growth expectations;
product innovation recognised by retail partners as contributing value to their businesses;
funding capacity to adequately support growth expectations;
delivery systems that are leading edge and provide competitive advantage.
These elements have global application and support ThinkSmart’s growth ambitions in selected markets. In
2011 and beyond we seek to successfully leverage these strategic elements and profitably grow the international
businesses thereby delivering enhanced shareholder value.
Final Dividend
Finally, on 29 April 2011 we paid a final dividend of 3.5 cents per share partly franked, representing the full
dividend entitlement for the year. We thank all our staff for their continued hard work and enthusiasm and look
forward to continuing to grow together in 2011 and beyond.
Sincerely
NED MONTARELLO
Executive Chairman & CEO
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ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Trading Results Update
Australia – Continued Strong Growth &
Sustainable Cost Efficiencies
ThinkSmart’s 15 year old Australian business continues to deliver exceptional year on year performance growing
EBITDA by 34% from revenue growth of 30%. Over the last 4 years, the Australian business has delivered a
Compound Annual Growth Rate (CAGR) of 43% on EBITDA, with the businesses’ move into consumer rental five
years ago seeing consumer volumes grow by c50% on a CAGR basis. New business volumes increased 45% for
the year with settled value growth of 29% impacted by lower average transaction values.
Income Mix
Results Highlights
Revenue up 30% to $27.4m
EBITDA up 34% to $11.3m
EBITDA margin up 3% to 41%
Gross margin down 3% to 60%
Volumes up by 45%
ATV down 11% to $1,780
Other
Inertia &
Warranty
Brokerage &
Insurance
0%
10%
20%
30%
40%
50%
60%
70%
80%
2009
2010
ThinkSmart has increased its share of retail computer sales with its key retail partners in Australia during a
difficult trading period. Agreements with DickSmith and JB Hi-Fi have also been extended well in advance of
the contracted maturity dates. The key growth initiatives that have been successful throughout 2010 will be
further developed to ensure the momentum of growth and profitability is maintained.
Improved delivery - The launch of the new “QuickSmart” processing platform in April 2009 delivered
significant improvements in the customer experience in store, reducing processing times and increasing
salesperson efficiency. This system has been awarded an Australian Innovation Patent in 2010. In addition,
the automation of the QuickSmart system has enabled the business to significantly reduce its costs of doing
business by over 20%.
Growth of the Internet - Alongside solid growth from the store network, the business also saw a significant
increase in applications through its online channel. With customers able to get automatically pre-approved
for finance via its website, ThinkSmart grew its online business to now account for up to 32% of total volume.
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ANNUAL REPORT 2011
The growth of the online channel has helped reduce customer acquisition costs, and attracts a higher average
spend. However, this is partially offset by a 20 percentage point lower conversion rate. This experience in
online initiated business is transportable to other existing and future territories.
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. Based on the successful launch of the
UK Infinity consumer product, ThinkSmart is looking to further refine the Australian product offering to provide
broader appeal to customers and grow market share further.
The business is strongly positioned for 2011 and beyond with strong and committed retail relationships,
significant growth in funding capacity to support growth ambitions, and consistent and increasing revenue
from inertia and warranty.
United Kingdom - Stable EBITDA with
Consumer creating growth opportunities
The focus of 2010 was to maintain the existing B2B product and at the same time develop an exciting and
compelling proposition for the Consumer customer. The Infinity product for Consumers was introduced in early
November and has been positively accepted by Dixons, our retail partner in the UK. The product is expected to
make a positive EBITDA contribution in 2011.
Income Mix
Results Highlights
Revenue unchanged at £7.3m
EBITDA down 5% to £3.5m
EBITDA margin down 9% to 47%
Other
Gross margin down 4% to 79%
Inertia
Volumes (B2B) down by 12%
ATV up 12% to £881
Brokerage &
Insurance
0%
10%
20%
30%
40%
50%
60%
70%
80%
2009
2010
13
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Trading Results Update (continued)
Against a backdrop of a challenging retail trading environment the business has maintained its position and
at the same time created opportunities in the Consumer segment that is expected to deliver significant future
value.
ThinkSmart has secured a strong funding proposition in the UK through the execution of a new GBP40m
revolving facility with Secure Trust Bank which initially runs to 2014. Negotiations with other potential funders
in this market continue as ThinkSmart seeks to move towards a multi funder platform in its key territories.
The Infinity product is available in all Curry’s outlets providing greater market share opportunity. ThinkSmart’s
QuickSmart application and approval system is integrated into Curry’s retail point of sales system thereby
delivering the most advanced and efficient in store process offered by ThinkSmart. This market leading
process provides a competitive advantage and achieves a high level of scaleability as volumes begin to grow
as retail markets improve.
In 2011, ThinkSmart plans to adopt e-signature technology to further enhance the experience for customers
and retail staff whilst further reducing ThinkSmart’s cost of delivery and broadening the appeal of the product
to online purchasers of technology. Encouragingly, the UK businesses second half 2010 application volumes
and EBITDA (over the first half) returned to growth providing a level of expectation for growth in 2011.
Mainland Europe – Stable performance during
difficult trading
Spain - ThinkSmart’s Spanish business maintained positive EBITDA in FY 2010, growing its contribution off
a low base. New business volumes grew by over 60% for the year. Inertia revenues from business written in
2006 and 2007 continue to underpin profit performance
ThinkSmart continues to pursue opportunities to develop Spain into a multi-channel territory.
Italy - In Italy, ThinkSmart currently is reviewing its market strategy to incorporate an online approach.
France - France currently remains a challenging market for ThinkSmart, and its success is dependent upon
aligning with the right retail partners in the territory and our ability to secure a supportive funding partner.
There are no immediate plans to commence trading in this territory.
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ANNUAL REPORT 2011
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 UK 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.
ThinkSmart has donated a number of computers and other equipment to a Queensland primary school which
had lost all its technology equipment in the 2010 floods.
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: the Premiers Disaster Relief Appeal
for the recent Queensland floods; blood and financial donations to the Red Cross; 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 its product offering is aligned to community needs and that its customer
service is the best it can be.
15
ANNUAL REPORT 2011 DIRECTORS’ REPORT
ANNUAL REPORT 2010
Delivering Value Through...
1. Proven track record of growth - ThinkSmart has delivered a 17% CAGR in underlying EBITDA over the last
four years (2007-2010) since listing on ASX, delivering a very strong EBITDA and Margin performance during
a tough global trading period.
2. Leading International Footprint - ThinkSmart has exclusive and entrenched partnerships with market
leading retailers and funders in Australia and Europe, providing it with a diverse platform for growth.
3. Strong Customer Value Proposition - ThinkSmart’s products provide a compelling and highly profitable
value proposition for retail partners, customers and funders.
4. Capacity for Continued Profitable Strong Growth - ThinkSmart has secured the funding capacity, the
distribution relationships and the compelling product offerings to deliver future growth in its chosen markets.
5. Predictable recurring income lines - The timing of ThinkSmart’s income model provides predictable,
recurring income lines across the life of each customer contract, thereby managing ThinkSmart’s exposure to
demand fluctuations in any one year.
6. Shrinking cost of doing business - The delivery of ThinkSmart’s products through in store portals is
significantly reducing its cost of doing business and thereby improving EBITDA margins. Online capability
provides broader market access and potentially lowers the cost of establishing a new territory.
7. Highly scalable model - ThinkSmart operates a simple, highly scalable model with processing centres in
Europe and Australasia which can be leveraged to enable it to enter new markets at a very low cost.
8. Significant Growth Opportunities - ThinkSmart’s entry into Consumer Rental in the UK has the opportunity
to significantly grow the UK market with immediate profit contribution.
16
FINANCIAL REPORT
FINANCIAL YEAR ENDED 31 DECEMBER 2010
Corporate Information
Directors’ Report
Auditor’s Independence Declaration
Directors’ Declaration
Statement of Comprehensive Income
Statement of Financial Position
Statements of Changes in Equity
Statement of Cash Flow
Notes to the Financial Statements
Independent Audit Report
Shareholder Information
18
19
42
43
44
45
46
47
48
95
97
17
ANNUAL REPORT 2011 CORPORATE INFORMATION
ABN
24 092 319 698
SHARE REGISTER
Computershare Investor Services Pty Limited
Level 2, 45 St Georges Terrace
DIRECTORS
N R Montarello (Chairman and Chief Executive Officer)
Perth, WA 6000
Australia
D Griffiths (Deputy Chairman)
Phone: 1300 850 505
S Penglis
F de Vicente
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
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
18
DIRECTORS’ REPORT
The Directors of ThinkSmart Limited (the “Company”) submit
of the Australian Institute of Company Directors. David also
herewith the annual financial report of the Company and the
sits on the Board of the Perth International Arts Festival.
Group for the financial year ended 31 December 2010 and
Mr Griffiths is currently a chairman of Automotive Holdings
the auditor’s report thereon. In order to comply with the
Group Limited and Northern Iron Limited. In the past three
provisions of the Corporations Act 2001, the directors report
years Mr Griffiths has been a director of the following listed
as follows:
companies: ARC Energy Limited, Great Southern Limited and
Antaria Limited.
DIRECTORS
The names and details of the Company’s directors in office
PETER MANSELL (AGE 64)
during the financial year and until the date of this report
B.Com, LLB, H. Dip Tax, FAICD
are as follows. Directors were in office for this entire period
Non-Executive Director
unless otherwise stated.
Names, qualifications, experience and special
appointed Chairman on the 7 May 2007. Mr Mansell has
Peter Mansell joined the Board on 12 April 2007 and was
responsibilities
subsequently resigned from the Board on 22 May 2010. Mr
Mansell practiced as a business lawyer for over 40 years and
NED MONTARELLO (AGE 49)
has a wide range of experience in corporate matters. He was
Executive Chairman and Chief Executive Officer
at various times the Freehills National Chairman (1995-
2000), Managing Partner of the Perth office (1992-2002)
Ned Montarello has over 20 years experience in the finance
and a member of the firm’s National Board (1989-2002).
industry and joined the Board on 7 April 2000 and was
Mr Mansell is a Fellow of the Australian Institute of Company
appointed Chairman on 22 May 2010. Mr Montarello
Directors, having been President of the Western Australian
founded ThinkSmart over 14 years ago and through this
division and having sat on its National Board from 2002 to
vehicle has been credited with elevating the nano-ticket
2003. He is currently a director of the following Australian
rental market sector in Australia, receiving the Telstra and
listed companies: Ampella Mining Ltd (Chairman) and
Australian Government’s Entrepreneur of the Year Award in
Bunnings Property Management Limited (responsible entity
1998. He steered the expansion of the business into Europe
for the Bunnings Warehouse Property Trust). In the past
in 2002/2003, establishing agreements with the UK’s largest
three years Mr Mansell has been a director of the following
electrical retailer, DSG International and the Halifax Bank
listed companies: Great Southern Limited, West Australian
of Scotland. Following the establishment of a beachhead
Newspaper Holdings Ltd, Oz Minerals Limited, Zinifex Ltd and
European operations centre in Manchester, England, Mr
Western Power Corporation.
Montarello has driven its growth across Europe where it now
also operates in Spain and Italy.
DAVID GRIFFITHS (AGE 60)
B. Ec (Hons), M. Ec, D. Ec (Hon), FAICD
STEVEN PENGLIS (AGE 50)
B. Juris and B. Law
Non-Executive Director
Non-Executive Director, Deputy Chairman
Steven Penglis joined the Board on 1 July 2000 and stepped
down as Chairman on the 6 May 2007. Mr Penglis is a
David Griffiths joined the Board on 28 November 2000
Partner at Freehills since 1987 and former Chairman of
and was appointed Deputy Chairman on 22 May 2010. Mr
the Legal Practice Board of Western Australia. Mr Penglis
Griffiths has served in a wide range of senior finance roles,
specialises in the area of Corporate and Corporations
most recently as Division Director of Macquarie Bank Limited
Law Litigation, advising many public companies, including
and previously as Executive Chairman of Porter Western
ThinkSmart, before his appointment to the Board. He
Limited.
is a part-time Senior Member of the Commonwealth
Administrative Appeals Tribunal; an elected member of
Mr Griffiths holds an Honours Degree in Economics from
the Legal Practice Board of Western Australia and former
The University of Western Australia, a Masters Degree in
chairman; and an elected member of the Council of the Law
Economics from Australian National University and is a Fellow
Society of Western Australia.
19
ANNUAL REPORT 2011 DIRECTORS’ REPORT
FERNANDO DE VICENTE (AGE 43)
B. Econ, MBA Bus
Non-Executive Director
Fernando de Vicente is a citizen of Spain whom has
joined the Board on 7 April 2010. Mr de Vicente has a
Degree in Economics (International Development) from the
University Complutense in Madrid, and an Executive MBA
DIRECTORS’ MEETINGS
The following table sets out the number of directors’
meetings held during the financial year. During the financial
year 10 Board meetings were held.
Audit
Nomination and
and Risk
Remuneration
Board
Committee
Committee
from IESE Business School in Madrid. Mr de Vicente spent
Director
Meetings
Meetings
Meetings
nine years at DSG International, one of Europe’s largest
A
B
electrical retailers, where he most recently held the role of
N Montarello** 9
9^
International Managing Director, with responsibility for DSG’s
D Griffiths
10 10
Central & Southern European operations, a A$3 billion
business with 350 stores across six countries.
S Penglis
P Mansell***
F de Vicente
9
3
6
10
3
7
A
2*
2
1
1
-
B
-
2
1
1
-
A
1
1
1
1
-
B
1
1
1
1
-
Mr de Vicente started his career with DSG as Finance
A
Number of meetings attended.
Director for PC City Spain, and became the MD for Spain
B
Number of meetings held during the time the director held office during
in 2003. In 2006 he was promoted to Regional Managing
the year.
Director for South-East Europe based in Greece, before
*
Attendance by invitation from the Committee.
assuming the role of International Managing Director in
**
Mr Montarello resigned from the Nomination and Remuneration
2008. In March 2010, Mr de Vicente left DSG to become
Committee on 21 May 2010.
the Executive Chairman of BodyBell Group, one of Spain’s
*** Mr Mansell resigned from the Board on 22 May 2010.
^
Mr Montarello was not eligible to attend a board meeting as the meeting
was in relation to a matter in which Mr Montarello held an interest.
largest speciality retailers.
COMPANY SECRETARY
NEIL BARKER
B.Bus, FCPA
Neil Barker is a Certified Practicing Accountant (Fellow)
with over 27 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.
20
CORPORATE GOVERNANCE STATEMENT
This statement outlines the main corporate governance
The Board, together with the Nomination and Remuneration
Committee, determines the size and composition of the
practices in place throughout the financial year, which comply
Board, subject to the terms of the constitution.
with the ASX Corporate Governance Council recommendations,
unless otherwise stated.
BOARD OF DIRECTORS
Role of the Board
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.
The Board’s primary role is the protection and enhancement
of long-term shareholder value.
Board process
To assist in the execution of its responsibilities, the Board
To fulfil this role, the Board has adopted a charter
has established a Nomination and Remuneration Committee,
which establishes the relationship between the Board
as well as an Audit and Risk Committee. These Committees
and management and describes their functions and
have written mandates and operating procedures, which are
responsibilities. The Board’s responsibilities, as set out in the
reviewed on a regular basis. The Board has also established
Board Charter, include:
n working with management to establish ThinkSmart’s
framework for management of the Group including a system
of internal control, a business risk management process and
strategic direction;
the establishment of appropriate ethical standards.
n monitoring management and financial performance;
n monitoring compliance and risk management;
n
reviewing procedures in place for appointment of senior
Independent professional advice and access to company
information
management and monitoring of its performance and for
Following consultation with the chairperson, directors may
succession planning; and
seek independent professional advice at the Company’s
n
ensuring effective disclosure policies and procedures.
expense. Generally, this advice will be available to all
Matters which are specifically reserved for the Board or its
directors.
appointment of a chair;
Committees under the Board Charter include:
n
n
n
appointment and removal of the CEO;
appointment of directors to fill a vacancy or as
additional directors;
establishment of Board Committees, their membership
and delegated authorities;
approval of dividends;
Composition of the Board
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 and 20 of this report. The composition of the Board
is determined using the following principles:
n
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
development and review of corporate governance
the Board, they hold the disadvantage of losing the
principles and policies;
approval of operational budgets, major capital
contribution of directors who have been able to develop,
over a period of time, increasing insight in the Company
expenditure, acquisitions and divestitures in excess of
and its operation and, therefore, an increasing
authority levels delegated to management;
calling of meetings of shareholders; and
contribution to the Board as a whole.
n
It is intended that the Board should comprise a majority
any other specific matters nominated by the Board from
of independent Non-Executive Directors and comprise
time to time.
directors with a broad range of skills, expertise and
experience from a diverse range of backgrounds.
n
n
n
n
n
n
It is also responsible for approving and monitoring financial
n
The Board regularly reviews the independence of each
and other reporting. Detail of the Board’s charter is located
director in light of the interests disclosed to the Board.
in the Company’s website (www.thinksmartworld.com).
21
ANNUAL REPORT 2011 DIRECTORS’ REPORT
On 22 May 2010, Mr Mansell retired from his role
n
The CEO will also provide feedback from senior
as Chairman of the Board after leading the Company
management in connection with any issues that may
through a successful transition to being a publicly listed
be relevant in the context of the Board performance
company, and Mr Montarello was subsequently appointed
review; and
Executive Chairman. The Board acknowledges the ASX
n 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
The current members of the Committee are S Penglis (Chair),
in the Company and finance industry, and his clear incentive
D Griffiths, and F De Vicente.
to maximize the interests of the Company. Mr Montarello
founded the Company over 14 years ago, and has been
The Committee will meet as often as the Committee
involved in expanding the business through Australia and
members deem necessary in order to fulfil their role.
overseas. His experience and insights continue to be
However, it is intended that the Committee will normally
invaluable to the Group.
meet at least annually.
The Board is conscious of the ASX Corporate Governance
The Committee consists of a minimum of 3 members,
Recommendation stipulates that the roles of Chair and
majority being Non-Executive Directors, and an independent
Chief Executive Officer should not be exercised by the same
director as chair. The Nomination and Remuneration
individual. Given the breadth of the Group’s operations and
Committee has a documented charter, approved by
the Executive Chairman’s extensive business experience, the
the Board, which is available on the website (www.
Board considers it appropriate that the Executive Chairman
thinksmartworld.com).
be considered the most senior executive overseeing and
supervising the Group as well as managing the Group’s small
REMUNERATION REPORT - AUDITED
executive team in regard to this.
The remuneration report for 2010, as presented below,
NOMINATION AND REMUNERATION COMMITTEE
remuneration report is set out under the following main
has been prepared for consideration by shareholders. The
The objective of the Nomination and Remuneration
headings:
Committee is to help the Board ensure that ThinkSmart has a
Board of an effective composition, size and the commitment
A: Principles of compensation
to adequately discharge its responsibilities and duties, and
B: Directors’ and executive officers’ remuneration
to determine and review the compensation arrangements for
C: Service agreements
the Directors and senior management team.
D: Share-based compensation (options)
E: Share-based compensation (shares)
The Nomination and Remuneration Committee reviews and
F: Bonus remuneration
makes recommendations to the Board on remuneration
packages and policies applicable to the executives and
A. PRINCIPLES OF COMPENSATION - AUDITED
directors of the Company as well as the Group. On an annual
Remuneration is referred to as compensation throughout
basis:
n Directors will provide written feedback in relation to
this report. Key management personnel have authority and
responsibility for planning, directing and controlling the
the Board and its Committees against an agreed set of
activities of the Company and the Group, including directors
criteria and each Committee will do the same regarding
of the Company and other executives. Key management
its own performance;
personnel comprise the directors of the Company and
n
Feedback will be collected by the chair of the Board,
executives for the Company and the Group including the five
or an external facilitator, and discussed by the Board,
most highly remunerated executives.
with consideration being given as to whether any steps
should be taken to improve performance of the Board
or its Committees;
22
Cash NPAT $’000s
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:
n Maintain alignment with shareholders’ interests; and
n
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 comparative companies both locally and internationally
and the objectives of the Company’s compensation strategy.
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
The compensation structures explained below are
designed to attract suitably qualified candidates, reward
2007
2008
2009
2010
Cash NPAT
Non recurring items
the achievement of strategic objectives, and achieve the
In considering the Group’s performance and benefits for
broader outcome of creation of value for shareholders. The
shareholder wealth, the Executive Chairman and Nomination
compensation structures take into account:
n
the capability and experience of the key management
and Remuneration Committee have regard to the following
indices of the current financial year and the previous four
personnel;
financial years.
the key management personnel’s ability to control the
n
n
relevant segment/s’ performance; and
the Group’s performance.
Compensation packages include a mix of fixed and variable
compensation and short-term and long-term performance-
based incentives.
Linking Executive Remuneration to Group Performance
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 cash net profit after taxation measured on a like for like
basis since the Company listed on the ASX in 2007. The
Cash NPAT calculations for each year exclude from NPAT, 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.
2010
2009
2008
2007
Profit attributable to
owners of the company
$6,773,013
$5,171,776
$3,210,752
$738,066
Basic EPS
6.52 cents
5.35 cents
3.34 cents
0.80 cents
Dividends paid
$1,937,788
$2,900,682
$1,933,788
Dividend paid per share
2 cents
3 cents
2 cents
-
-
Share price at year end
$0.73
$0.90
$0.17
$1.92
Change in share price
($0.17)
$0.71
($1.73)
($0.23)^
Return on capital employed
36%
34%
22%
6%
^Initial listing price of $2.15 is used as opening share price.
Profit is considered as one of the financial performance
target setting of the short term incentive. Profit amounts
for 2007 to 2010 have been calculated in accordance with
Australia Accounting Standards (AASBs).
The overall level of key management personnel
compensation takes into account the performance of the
Group over a number of years. Over the past four years, the
group’s profit from ordinary activities after income tax has
grown at an average rate per annum of over 109%. During
the same period, average key management personnel
compensation has grown by approximately 5.7% per annum.
23
ANNUAL REPORT 2011
DIRECTORS’ REPORT
The Directors of ThinkSmart Limited consider that a variety
Remuneration is reviewed annually. In reviewing each
of factors, including the broad economic environment,
Executives’ salary, consideration is given to external
market sentiment and financial performance, contribute to
competitiveness, position responsibilities and individual
the Company’s share price. In addition, there are no closely
skills and experience. The STI component of Executive
comparable companies that would provide a meaningful
remuneration is based on annual performance targets
relative share price measure. As a result, the Executive
and delivered in the form of cash. In 2010, the Company
remuneration is linked to the Group’s financial performance.
has also introduced a new Long Term Incentive Plan
Non-Executive Directors
which recognises performance and behaviour that delivers
sustainable long term shareholder value and seeks to align
Fees and payments to non-executive directors reflect the
the interests of management with those of the shareholders.
demands which are made on and the responsibilities of the
Non-Executive Directors. Non-executive directors’ fees and
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.
the components of base pay and benefits that reflects the
applied professional competence of each Executive according
Non-Executive Director’s fees
to his/her knowledge, experience and accountabilities. Base
The Non-Executive Directors shall be paid by way of fees for
pay for Executives is reviewed annually by Executive Director
services the maximum aggregate sum as may be approved
to ensure the executive’s pay is competitive with the market.
from time to time by ThinkSmart in general meeting. The
An executive’s pay is also reviewed on promotion. Base pay
fees include Director’s fee as well as Board Committee
for Executive Chairman in reviewed annually by Nomination
membership fee. The current maximum aggregate annual
and Remuneration Committee.
sum approved by shareholders at a previous general
meeting is $600,000 (2009: $600,000). Any change to
Short-term performance incentive
that aggregate annual sum needs to be approved by the
Short-term performance incentives (STIs) vary according to
shareholders. The constitution also makes provision for
individual contracts, however, for Executives they are broadly
ThinkSmart to pay all reasonable expenses of directors in
attending meetings and carrying out their duties.
based as follows:
n
a component of the STI is linked to the individual
Executive pay
performance of the executive (this is based on a
number of factors, including performance against
The Company’s remuneration is market competitive and
budgets, achievement of key performance indicators
aims to attract, retain and motivate high calibre employees
(KPIs) and other personal objectives).
who contribute to the sustained growth of the ThinkSmart
n
a component of the STI is linked to the financial
base pay and benefits;
business with a mix of the following four components:
n
n
n
long-term incentives through participation in the
short-term performance incentives (STIs);
performance of the business or measured against
budgets determined at the beginning of each financial
year.
ThinkSmart Long Term Incentive Plan; and
Using various profit performance targets and personal
n
other remuneration such as superannuation.
performance objectives assessed against KPIs which are
aligned with achievement of the Board’s strategic objectives,
The purpose of STIs is to make a significant contribution to
the Company ensures variable reward is only paid when
the total reward package subject to meeting various targets
value has been created for shareholders. For middle and
linked to the Company’s business objectives. An incentivised
lower level management, total STIs are linked to individual
reward structure is necessary to ensure a competitive
performance measures and also to the financial performance
package in Australian and global marketplace for executives.
of the business. The STI bonus is delivered in the form of
Incentives are designed to focus and motivate employees
cash.
to achieve outcomes beyond the expectation of normal
professional competence.
24
For the 2010 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 Group
has, and is likely to have for sometime, a small number of experienced executives and ensuring that 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 F of the Remuneration Report.
Long term incentive
Long-term incentives to the Chief Executive Officer and certain senior employees were historically provided via the ThinkSmart
Limited Executive Share Option Plan (“ESOP”) as a retention based reward. The Company has a pre-existing ESOP, as an
equity-based long-term incentive, which was initiated before the Company was listed. Given the retention focus of these
grants, vesting of the options is subject to service conditions and not linked to satisfaction of performance targets. There have
been no retention based options granted since the Company’s listing in June 2007.
The table below sets out the details of the currently existing retention options issued to Key Management Personnel that were
issued in 2006 and 2007 before the Company’s listing:
Instrument
Exercise price
Each option represents an entitlement to one ordinary share.
Retention Options Tranche 5: $1.375
Retention Options Tranche 6: $3.00
Vesting conditions
Subject to the executive remaining an employee of the Group. If the executive ceases to be
an employee of the Group before the option is exercised, all options held by the executive
will automatically lapse one month after the date of cessation of employment. There are no
performance hurdles applicable to the retention options.
Why vesting conditions are chosen
The vesting conditions are designed to ensure retention of key executives.
Vesting date
Exercise period
Expiry date
Retention Options Tranche 5 & 6: 1 January 2009
Retention Options Tranche 5 & 6: From vesting date to expiry date
Retention Options Tranche 5 & 6: 31 December 2011
Disposal restriction
No disposal restriction imposed at the time of this grant.
During 2010, the Company completed a comprehensive review of current remuneration arrangements for senior executives
to determine an appropriate structure to support the Company’s short term and long term business strategies and be aligned
to corporate governance principles. The review included input from external consultants on comparative remuneration levels,
trends and practices. As part of the review, the Board has agreed to reactivate 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 pre-determined performance criteria.
25
ANNUAL REPORT 2011 DIRECTORS’ REPORT
The table below sets out the details of the performance options issued to Key Management Personnel:
Instrument
Exercise price
Each option represents an entitlement to one ordinary share.
Performance Options Tranche 1 - $0.62
Performance Options Tranche 2 - $1.11
Vesting conditions
Performance options will vest on, and become exercisable on or after, the Vesting Date to
the extent that certain performance conditions that are based on the achievement of pre-
determined financial performance of the Group over the performance measurement period,
as follows:
- 50% of performance options are subject to achievement of Earnings Per Share (EPS)
performance condition; and
- 50% of performance options are subject to achievement of Total Shareholder Return
(TSR) performance condition.
Subject to the executive remaining an employee of the Group. If the executive ceases to be
an employee of the Group before the option is exercised, all options held by the executive
will automatically lapse one month after the date of cessation of employment.
EPS performance target
The Company’s EPS growth will be measured relative to a target of more than 7.5% per
annum compound growth. The proportion of the EPS award that vests will be:
- Compound EPS growth of 7.5% p.a. or less: 0%
- Compound EPS growth between 7.6% to 9.9%: 4% of the EPS award for each 0.1% of
compound EPS growth above 7.5%
- Compound EPS growth of 10% p.a. or more: 100%
EPS performance period
Performance Options Tranche 1: 3 year period commencing 1 January 2009 with the base
year being the period ended 31 December 2008.
Performance Options Tranche 2: 3 year period commencing 1 January 2010 with the base
year being the period ended 31 December 2009.
Why vesting conditions are chosen
The vesting conditions were chosen as performance conditions as they reflect, at the date
TSR performance target
The Company will be given percentile ranking having regards to its performance relative to
they were granted, the improvement of earnings.
a comparator group consisting of the S&P/ASX Small Ordinaries Index (ASX code: ASO).
The Company will be given a percentile ranking having regard to its performance relative to
the comparative group of companies. The percentage of the TSR reward that vests will be
determined by the Company’s ranking as follows:
-
-
-
TSR rank less than 50th percentile: 0%
TSR ranks 50th percentile: 50%
TSR rank between 50th and 75th percentile: 50% plus an additional 2% of this award
for each additional percentile ranking above 50th percentile
-
TSR rank at or above 75th percentile: 100%
26
TSR performance period
Performance Options Tranche 1: As at 1 January 2009
Performance Options Tranche 2: As at 1 January 2010
Why vesting conditions are chosen
The vesting conditions were chosen as performance conditions as they reflect, at the date
they were granted, alignment with shareholder expectations.
Vesting date
Performance Options Tranche 1: 1 January 2012
Performance Options Tranche 2: 31 December 2012
Exercise period
Performance Options Tranche 1: From vesting date to expiry date
Performance Options Tranche 2: From vesting date to expiry date
Expiry date
Performance Options Tranche 1: 31 December 2013
Disposal restriction
No disposal restriction imposed at the time of this grant.
Performance Options Tranche 2: 31 December 2014
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 Management Personnel (as defined in AASB 124 Related Party
Disclosures) of ThinkSmart Limited and its subsidiaries are set out in the following tables. The cash bonuses are dependent
on the satisfaction of performance conditions as set out in the section headed Short-term performance incentives above.
The Key Management Personnel of ThinkSmart Limited are the Directors and certain executives that report directly to
the Chief Executive Officer. This includes Group executives who received the highest remuneration for the year ended 31
December 2010.
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:
27
ANNUAL REPORT 2011 DIRECTORS’ REPORT
Short Term
Post
employment
Share-based
payments
Salary
and fee
$
STI
cash
bonus
$
Non-
monetary
benefits
$
Total
$
Superan-
nuation
benefits
Termi-
nation
ben-
efits
Options
and
rights
Shares
Total
Proportion
of remu-
neration
perfor-
mance
related
Value of
options
as pro-
portion of
remu-
neration
$
$
$
$
%
%
DIRECTORS
Non-Executive
Directors
P Mansell*
2010
24,751
2009
64,599
S Penglis
2010
62,145
2009
55,000
D Griffiths
2010
67,500
2009
58,750
F de Vicente*
2010
49,050
2009
-
-
-
-
-
-
-
-
-
Executive Director
N Montarello
2010
649,527
48,000
2009
594,444
EXECUTIVES
A Baum*
2010
141,666
2009
-
-
-
-
N Barker
2010
322,996
26,000
2009
321,330
10,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,751
64,599
62,145
55,000
67,500
58,750
49,050
-
2,228
5,814
5,593
4,950
6,075
5,288
-
-
697,527
31,651
594,444
40,318
141,666
10,000
-
-
348,996
31,410
331,330
29,820
M Radotic**
2010
103,859
17,816
15,317
136,992
9,076
2009
233,922
34,692
20,653
289,267
21,410
S McDonagh*
2010
165,046
22,425
2009
259,231
6,500
G Varma
2010
268,623
15,089
2009
251,487
50,000
-
-
-
-
187,471
16,872
265,731
23,916
283,712
25,534
301,487
27,134
G Parry
2010
228,807
21,010
9,946
259,763
11,440
2009
248,790
19,824
11,686
280,300
12,439
2010 2,083,970
150,340
25,263 2,259,573
149,879
2009 2,087,552
121,016
32,339 2,240,907
171,088
Total
Total
*
**
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
87,531
14,174
-
-
-
-
-
-
-
-
-
-
26,979
70,413
67,738
59,950
73,575
64,038
49,050
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
816,709
648,936
17%
11%
2%
2%
10,903 24,889
187,458
-
35,671
8,847
5,949
2,591
-
2,591
13,872
5,825
18,685
2,591
-
-
-
-
-
-
-
-
-
-
-
-
416,077
369,996
152,017
313,267
204,343
292,237
323,118
334,445
289,889
295,330
172,612 24,889
2,606,953
36,617
-
2,448,612
6%
-
15%
5%
16%
12%
11%
3%
4%
2%
14%
8%
12%
6%
6%
-
9%
2%
4%
1%
-
1%
4%
2%
6%
1%
7%
1%
During the year, the Key Management Personnel has either resigned or been appointed. Please refer to the following page for details.
Remuneration up to 30 June 2010, as Mr Radotic was reposted to a new role, where he is no longer classified as a KMP.
28
The following are Key Management Personnel of the Group:
Executive Director
n N Montarello (Chairman, Managing Director and Chief Executive Officer, ThinkSmart Limited)
P Mansell (Chairman, ThinkSmart Limited) – resigned 22 May 2010
Non-Executive Director
n
n D Griffiths (Deputy Chairman, ThinkSmart Limited) – appointed Deputy Chairman 22 May 2010
n S Penglis (Non-Executive Director, ThinkSmart Limited)
n
F de Vicente (Non-Executive Director, ThinkSmart Limited) – appointed to Board on the 7 April 2010
A Baum (Group Chief Operating Officer, ThinkSmart Limited) – appointed 1 September 2010
Executives
n
n N Barker (Group Chief Financial Officer, ThinkSmart Limited)
n S McDonagh (Executive General Manager, RentSmart Unit Trust) – resigned 23 July 2010
n M Radotic (General Manager Sales & Marketing Continental Europe, RentSmart Limited) – ceased being a KMP after
reposting as General Manager Customer Care, RentSmart Unit Trust, on the 1 July 2010
n G Varma (Group Chief Information Officer, ThinkSmart Limited)
n G Parry (Managing Director - UK, RentSmart Limited)
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 28 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 (OPTIONS) - 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:
29
ANNUAL REPORT 2011 DIRECTORS’ REPORT
No of options
granted during
2010
Grant date
Fair value per
option at grant
date
($)
Exercise price
per option
($)
Expiry date
No of options
vested during
2010
1,000,000
05/05/2010
0.2746
1.11
31/12/2014
333,333
333,333
100,000
100,000
200,000
01/09/2010
05/05/2010
05/05/2010
05/05/2010
05/05/2010
0.2287
0.2746
0.2746
0.2746
0.2746
1.11
1.11
1.11
1.11
1.11
31/12/2014
31/12/2014
31/12/2014
31/12/2014
31/12/2014
-
-
-
-
-
-
DIRECTORS
N Montarello
EXECUTIVES
A Baum
N Barker
M Radotic
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.
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, the following shares were issued as a result of the exercise of options in the 2010 financial year.
EXECUTIVES
N Barker
No of shares
Amount paid $/share
280,000
0.625
30
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.
Options granted
Number of shares
Grant Date
% vested in year
% forfeited
in year (a)
Financial year in
which grant vest
DIRECTORS
N Montarello
EXECUTIVES
A Baum
N Barker
S McDonagh
M Radotic
G Varma
G Parry
1,400,000
1,000,000
1,000,000
333,333
*280,000
160,000
120,000
500,000
333,333
300,000
160,000
120,000
300,000
100,000
*280,000
150,000
100,000
160,000
120,000
300,000
200,000
28/08/2006
30/06/2009
05/05/2010
01/09/2010
05/01/2006
17/04/2007
17/04/2007
30/06/2009
05/05/2010
30/06/2009
17/04/2007
17/04/2007
30/06/2009
05/05/2010
05/01/2006
30/06/2009
05/05/2010
17/04/2007
17/04/2007
30/06/2009
05/05/2010
-%
-%
-%
-%
33%
-%
-%
-%
-%
-%
-%
-%
-%
-%
33%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
100%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
2009
2012
2012
2013
2010
2009
2009
2012
2013
2012
2009
2009
2012
2013
2010
2012
2013
2009
2009
2012
2013
(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.
31
ANNUAL REPORT 2011
DIRECTORS’ REPORT
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.
Granted in year $ (a)
Exercised in year $ (b)
Lapsed in year $ (c)
DIRECTORS
N Montarello
EXECUTIVES
A Baum
N Barker
S McDonagh
M Radotic
G Varma
G Parry
Total
274,600
76,233
91,533
-
27,460
27,460
54,920
-
-
56,200
-
-
-
-
-
-
-
87,000
-
19,600
-
552,206
56,200
106,600
(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.
E. SHARE BASED COMPENSATION (SHARES) - AUDITED
All shares refer to shares over ordinary shares of ThinkSmart Limited.
Shares granted as compensation – audited
Details on shares of the Company that were granted as compensation to each key management person during the reporting
period and details on shares vested during the reporting period are as follows:
No of shares
Grant Date
Fair value at grant
Vesting period No of shares vested
granted during
2010
date ($)
during 2010
EXECUTIVES
A Baum
350,000
01/09/2010
0.64
3 years
-
No shares are granted since the end of the financial year. The shares are provided at no cost to the recipient.
These shares were issued to A Baum upon him joining ThinkSmart Ltd and are held in escrow. The shares are ordinary shares
in the Company and will vest upon completion of a 3-year service period. During this period, Mr Baum is entitled to any
dividends declared by the Company and normal voting rights are attached. In the event that Mr Baum’s employment with the
32
Company ceases before the vesting period (i.e. through resignation or termination), the shares will be cancelled. If Mr Baum
is retrenched by the Company due to changes in the Company’s structure or operations, he will be entitled to retain the
shares and they will become immediately unconditional if this occurs before the escrow period expires.
Analysis of shares granted as compensation - audited
Details of vesting profiles of the shares 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.
Shares granted
No of shares
Grant Date
% vested in year
% forfeited in
Financial year in
year (a)
which grant vest
EXECUTIVES
A Baum
350,000
01/09/2010
-%
-%
2013
(a) The % forfeited in the year represents the reduction from the maximum number of shares available to vest due to the
highest level service criteria not being achieved.
Analysis of movement of shares - audited
The movement during the reporting period, by value of 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.
EXECUTIVES
A Baum
Total
Granted in year $ (a)
Vested in year $ (b)
Lapsed in year $ (c)
224,000
224,000
-
-
-
-
(a) The value of shares granted in the year is the fair value of the shares as determined in reference to the prevailing market
price of the Company’s shares on the ASX.
(b
The value of shares vested during the year is calculated as the market price of shares of the Company on the ASX as at
close of trading on the date the shares were vested.
(c)
The value of the shares that lapsed during the year represents the benefit forgone and is determined in reference to
the prevailing market price of the Company’s shares on the ASX at the date the shares lapsed, with no adjustments for
whether the service criteria had been achieved.
33
ANNUAL REPORT 2011 DIRECTORS’ REPORT
F. 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)
Maximum
entitlement
$
% vested
in year
% forfeited
in year
(b)
48,000
240,000
26,000
22,425
17,816
15,089
21,010
130,000
78,000
63,429
50,297
63,429
20%
20%
29%
28%
30%
33%
80%
80%
71%
72%
70%
67%
(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 2010 financial year.
(b) The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year.
AUDIT AND RISK COMMITTEE
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 S Penglis.
The Committee’s primary roles are:
n to assist the Board in relation to the reporting of financial information;
n the appropriate application and amendment of accounting policies;
n the appointment, independence and remuneration of the external auditor; and
n 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 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 Committee and the Board of Directors twice during the year without management being present.
34
Risk management
The Committee’s specific function with respect to risk management is to review and report to the Board that:
n the Company’s ongoing risk management program effectively identifies all areas of potential risk;
n adequate policies and procedures have been designed and implemented to manage identified risks;
n a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and
n 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).
Internal audit
The Committee has the responsibility of:
n
reviewing the internal audit objectives and resourcing (including determining whether the internal audit function is to be
provided by an internal or external party provider);
ensuring an appropriate program of internal audit activity is conducted each financial year;
reviewing and monitoring the progress of an internal audit and work program (without the presence of management);
overseeing the coordination of the internal and external audit; and
evaluating and critiquing management’s responsiveness to internal audit finding and recommendations.
n
n
n
n
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 State
legislation in relation to its activities.
Assessment of effectiveness of risk management
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 evaluate the quality of the internal audit
function is undertaken once every two years.
ETHICAL STANDARDS
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to
enhance the reputation and performance of the Group. Every 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.
35
ANNUAL REPORT 2011 DIRECTORS’ REPORT
Where the Board believes that a significant conflict exists for a director on a Board matter, the director concerned does not
receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of director related
entity transactions with the Company and the Group are set out in note 31 to the financial statements.
Code of conduct
ThinkSmart has developed a Code of Conduct which states ThinkSmart’s and its employees’ commitment to the conduct of
its business with employees, customers, funders, retailers and other external parties.
The Code is directed at maintaining high ethical standards 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.
The Code sets out the reporting lines where there is a potential breach of the Code, ThinkSmart’s commitment to 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 Guidelines for Dealing in Securities explain and reinforce the Corporations Act 2001 requirements relating to
insider trading. The Guidelines are summarised below.
The Guidelines apply to all directors and employees of the ThinkSmart group, and their associates (“Relevant Persons”).
The Guidelines expressly prohibit Relevant Persons buying or selling ThinkSmart securities where the Relevant Person or
ThinkSmart is in possession of price sensitive or ‘inside’ information.
The Guidelines establish a ‘window period’, where, generally, Relevant Persons may buy or sell ThinkSmart’s securities on ASX
the announcement of half-yearly results;
in the period from 31 days from the day following:
n
n
n
the holding of the annual general meeting,
the announcement of annual results; or
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:
n
n
n
n
a director must receive approval from the Chair of the Board;
the Chair must receive approval from the Board or the most senior director;
executives and senior management must receive approval from the CEO; and
all other Relevant persons must receive approval from the Company Secretary.
The Guidelines also prohibit short term dealing (buying and selling within 3 months) in ThinkSmart securities by Relevant
Persons.
36
DISCLOSURE POLICY
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
adopted a Disclosure Policy which sets out its policy to strictly comply with the continuous disclosure requirements.
ThinkSmart’s Disclosure Policy is summarised below.
n
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 Company Secretary is also responsible for ensuring senior
management is aware of the Disclosure Policy and that the Disclosure Policy is updated.
n
If management becomes aware of any information at any time that should be considered for release to the market, it
must be reported immediately to the CEO, or the Group CFO / Company Secretary.
n Operating and divisional heads and group functional 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.
COMMUNICATION WITH SHAREHOLDERS
The Board provides shareholders with information using a comprehensive Continuous Disclosure Policy which includes
identifying matters that may have a material effect on the price of the Company’s securities, notifying them to the ASX,
posting them on the Company’s website, and issuing media releases.
In summary, the Continuous Disclosure Policy operates as follows:
n
Information is communicated to shareholders through ASX announcements, the annual report, annual general meeting
and half year and full year results announcements.
n 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.
n
ThinkSmart encourages participation of shareholders at 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.
OPERATING AND FINANCIAL REVIEW
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 $6,773,013 (2009: $5,171,776).
The period has seen the Group improve EBITDA by 12%, from $11.9m to $13.3m, or 21% if the impact of the strengthening
Australian dollar on translation of offshore earnings is ignored. EBITDA in the second half of 2010 was 34% higher than the
first half as a result of increased volumes and improved margins in Australia and the launch of the new Infinity consumer
product in the UK. The investments in core technology in the last 2 years continue to deliver operational efficiencies across
the Group with the cost of doing business reducing by 17% in the year. The Australian operations has increased its
EBITDA contribution by 34% from 45% higher settled volumes and a 12% increase in operating costs, whilst increasing
revenue by 30%.
37
ANNUAL REPORT 2011
Lead Auditor’s Independence Declaration under Section
307C of the Corporations Act 2001
no contraventions of the auditor independence require-
ments as set out in the Corporations Act 2001 in relation to
the audit; and
no contraventions of any applicable code of professional
conduct in relation to the audit.
KPMG
Partner
Perth
Denise McComish
18 February 2011
To: the directors of ThinkSmart Limited
I declare that, to the best of my knowledge and belief, in re-
lation to the audit for the financial year ended 31 December
2010 there have been:
DIRECTORS’ REPORT
The UK operations result was impacted by the expenses relating to the establishment of capacity to introduce the Infinity
consumer product. Total revenue was unchanged for the year at £7.3m and EBITDA reduced by 8% with a small positive
contribution from the first 2 months of Infinity volumes. Settled volumes of the SmartPlan B2B product were down 12%, the
impact of which was offset by the 12% increase in average transaction volumes. Revenues from inertia increased by 5% for
the year. The successful launch of the services based Infinity product with Dixons in UK provides a benchmark for future
product development initiatives across the Group.
The Group has increased its distribution channels in existing markets through signing of retail operating agreements in Italy
with Computer Discount in addition to extending existing retailer agreements with JB HiFi and Dick Smith in Australia and
Dixons in UK.
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.
DIVIDENDS
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Declared and paid during the year 2010
Final 2009 ordinary
2.0
1,937,788
100% Franked
23 April 2010
Cents per share
Total amount
Franked/
Date of payment
unfranked
Declared after year end
After the balance sheet date, the following dividends were proposed by the directors. The dividends have not been provided
and there are no income tax consequences.
Final 2010 ordinary
3.5
4,545,779
45% Franked
29 April 2011
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31
December 2010 and will be recognised in subsequent financial reports.
Dividends have been dealt within the financial report as:
Declared and paid during the year 2010
Final 2009 ordinary
Note
Total amount ($)
20(c)
1,937,788
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
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 other than the announcement on 17 February 2011 confirming
ThinkSmart had executed an Operating Agreement for GBP40m of new financing facilities in UK and received credit approval
from a major Australian bank for a AUD$100m securitisation facility in Australia.
38
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, Australia and New Zealand. In mainland Europe the Group will continue to execute a multi-
channel retailer model akin to the Australian business which should deliver market share gains in selected territories. There
will be an increased focus on direct origination of new business through online retail distribution.
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:
N Montarello
S Penglis
D Griffiths
F de Vicente
ThinkSmart Limited
Number of ordinary shares
Number of options granted over
22,020,297
1,272,600
2,160,000
-
ordinary shares
2,000,000
-
-
-
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
A Baum
G Varma
G Parry
No of options granted
Exercise price
Expiry date
1,000,000
333,333
333,333
100,000
200,000
$1.11
$1.11
$1.11
$1.11
$1.11
31/12/2014
31/12/2014
31/12/2014
31/12/2014
31/12/2014
All options were granted during the financial year. No options have been granted since the end of the financial year.
39
ANNUAL REPORT 2011
DIRECTORS’ REPORT
Shares granted to directors and officers of the Company
During or since the year end of the financial year, the Company granted shares for no consideration to the following directors
and to the following of the five most highly remunerated officers of the Company as part of their remuneration:
EXECUTIVES
A Baum
*Shares are escrowed for 3 years until 1 September 2013.
350,000*
$0.64
1/09/2013
No of options granted
Share price at grant date
Vesting date
All shares were granted during the financial year. No shares 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 ordinary shares as a result of the exercise of options:
Number of shares
840,000
Amount paid on each share
$0.625
Unissued shares under options
At the date of this report, unissued ordinary shares of the Company under option are:
Number of shares under option
Exercise price of options
Expiry date of options
480,000
480,000
2,900,000
2,433,333
$1.375
$3.00
$0.62
$1.11
31 December 2011
31 December 2011
31 December 2013
31 December 2014
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 34.
These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
40
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.
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:
n
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
n
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 25.
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration which forms part of this report, is included in page 42 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, 18 February 2011
41
ANNUAL REPORT 2011 AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of ThinkSmart Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 December 2010
there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to
the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Denise McComish
Partner
Perth
18 February 2011
42
DIRECTORS’ DECLARATION
1.
In the opinion of the Directors of ThinkSmart Limited (the “Company”):
a)
The consolidated 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 96, are in accordance with the
Corporations Act 2001, including:
I. Giving a true and fair view of the Group’s financial position as at 31 December 2010 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; and
c)
There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2.
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 2010.
Signed in accordance with a resolution of the directors:
N Montarello
Director
Perth, 18 February 2011
43
ANNUAL REPORT 2011 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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
EBITDA - results before interest, tax, depreciation and amortisation
Finance costs
Foreign exchange loss
Depreciation expense
EBTA – results before amortisation and income tax (expense)
Amortisation of intangibles
Profit before Tax
Income tax expense
Profit from continuing operations
Other comprehensive income
Notes
6(a)
6(b)
6(f)
6(e)
6(c)
6(d)
7
2010
$
2009
$
42,110,562
36,755,199
(10,908,454)
(11,040,118)
(10,520,320)
(7,119,362)
(1,062,593)
(1,042,872)
(662,027)
(239,514)
(682,473)
(656,468)
(713,383)
(244,175)
(706,689)
(475,590)
(2,594,617)
(2,046,496)
(207,847)
(151,335)
(1,319,156)
(1,333,339)
13,257,093
11,881,840
(530,591)
(492,911)
(465,167)
(992,980)
(603,651)
(555,159)
11,768,424
9,730,050
(2,053,385)
(2,096,726)
9,715,039
7,633,324
(2,942,026)
(2,461,548)
6,773,013
5,171,776
Foreign currency translation differences for foreign operations
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period attributable to owners of the
Company
(1,337,529)
(1,065,883)
(1,337,529)
(1,065,883)
5,435,484
4,105,893
Earnings per share
Basic (cents per share)
Diluted (cents per share)
31
31
6.52
6.29
5.35
5.26
The attached notes form an integral part of these consolidated financial statements.
44
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 DECEMBER 2010
Notes
2010
$
2009
$
22(a)
21,186,022
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayment
Other
Total Current Assets
Non-Current Assets
Deposits held by funders
Prepayments
Plant and equipment
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
Deferred tax liability
Other
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Reserves
Accumulated profits/(losses)
Total Equity
The attached notes form an integral part of these consolidated financial statements.
8
9
10
11
8
12
13
15
16
7
18
19
7
20
21
2,582,338
57,707
3,276,469
394,083
5,468,171
1,740,369
74,586
4,315,120
310,615
27,496,619
11,908,861
6,737,156
2,372,572
1,120,251
4,348,343
3,540,774
287,676
731,609
2,953,610
1,091,334
3,775,984
4,177,746
100,550
18,406,772
12,830,833
45,903,391
24,739,694
4,825,478
2,489,944
521,144
7,836,566
367,698
-
367,698
8,204,264
3,549,365
2,494,222
333,344
6,376,931
198,387
493
198,880
6,575,811
37,699,127
18,163,883
39,615,239
23,614,091
(4,135,736)
(2,834,607)
2,219,624
(2,615,601)
37,699,127
18,163,883
45
ANNUAL REPORT 2011 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Consolidated
Fully paid
ordinary
shares
$
Equity settled
employee
benefits
reserve
$
Foreign
currency
translation
reserve
$
Accumulated
(Losses)/
Profit
$
Attributable
to equity
holders of
the parent
$
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 for the period
Transactions with owners of the
Company, recognised directly in equity
Contributions by and distributions to
owners of the Company
Dividends 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
Balance at 1 January 2010
23,614,091
199,726
(3,034,333)
(2,615,601)
18,163,883
-
-
-
-
(5,176)
(1,332,353)
(5,176)
(1,332,353)
-
-
(1,337,529)
(1,337,529)
-
-
6,773,013
6,773,013
(5,176)
(1,332,353)
6,773,013
5,435,484
Exchange differences arising on translation of
foreign operations
Net income recognised directly in equity
Profit for the period
Total comprehensive income for the period
Transactions with owners of the Company,
recognised directly in equity
Contributions by and distributions to owners of
the Company
Issue of ordinary shares, net of after tax capital
raising costs
Share options exercised
Dividends paid
Share-based payments held in escrow
224,000
(224,000)
Recognition of share-based payments
-
260,400
15,252,148
525,000
-
-
-
-
-
-
-
-
-
-
-
15,252,148
525,000
(1,937,788)
(1,937,788)
-
-
-
260,400
Balance at 31 December 2010
39,615,239
230,950
(4,366,686)
2,219,624
37,699,127
The attached notes form an integral part of these consolidated financial statements.
46
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Notes
2010
$
2009
$
36,882,735
37,008,698
(28,668,294)
(27,195,464)
437,417
(121,109)
67,339
(112,694)
(1,722,399)
(2,451,419)
Net cash from operating activities
22(b)
6,808,350
7,316,460
Cash Flows from Investing Activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payment for intangible assets – Software
Payment for intangible assets – Contract rights
Net cash used in investing activities
Cash Flows from Financing Activities
Hire purchase and lease finance repaid
Finance charges
Proceeds from rights issue
Payment for equity raising cost
Proceeds from exercise of share options
Dividend paid
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
(625,535)
132,611
(464,937)
-
(1,182,736)
(1,526,957)
(1,551,111)
-
(3,226,771)
(1,991,894)
(3,543)
(846,899)
16,000,000
(1,068,354)
525,000
(112,593)
(930,066)
-
-
-
(1,937,788)
(2,900,682)
12,668,416
(3,943,341)
16,249,995
1,381,225
(532,144)
(460,425)
Cash and cash equivalents at beginning of the financial year
5,468,171
Net available cash and cash equivalents at the end of the financial year
22(a)
21,186,022
Restricted cash and cash equivalent at the end of the financial year
(2,917,361)
4,547,371
5,468,171
-
Total cash and cash equivalent at the end of the financial year
18,268,661
5,468,171
The attached notes form an integral part of these consolidated financial statements.
47
ANNUAL REPORT 2011 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 2010 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 consolidated financial statements are general purpose financial statements which have been prepared in accordance
with the Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs)
and interpretations adopted by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorised for issue by the Board of Directors on 18 February 2011.
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
Information regarding changes to the accounting policies of the Group are found as follows:
-
-
Business combination – note 3(b)
Consolidation – note 3(b)
E) REMOVAL OF PARENT ENTITY FINANCIAL STATEMENTS
The Group has applied amendments to the Corporations Act (2001) that remove the requirement for the Group to lodge parent
entity financial statements. Parent entity financials statements have been replaced by the specific parent entity disclosures in
note 32.
F) ACCOUNTING POLICIES AVAILABLE FOR EARLY ADOPTION NOT YET ADOPTED
A number of new standards and interpretations are effective for annual periods beginning after 1 July 2010 and have not been
applied in preparing this financial report. None of these are expected to have material effect on the financial report of the
Group, except for IFRS 9 Financial Instruments, which becomes mandatory for the Group’s 2014 financial report and could
change the classification and measurement of financial assets. The extent of the impact has not been determined.
48
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, and have been applied consistently by Group entities, except as explained in note 2(d), which address changes
in accounting policies.
Certain comparative amounts have been reclassified to conform with the current year’s presentation (see note 6(g)).
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.
B) BUSINESS COMBINATIONS
Change in accounting policy
The Group has adopted revised AASB 3 Business Combinations (2009) and amended AASB 127 Consolidated and Separate
Financial Statements (2009) for business combinations occurring in the financial year starting 1 January 2010. All business
combinations occurring on or after 1 January 2010 are accounted for by applying the acquisition method. The change in
accounting policy is applied prospectively and has had no material impact on earnings per share, or any other disclosures in
this financial report.
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
49
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
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 balance sheet.
D) PLANT AND EQUIPMENT
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral
to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives they are accounted for as separate items
(major components) of property, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal
with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in
profit or loss.
Depreciation
Depreciation is based on the cost of an asset less its residual value. Significant component of individual assets are assessed
and if a component has a useful life that is different from the remainder of the asset, that component is depreciated separately.
Depreciation recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item
of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless
it is reasonably certain that the Group will obtain ownership by the end of the lease term.
50
The following estimated useful lives are used in the calculation of depreciation:
- Office furniture, fittings, equipment and computers
Leasehold improvements
-
- Self-funded rental assets
- Motor vehicles
-
Leased computer equipment and software
2.5 to 5 years
the lease term
2.5 to 5 years
5 years
2.5 to 5 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
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.
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 measured
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.
51
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
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 measured 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.
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.
52
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 the cost of acquisition over the fair value of the identifiable net assets acquired, and 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.
Contract Rights
The contractual rights obtained by the Group under financing agreements entered into with its funding partners and retail
partners constitute intangible assets with finite useful lives. These contract rights are recognised initially at cost and
amortised over their expected useful lives. In relation to funder contact rights, the expected useful life is the earlier of
the initial contract term or expected period until facility limit is reached. At each reporting date a review for indicators of
impairment is conducted.
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.
53
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
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.
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
54
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.
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:
Commission income
Commission receivable from funders is recognised at the time finance approval is given to the customer, adjusted for an
allowance for loans not expected to proceed to a contract by the funder.
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.
• 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.
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
Commission 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 commission income from funders.
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.
55
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
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.
Non-derivative financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. The Group
derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. 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.
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.
56
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.
Tax consolidation
The Company and its wholly owned Australian resident entities formed a tax-consolidated group during 2009. As a consequence,
all members of the tax-consolidated group are taxed as a single entity from 1 January 2009. The head entity within the tax-
consolidated group is ThinkSmart Ltd.
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; and
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.
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.
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is
57
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest
and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the
year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the
functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign
currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on retranslation are presented in profit or loss on a net basis, except for differences arising
on the retranslation of a financial liability designated as a hedge of the net investment in a foreign operation that is effective,
which are recognised in other comprehensive income.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated
to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations, excluding
foreign operations in hyperinflationary economies, are translated to Australian dollars at exchange rates at the dates of the
transactions.
The income and expenses of foreign operations in hyperinflationary economies are translated to the functional currency at the
reporting date. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial
statements for the current period are restated to account for changes in the general purchasing power of the local currency.
The restatement is based on relevant price indices at the reporting date.
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation
reserve in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the
translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control,
significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation
is reclassified to the profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest
in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is
reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture
that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative
amount is classified to profit or loss.
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.
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.
58
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 are 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
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.
59
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
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 loans and borrowings and related expenses, and head office
expenses, and income tax assets and liabilities.
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)).
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.
The fair value of employee shares provided as compensation is measured using the closing share price on the date the
shares are granted.
Contingent consideration
The fair value of contingent consideration is calculated using the income approach based on the expected payment amounts
and their associated probabilities (i.e. probability-weighted). Since the contingent consideration is long-term in nature, it is
discounted to present value.
60
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 2009.
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:
n Note 16 – measurement of the recoverable amounts of cash-generating units containing goodwill
n Note 15 – recoverable amount of intangible assets
n Note 7 – utilisation of tax losses
n Note 20 – measurement of share based payments
n Note 26 and 27 – contingent assets and liabilities
n Note 18 – Provision for employee entitlements
61
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
5. FINANCIAL RISK MANAGEMENT
Overview
The Group has exposure to the following risks from the use of financial instruments:
n Credit risk
n
Liquidity risk
n Market risk
n Operational risk
This note presents information about the Group’s exposure to each of the above risks, the objectives, policies and processes
for measuring and managing risks, and the management of capital. Further quantitative disclosures are included throughout
this financial report.
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 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 Group’s activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Audit and Risk Committee oversees how management monitors compliance with the Group’s risk management policies
and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by 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 arises 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 Group’s credit risk exposure to funder deposits are more concentrated, however the counterparties are regulated banking
institutions and the credit risk exposure is assessed as low. The Group closely monitors the credit risk associated with each
funder deposit counterparty.
The Group assesses the 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 32.
62
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:
n Secured bank overdraft facility of $250,000. Interest is payable at ANZ’s reference rate.
n Secured bill acceptance facility of $5,000,000, in which $2,500,000 is presently drawn down. Interest is payable at
prevailing bank rate.
n Other operational facilities are set out in note 22 (c).
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 (2009: 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 interest-bearing 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.
63
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
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.
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:
n Requirements for appropriate segregation of duties, including the independent authorisation of transactions
n Requirements for the reconciliation and monitoring of transactions
n Compliance with regulatory and other legal requirements
n Documentation of controls and procedures
n Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to
address the risks identified
Training and professional development
n Development of business continuity plans
n
n
n Risk mitigation, including insurance where this is effective
Ethical and business standards
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/(cash)
Total equity
Less adjustments
Adjusted capital
Debt-to-adjusted capital ratio at 31 December
2010
$
8,204,261
21,186,022
(12,981,761)
2009
$
6,575,811
5,468,171
1,107,640
37,699,127
18,163,883
-
-
37,699,127
18,163,883
-
0.06
The Board encourages employees to hold shares in the Company. At present employees hold 22.8% (2009: 23.7%) of
ordinary shares.
The Group is not subject to externally imposed capital requirements. For the purposes of capital management, capital
consists of share capital, reserves and retained earnings.
64
6.
PROFIT
Profit is arrived at after crediting/(charging) the following items:
a)
Revenue
Commission income from funders
Revenue received on sale of equipment
Rental income
Insurance and warranty brokerage income
Other revenue
b)
Employee benefits expense
Payments to employees
Employee superannuation cost
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 contract rights
Amortisation of distribution network
Amortisation of inertia contracts
Amortisation of intellectual property
Notes
2010
$
2009
$
25,501,346
19,972,868
4,675,138
6,076,363
5,050,340
807,375
4,959,036
5,692,057
5,120,436
1,010,802
42,110,562
36,755,199
9,321,359
9,923,028
739,670
260,400
587,025
547,730
15,727
553,633
10,908,454
11,040,118
365,650
63,827
-
-
35,690
465,167
660,681
635,406
100,988
624,219
32,091
320,891
104,626
3,344
565
125,733
555,159
586,788
205,423
124,427
1,147,994
32,094
2,053,385
2,096,726
65
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
6.
PROFIT (CONT.)
e)
Finance (costs)/benefits
Interest revenue
– other entities
–
related parties
Total finance benefits
Interest expense
– other entities
–
related parties
Total interest costs
Finance charges
Total finance benefit/(cost)
f)
Other Expenses
Gain/(Loss) on sale of property and equipment
Other expenses
2010
$
437,417
-
437,417
2009
$
67,339
-
67,339
(121,109)
(130,253)
-
-
(121,109)
(130,253)
(846,899)
(530,591)
(930,066)
(992,980)
73,866
-
(1,393,022)
(1,333,339)
(1,319,156)
(1,333,339)
Other expenses comprise of other administrative expenses including postage, travel and training.
g)
Reclassification of items of income and expense
To facilitate accurate comparison to 2010, certain items of income and expense have been reclassified as follows:
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
Prior year accounts
2009
$
Reclassification
$
Current year
comparative 2009
$
36,756,819
(10,522,389)
(6,880,869)
(1,043,357)
(590,522)
(244,175)
(686,886)
(475,184)
(2,046,496)
(150,355)
(2,234,746)
(1,620)
36,755,199
(517,729)
(238,493)
485
(122,861)
-
(19,803)
(406)
-
(980)
(11,040,118)
(7,119,362)
(1,042,872)
(713,383)
(244,175)
(706,689)
(475,590)
(2,046,496)
(151,335)
901,407
(1,333,339)
EBITDA - results before interest, tax, depreciation and
amortisation
11,881,840
-
11,881,840
66
7.
INCOME TAX
The major components of income tax expense for the year ended 31 December are:
Current income tax expense
Current income tax charge
Adjustment for prior period
Deferred income tax expense
Origination and reversal of temporary differences
Adjustment for prior period
Change in unrecognised temporary differences
2010
$
2009
$
2,562,286
1,940,806
54,694
(139,865)
348,182
(48,435)
25,299
237,447
203,476
219,684
Income tax expense/ (benefit) reported in income statement
2,942,026
2,461,548
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:
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
Overseas tax losses not recognised
Adjustments in respect of prior periods
9,715,039
2,914,512
12,229
30,619
(51,988)
30,394
6,260
7,633,324
2,289,997
(63,389)
91,034
(31,132)
238,649
(63,611)
Income tax expense reported in the income statement
2,942,026
2,461,548
Income tax recognised directly in equity
Equity raising cost
320,500
-
67
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
7.
INCOME TAX (CONT.)
Deferred tax asset
Corporate development cost
Employee entitlement
Equity raising cost
Consulting cost
Borrowing cost
Plant & equipment
Other
Total
Deferred tax liability
Deals awaiting settlement
Intangible assets
Plant & equipment
ABL servicer fee
Other
Total
Net deferred tax asset (i)
Net deferred tax liability (i)
2010
$
477,214
194,110
553,128
2,026
13,919
241,675
133,604
2009
$
357,444
229,988
595,340
2,702
-
1,076,351
62,029
1,615,676
2,323,854
118,225
246,732
300,424
792,637
237,680
93,039
337,274
1,515,399
331,628
144,351
1,695,698
2,421,691
287,676
367,698
100,550
198,387
(i) Deferred tax assets and deferred tax liabilities that relate to the same taxable entity has been netted off.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
726,920
726,920
1,256,608
1,256,608
The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets that relate to tax losses
in France and USA 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.
68
8.
TRADE AND OTHER RECEIVABLES
Note
2010
$
2009
$
Current
Trade receivables (i)
Allowance for doubtful debts
Deposits held by funder (ii)
Sundry debtors
Non-current
Deposits held by funder (ii)
2,362,465
1,519,955
(112,178)
(214,448)
143,398
188,653
373,816
61,044
2,582,338
1,740,369
6,737,156
6,737,156
731,609
731,609
(i)
(ii)
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 28.
Deposits held by funders for the servicing and management of their portfolios in the event of default. The deposits earn interest
at market rates of return for similar instruments.
The Group’s exposure to credit risk related to trade and other receivables is disclosed in note 28.
9.
INVENTORIES
Promotional stock on hand
Rental asset inventory
10. PREPAYMENTS - CURRENT
Insurance prepayment
Retailer marketing prepayment
Other prepayment
11. OTHER CURRENT ASSETS
Deals awaiting settlement
Other
12. PREPAYMENTS – NON CURRENT
Insurance prepayment
3(h)
-
57,707
57,707
1,296,775
1,004,617
975,077
1,826
72,760
74,586
2,393,154
1,148,961
773,005
3,276,469
4,315,120
394,083
-
394,083
310,131
484
310,615
3(h)
2,372,572
2,372,572
2,953,610
2,953,610
69
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
13. PLANT & EQUIPMENT
Gross Carrying Amount
Cost or deemed cost
Balance at 1 Jan 2009
Net foreign currency translation
differences
Additions
Disposals
Plant &
Equipment
$
Leasehold
improvements
$
Self funded
rentals
$
Web Sites
$
Lease
equipment &
software
$
Total
$
1,895,802
338,799
149,958
76,450
2,272,620
4,733,629
(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
Net foreign currency translation
differences
Additions
Disposals
(179,554)
(41,467)
384,004
-
-
-
-
-
(9,012)
(230,033)
241,531
625,535
(665,179)
(4,718)
(149,958)
(76,450)
(1,636,053)
(2,532,358)
Balance at 31 Dec 2010
1,663,151
230,504
-
-
928,749
2,822,404
Accumulated Depreciation
Balance at 1 Jan 2009
(1,153,126)
(140,884)
(140,011)
(75,157)
(1,963,495)
(3,472,674)
Net foreign currency translation
differences
Disposals
98,799
38,513
-
-
-
-
-
-
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)
Effect of movement in exchange rate
Disposals
111,068
566,746
37,247
3,073
-
-
9,010
157,325
143,355
75,722
1,684,719
2,473,615
Depreciation expense
(365,650)
(63,827)
Balance at 31 Dec 2010
(1,063,054)
(230,504)
-
-
-
-
(35,690)
(465,167)
(408,595)
(1,702,153)
Net Book Value
At 31 Dec 2009
At 31 Dec 2010
748,662
600,097
69,692
-
6,603
-
728
-
265,649
1,091,334
520,154
1,120,251
70
14. INTEREST IN SUBSIDIARIES
Interest in Subsidiaries
RentSmart Unit Trust
RentSmart Pty Ltd
ThinkSmart Finance Ltd (i)
RentSmart Servicing (Bendigo) Pty Ltd (ii)
RentSmart Limited
SmartCheck Ltd
RentSmart Pty Ltd
RentSmart Pte Ltd
ThinkSmart Europe Ltd
ThinkSmart Financial Services Ltd
SmartCheck Ltd ThinkSmart Insurance Administration Ltd
SmartCheck Finance Spain SL
SmartPlan Spain SL
ThinkSmart France SARL
ThinkSmart Sweden AB
ThinkSmart Italy Srl
ThinkSmart Inc
% of Equity
2010
2009
Country of Incorporation
Australia
Australia
Australia
Australia
UK
Australia
New Zealand
Singapore
UK
UK
UK
Spain
Spain
France
Sweden
Italy
USA
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%
(i)
(ii)
ThinkSmart Finance Ltd was incorporated on the 27 July 2010.
RentSmart Servicing (Bendigo) Pty Ltd was incorporated on the 10 August 2010.
71
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
15. INTANGIBLE ASSETS
Gross carrying amount
At cost
Contract
rights
$
Software
$
Distribution
network
$
Intellectual
Property
$
Inertia
Contracts
$
Total
$
Balance at 1 January 2009
897,506
1,814,801
563,789
641,816
3,996,366
7,914,278
Additions
300,403
1,169,748
56,806
Effect of movement in exchange rate
(73,025)
-
(79,300)
-
-
-
1,526,957
(562,112)
(714,437)
Balance at 31 December 2009
1,124,884
2,984,549
541,295
641,816
3,434,254
8,726,798
Additions
1,551,111
1,182,736
-
Effect of movement in exchange rate
(32,357)
-
(130,676)
-
-
-
2,733,847
(523,613)
(686,646)
Balance at 31 December 2010
2,643,638
4,167,285
410,619
641,816
2,910,641
10,773,999
Accumulated amortisation and
impairment
Balance at 1 January 2009
(447,578)
(365,636)
(261,013)
(272,774)
(2,014,593)
(3,361,594)
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)
Amortisation expense
(635,406)
(660,681)
(100,988)
(32,091)
(624,219)
(2,053,385)
Effect of movement in exchange rate
31,034
-
65,167
-
482,342
578,543
Balance at 31 December 2010
(1,192,345)
(1,613,105)
(372,606)
(336,959)
(2,910,641)
(6,425,656)
Net book value
At 31 December 2009
At 31 December 2010
536,911
2,032,125
204,510
1,451,293
2,554,180
38,013
336,948
304,857
665,490
3,775,984
-
4,348,343
72
16. GOODWILL
Balance at beginning of financial year
Effect of movement in exchange rate
Balance at end of financial year
Notes
2010
$
2009
$
4,177,746
4,861,551
(636,972)
(683,805)
3,540,774
4,177,746
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.
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:
•
•
Cash flows were projected based on the forecast operating results for 2011, 5% year-on-year growth to 2015, and
conservative estimated terminal growth at 2.5%.
A post tax discount rate of 14.31% 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 22(c).
73
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
18. TRADE AND OTHER PAYABLES
Trade and other payables (i)
Product plan
GST Payable
Provision for employee entitlement:
Annual leave
Long service leave (ii)
Other
Notes
2010
$
2009
$
3,514,163
2,365,369
218,442
585,006
231,200
276,667
-
185,429
497,321
264,766
214,501
21,980
4,825,478
3,549,366
(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 28.
19. CURRENT BORROWINGS
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at
amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 28.
Term loans (ii)
Hire purchase and lease liabilities (i)
2,489,944
2,490,679
-
3,543
2,489,944
2,494,222
(i)
(ii)
The hire purchase and lease liabilities are secured by a charge over the respective assets (refer note 23).
The $2,489,944 fixed term loan relates to a $2,500,000 180-day commercial bill denominated in Australian Dollar with a fixed
interest of 4.96% pa. The loan was payable on the 17 January 2011. The Company has subsequently rolled the $2,500,000
commercial bill for another 30-day ending 16 February 2011 with a fixed interest of 4.86%.
20. ISSUED CAPITAL
(a)
Issued and Paid up Capital
2010
$
2009
$
129,879,390 Ordinary Shares fully paid (2009: 96,689,390)
39,615,239
23,614,091
Fully Paid Ordinary Shares
Balance at beginning of the financial year
Issue of new shares following exercise of options
Issue of new shares for employee share based payment
Issue of new shares from rights issue
Rights issue costs, net of deferred tax
Balance at end of the financial year
Number
$
96,689,390
23,614,091
840,000
350,000
525,000
224,000
32,000,000
16,000,000
-
(747,852)
129,879,390
39,615,239
During the year, 840,000 employee share options were exercised for total proceeds of $525,000 (2009: No employee share
options were exercised). The Company has issued 350,000 escrowed shares to Mr A Baum (Chief Operating Officer) during
the year as part of his remuneration, refer to note 20(b)(ii). The Company has also completed a rights issue of 32,000,000
shares at $0.50 per share.
74
20. ISSUED CAPITAL (CONT.)
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 each Share is entitled to one vote.
The Company does not have authorised capital or par value in respect to its issued shares.
(b)(i) 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:
•
•
•
640,000 options over ordinary shares were issued 17 April 2007 and exercisable at $1.375, vesting and exercisable on 1
January 2009 exercisable until 31 December 2011.
720,000 options over ordinary shares were issued 17 April 2007 and exercisable at $3.00, vesting and exercisable on 1
January 2009 exercisable until 31 December 2011.
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.
Options issued in the current period:
•
2,200,000 and 333,333 options over ordinary shares were issued 5 May 2010 and 1 September 2010 respectively. The
options are exercisable at $1.11, with an exercise period between 1 January 2013 to 31 December 2014. 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.
Below are options that were issued in 2010 and 2009:
Options series issued in 2010
Number
Grant date
Exercise period
Exercise price
$
Fair value at
grant date
Employee options
2,200,000
05/05/2010
Employee options
333,333
01/09/2010
1 January 2013 to
31 December 2014
1 January 2013 to
31 December 2014
$1.11
$1.11
$0.2746
$0.2287
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 2010 is $0.27 (2009: $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.
75
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
20. ISSUED CAPITAL (CONT.)
(b)(i) Share Options – Employee Options (cont.)
Below are the inputs used to measure the fair value of the options:
Issued in 2010
Grant date
Fair value at grant date
Grant date share price
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free interest rate
Issued in 2009
Grant date
Fair value at grant date
Grant date share price
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free interest rate
Employee options
Employee options
5/05/2010
1/09/2010
$0.2746
$0.815
$1.11
61.5%
$0.2287
$0.62
$1.11
83.7%
3.7 years
3.3 years
3.5%
5.26%
7.46%
4.35%
Employee options
30/06/2009
$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 at the beginning
and end of the financial year:
2010
2009
Number of options
Weighted average
exercise price
$
Number of options
Weighted average
exercise price
$
Balance at beginning of the financial year
Granted during the financial year
Forfeited during the financial year
6,736,667
2,533,333
(550,000)
$1.05
$1.11
$0.71
Exercised during the financial year
(840,000)
$0.625
Expired during the financial year
Balance at the end of financial year
Exercisable at end of the financial year
(1,586,667)
6,293,333
960,000
$1.51
$1.05
$2.19
5,186,667
3,350,000
(400,000)
-
(1,400,000)
6,736,667
3,106,667
$1.52
$0.62
$2.35
-
$1.38
$1.05
$1.56
76
20. ISSUED CAPITAL (CONT.)
(b)(i) Share Options – Employee Options (cont.)
The options outstanding at 31 December 2010 have an exercise price in the range of $0.62 to $3.00 (2009: $0.625 to
$3.00) and a weighted average contractual life of 3.08 years (2009: 2.56 years).
The weighted average share price at the date of exercise for share options exercised during the year ended 31 December
2010 was $0.80 (2009: Nil, no options were exercised).
The following is the total expense recognised for the period arising from share-based payment transactions.
Share options granted in 2006 – equity settled
Share options granted in 2009 – equity settled
Share options granted in 2010 – equity settled
Shares as remuneration granted in 2010 – equity settled
Total expense recognised as employee costs
(b)(ii)
Share Compensation – Employee Shares
2010
$
20,740
51,960
162,811
24,889
260,400
2009
$
23,656
28,928
-
-
52,584
Details on shares of the Company that were granted as compensation to each key management person during the reporting
period and details on shares vested during the reporting period are as follows:
Executives
A Baum
No of shares
granted during
2010
Grant date
Fair value at
grant date ($)
Vesting
period
No of shares
vested during
2010
350,000
01/09/2010
0.64
3 years
-
No shares are granted since the end of the financial year. The shares are provided at no cost to the recipients.
These shares were issued to A Baum upon him joining ThinkSmart Ltd and are held in escrow. The shares are ordinary shares
in the Company and will vest upon completion of a 3-year service period. During this period, Mr Baum is entitled to any
dividends declared by the Company and normal voting rights are attached. In the event that Mr Baum’s employment with the
Company ceases before the vesting period (i.e. through resignation or termination), the shares will be cancelled. If Mr Baum
is retrenched by the Company due to changes in the Company’s structure or operations, he will be entitled to retain the
shares and they will become immediately unconditional if this occurs before the escrow period expires.
77
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
20. ISSUED CAPITAL (CONT.)
(c) Dividends
Dividends recognised in the current year by the Group are:
2010
Final Ordinary 2009
2009
Final ordinary 2008
Interim ordinary 2009
Cents per
share
Total amount
Franked/
unfranked
Date of payment
2.0
$1,937,788
100% franked
23 April 2010
1.5
1.5
$1,450,341
100% franked
14 April 2009
$1,450,341
100% franked
16 October 2009
Franked dividend declared or paid during the year was 100% franked at the tax rate of 30% (2009: 100% franked at the tax
rate of 30%).
After 31 December 2010, the following dividends were declared by the directors for 2010. 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 2010
3.5
$4,545,779
45% franked
29 April 2011
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31
December 2010, 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%
(2009: 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%
(2009: 30%)
2010
$
2009
$
545,068
434,600
1,160,426
1,400,092
(1,090,489)
(1,289,624)
615,005
545,068
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 declared after the balance sheet date but not recognised as a liability
is to reduce it by $876,686 (2009: $828,766). A tax instalment has been paid in January 2011 and another instalment
will be paid in April 2011, which will provide sufficient franking credit for the payment of partially franked dividend on 29 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 2010, the subsidiaries have no franking
credits for the benefit for the Company (2009: nil).
78
21. RESERVES
Equity settled employee benefits reserve – options (i)
Equity settled employee benefits reserve – shares (i)
Foreign currency translation reserve (ii)
2010
$
419,061
(188,111)
2009
$
199,726
-
(4,366,686)
(3,034,333)
(4,135,736)
(2,834,607)
(i)
The share-based compensation reserve arises on the grant of share options and shares to executives under the employee share
option plan. Amounts are transferred out of the reserves and into issued capital when the options are exercised. For shares issued as
remuneration and accounted for as a share based payment arrangement, the full fair value of the shares are initially recognised in the
reserve and share capital, and are subsequently transferred out of the reserve to the profit and loss over the vesting period. Further
information about the share-based payments is made in note 20(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.
22. 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:
-
-
Available cash and cash equivalents
Restricted cash
18,268,661
2,917,361
5,468,171
-
The restricted cash is held as part of the Group’s funding arrangements and the restriction will cease as the contract term expires.
The Group’s exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are discussed in note 28.
79
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
22. NOTES TO THE CASH FLOW STATEMENT (CONT.)
(b) Reconciliation of the profit /(loss) for the year to net cash flows from
2010
$
2009
$
operating activities:
Profit after tax
Depreciation
Amortisation
Loss on disposal of plant and equipment
Provision for doubtful debts
Provision for employee entitlements
Equity settled share based payment
Finance charges recognised as financing activity
(Increase) / decrease in assets:
Trade receivables and deposits with funders
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
6,773,013
465,167
2,053,385
(73,866)
239,514
6,620
260,400
846,899
(7,082,898)
1,623,821
133,372
(83,465)
16,879
1,272,890
(91,134)
448,245
(492)
5,171,776
555,158
2,096,726
-
244,175
(31,576)
52,584
930,066
(759,941)
1,010,760
865,018
(117,243)
(9,066)
(1,057,647)
(1,132,219)
(463,956)
(38,155)
Net cash from/(used in) operating activities
6,808,350
7,316,460
80
22. NOTES TO THE CASH FLOW STATEMENT (CONT.)
(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
Total Financing Facility
2010
$
2009
$
-
250,000
250,000
-
10,000
10,000
2,500,000
2,500,000
5,000,000
-
250,000
250,000
3,543
10,000
13,543
2,500,000
2,500,000
5,000,000
121,500
7,523,500
108,500
7,536,500
7,645,000
7,645,000
12,905,000
12,908,543
The total financing facility of $12,905,000 (2009: $12,908,544) 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 (2009: Nil).
81
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
23. 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 2010
No later than 1 year
Later than 1 year and not later than 5 years
31 December 2009
No later than 1 year
Later than 1 year and not later than 5 years
Consolidated
Interest
Future minimum
lease payments
$
$
Present value of
minimum lease
payments
$
-
-
-
4,033
-
4,033
-
-
-
490
-
490
-
-
-
3,544
-
3,544
The carrying amounts recorded in the financial statements approximate their aggregate net fair values.
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
No provisions have been recognised in respect of non-cancellable operating leases.
2010
$
2009
$
807,061
1,709,594
2,516,655
809,814
2,614,348
3,424,162
24. 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:
•
•
•
Europe: Includes UK, Spain, Italy and France
Australasia: Includes Australia and New Zealand
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.
82
24. SEGMENT INFORMATION (CONT.)
Operating Segments
Europe
Australasia
USA
Total
Information about reportable segments
for the year ended 31 December
2010
$
2009
$
2010
$
2009
2010
2009
$
$
$
2010
$
2009
$
External revenues
Intersegment revenue
Interest income
Interest expense
14,459,016
15,244,638
27,648,749
21,509,066
2,797
1,495 42,110,562
36,755,199
-
-
1,474,304
2,061,806
9,628
2,374
2,484,275
950,438
(1,011,740)
(915,329)
(1,174,838)
(100,397)
-
-
-
-
-
-
-
-
1,474,304
2,061,806
2,493,902
952,812
(2,186,578)
(1,015,726)
(2,518,552)
(2,651,886)
Depreciation and amortisation
(1,166,759)
(1,690,667)
(1,351,793)
(961,219)
Reportable segment profit
before income tax
Other material non-cash items:
Impairment on plant and
2,294,722
3,984,700
11,775,145
8,065,567
(16,983)
(27,210) 14,052,883
12,023,058
equipment and intangible assets
-
-
-
-
-
-
-
-
Reportable segment assets
17,707,606
15,591,339
27,902,009
8,817,925
Reportable segment liabilities
1,788,765
2,223,576
6,473,983
4,402,771
Capital expenditure
444,331
414,377
2,915,050
1,577,518
1,894
2,105
-
6,456 45,611,508
24,415,720
430 8,264,853
6,626,777
-
3,359,381
1,991,895
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
43,584,866
38,817,005
(1,474,304)
(2,061,806)
42,110,562
36,755,199
14,052,883
12,023,058
(1,482,828)
(2,284,082)
(2,855,016)
(2,105,652)
9,715,039
7,633,324
45,611,508
24,415,720
291,883
323,974
45,903,391
24,739,694
8,264,853
6,626,777
(60,589)
(50,966)
8,204,264
6,575,811
There has been no change to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2009.
Major customer
Revenues from the Group’s funding partners represent $25,501,346 (2009: $19,972,868) of the Group’s total revenue.
83
ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
25. 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 and other services
The Group’s auditors are KPMG in 2010 and 2009.
2010
$
2009
$
224,807
68,337
293,144
181,330
86,902
268,232
22,133
22,133
33,896
33,896
26. COMMITMENTS AND CONTINGENT LIABILITIES
Under the terms of the UK former funding agreement the group is potentially liable to refund part of its brokerage income in
the event that the funders bad debts exceed certain pre-agreed levels. As at 31 December 2010, the maximum amount of
brokerage income that the group may potentially have to refund in the future is $492,027 (2009:$485,516).
Under the terms of the UK current funding agreement with Secure Trust Bank, the group is obliged to purchase delinquent
leases from the funder at the funded amount. At 31 December 2010, the total funded amount of all leases funded by the
funder is $11,845,103 (2009: nil) against which the group has provided $683,372 (2009: nil) being its estimate of the
funded amount of these leases that are likely to become delinquent in the future.
Included in cash and cash equivalents, $2,917,361 (2009: nil) which are held as part of the Group’s funding arrangements
and are restricted.
Under the terms of its Australian funding agreement the group has deposits held by the funder as credit support for the
portfolio of leases funded by the funder. These deposits represent amounts held in excess of expected future losses, however
the group has a potential risk that, should losses exceed expected levels and alternate remedies are not made, a portion
of these deposits may be forfeit. As at 31 December 2010, the maximum amount of funder deposits that the group may
potentially forfeit in the future is $3,122,945 (2009: nil). Further funder deposits are held by the funder against the risk
of default by the group under the servicing provisions of its Australian funding agreement. Should the group default against
these obligations, the entire deposit would be forfeit. As at 31 December 2010 the deposit held against servicing default was
$2,643,398 (2009: $1,105,425).
Under the terms of its Australian funding agreement the group has issued a bank guarantee, held by a third party, in favour
of its Australian funder as an additional layer of credit support for the portfolio of leases funded by the funder. In the unlikely
event that losses exceed expected levels and alternate remedies are not made, including accessing funder deposits, and the
funder calls on the bank guarantee, the group would have a liability to the amount called upon. As at 31 December 2010,
the maximum exposure the group had under the bank guarantee was $7 million (2009: $7 million).
Under the terms of a new Retailer Agreement entered into in 2010, the Group committed to pay a deferred establishment fee
of $1,350,000. This establishment fee, when paid will be recognised as a contract rights intangible asset and amortised over
its expected useful life.
84
27. 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 2010,
are discounted using appropriate risk factors. The estimated value of future cash flows is $9,572,203 (2009: $10,635,969),
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 2010, this asset is fully amortised with nil carrying amount.
28. FINANCIAL INSTRUMENTS
28 (a) Interest rate risk
Profile
At the reporting date, the interest rate profile of the Group’s interest-bearing financial instrument were:
Fixed rate instruments
Hire purchase and finance lease liability
Financial liability
Variable rate instruments
Cash and cash equivalent
Deposits held by funder (current)
Deposits held by funder (non-current)
Term loan
Net financial asset
Carrying amount
Note
2010
$
2009
$
-
-
3,543
3,543
21,186,022
5,468,171
143,398
6,737,156
373,816
731,609
(2,489,944)
(2,490,679)
25,576,632
4,082,917
85
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
28. FINANCIAL INSTRUMENTS (CONT.)
Interest rate risk (Cont.)
28 (a)
Sensitivity analysis
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 $255,766 (2009: $40,829).
28 (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.
28 (c) Credit risk management
Exposure to credit risk
The maximum credit risk exposure of the Group is the sum of the carrying amount of the Group’s financial assets and the
contingent liabilities in note 26. The carrying amount of the Group’s financial assets that is exposed to credit risk at reporting
date is:
Cash and cash equivalent
Trade receivables (current)
Deposits held by funder (current)
Deposits held by funder (non-current)
Sundry debtors
Deals awaiting settlement
Prepayments (current)
Prepayments (non-current)
Note
22(a)
8
8
8
8
11
10
12
2010
$
2009
$
21,186,022
5,468,171
2,362,465
1,519,955
143,398
6,737,156
188,653
394,083
373,816
731,609
61,044
310,131
1,296,775
2,393,154
2,372,572
2,953,610
34,681,124
13,811,490
The carrying amount of the Group’s financial assets that is exposed to credit risk at reporting date by geographic region is:
22,110,658
4,419,067
12,568,574
9,386,297
1,892
6,126
34,681,124
13,811,490
Australasia
Europe
USA
86
28. FINANCIAL INSTRUMENTS (CONT.)
28 (c) Credit risk management (cont.)
The carrying amount of the Group’s financial assets that is exposed to credit risk at reporting date by types of counterparty is:
Banks
Funders
Retail partners
Insurance partners
Others
2010
$
2009
$
21,186,022
5,468,171
8,202,305
1,448,720
790,063
529,695
3,669,346
5,346,765
833,388
1,018,139
34,681,124
13,811,490
In 2010, 66% (2009: 73%) 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.
Impairment losses
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
2010
$
2,088,171
104,134
88,350
79,042
2,769
Impairment
2010
$
53,993
5,468
25,172
27,545
-
Gross
2009
$
1,040,151
98,626
93,604
209,286
78,288
2,362,465
112,178
1,519,955
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
Bad debt written off
Effect of exchange rate
Balance at 31 December
2010
$
214,448
239,513
(308,555)
(33,228)
112,178
Impairment
2009
$
23,246
32,494
26,927
125,820
5,961
214,448
2009
$
258,615
244,175
(264,222)
(24,120)
214,448
87
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
28. FINANCIAL INSTRUMENTS (CONT.)
28 (c) Credit risk management (cont.)
Trade receivables are reviewed and considered for impairment on a periodic basis, based on the number of days outstanding
and number of payments in arrears. 90% (2009: 55%) of the net trade receivables balance is owed by the Group’s most
significant financiers, and 3% (2009: 21%) of the remaining net receivables balance is owed by debtors with a good credit
history with the Group.
28 (d) Currency risk management
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 2010
GBP
6,392,124
1,913,291
EUR
491,964
70,180
(1,738,530)
(229,750)
6,566,885
332,394
NZD
48,531
107,939
(82,448)
74,222
USD
1,894
-
(2,105)
(212)
31 December 2009
GBP
3,253,711
360,190
EUR
NZD
USD
236,491
60,560
6,129
66,145
76,681
-
(1,345,557)
(211,075)
(89,336)
(430)
2,268,344
91,561
47,905
5,699
The following significant exchange rates applied during the year:
Average rate
Reporting date spot rate
2010
0.6938
0.5950
0.9197
1.2744
2009
0.5664
0.5044
0.7927
1.2481
2010
0.7647
0.6585
1.0163
1.3171
2009
0.6241
0.5581
0.8969
1.2354
AUD
EUR
GBP
USD
NZD
88
28. FINANCIAL INSTRUMENTS (CONT.)
28 (d) Currency risk management (cont.)
Sensitivity analysis
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 2009:
31 December 2010
EUR
GBP
USD
NZD
31 December 2009
EUR
GBP
USD
Equity
$
76,472
(1,447,168)
19
(24,525)
Profit or
loss
$
20,665
(82,553)
1,544
(3,684)
70,836
69,065
(1,215,251)
(133,817)
548
2,473
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.
28 (e) Liquidity risk management
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements:
Carrying
Amount
$
Contractual
cash flow
$
Less than 1
year
$
1-2 years
2-5 years
$
$
Consolidated
31 December 2010
Trade and other payables
Term loans
31 December 2009
Trade and other payables
Term loans
4,317,615
(4,317,615)
(4,317,615)
2,489,944
(2,500,000)
(2,500,000)
6,807,559
(6,807,559)
(6,807,559)
3,048,126
(3,048,126)
(3,048,126)
2,490,679
(2,500,000)
(2,500,000)
Hire purchase and lease liabilities
3,543
(3,543)
(3,543)
Product plan (non-current)
492
(492)
-
5,542,840
(5,542,840)
(5,542,348)
-
-
-
-
-
-
(492)
(492)
-
-
-
-
-
-
-
-
89
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
29. 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 – resigned 22 May 2010
D Griffiths – appointed Deputy Chairman 22 May 2010
S Penglis
F de Vicente – appointed 7 April 2010
Executive Directors
N Montarello (Chairman, Managing Director and Chief Executive Officer)
Executives
A Baum (Group Chief Operating Officer, ThinkSmart Limited) – appointed 1 September 2010
N Barker (Group Chief Financial Officer, ThinkSmart Limited)
S McDonagh (Executive General Manager, RentSmart Unit Trust) – resigned 23 July 2010
M Radotic (General Manager Sales & Marketing Continental Europe, RentSmart Limited) – ceased being a KMP after
reposting as General Manager Customer Care, RentSmart Unit Trust, on the 1 July 2010
G Varma (Group Chief Information Officer, ThinkSmart Limited)
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
2010
$
2009
$
2,259,573
2,240,908
149,879
197,501
171,089
36,619
2,606,953
2,448,616
The KMP receive no compensation in relation to management of the Company (2009: nil).
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.
90
29. RELATED PARTY DISCLOSURES (CONT.)
Loans to KMP and their related parties
There has been no loan provided to KMP and their related parties as at 31 December 2010 (2009: nil).
Other KMP transactions
During the year and previous year, there has been no transaction with entities in which the KMP has significant control or
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:
Held at 1
January
2010
Granted as
compensa-
tion
Exercised
Lapsed or
forfeited
Held at 31
December
2010
Vested during
the year
Vested and
exercisable at 31
December 2010
Employee Options
2010
Directors
P Mansell
S Penglis
D Griffiths
F de Vicente
-
-
-
-
-
-
-
-
N Montarello
2,400,000
1,000,000
Executives
A Baum
N Barker
-
333,333
1,060,000
333,333
(280,000)
S McDonagh
300,000
-
M Radotic
G Varma
G Parry
2009
Directors
P Mansell
S Penglis
D Griffiths
580,000
100,000
336,667
100,000
580,000
200,000
Held at 1
January
2010
Granted as
compensa-
tion
-
-
-
-
-
-
N Montarello
2,800,000
1,000,000
Executives
N Barker
S McDonagh
M Radotic
G Varma
G Parry
560,000
500,000
-
300,000
280,000
300,000
186,667
150,000
280,000
300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,400,000)
2,000,000
-
-
333,333
1,113,333
-
-
-
-
(300,000)
-
(186,667)
-
-
680,000
250,000
780,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
280,000
-
280,000
-
280,000
Exercised
Lapsed or
forfeited
Held at 31
December
2010
Vested during
the year
Vested and
exercisable at 31
December 2010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,400,000)
2,400,000
1,400,000
1,400,000
-
-
-
-
-
1,060,000
373,333
560,000
300,000
580,000
336,667
580,000
-
280,000
93,333
280,000
-
280,000
186,667
280,000
91
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
29. RELATED PARTY DISCLOSURES (CONT.)
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:
Purchases
Rights issue
Sales
Received on
exercise of
options
Granted as
compensation
Held at 31
December 2010*
2010
Directors
P Mansell
S Penglis
D Griffiths
Held at 1
January
2010
1,550,000
1,060,500
1,800,000
F de Vicente
-
-
-
-
-
-
212,100
360,000
-
N Montarello
17,404,565
1,134,819
3,480,913
-
-
-
-
-
-
-
-
-
-
-
-
-
280,000
-
-
-
-
-
-
-
-
-
n/a
1,272,600
2,160,000
-
22,020,297
350,000
-
-
-
-
-
626,910
547,999
n/a
35,000
185,082
25,357
Executives
A Baum
N Barker
S McDonagh
M Radotic
G Varma
G Parry
2009
Directors
P Mansell
S Penglis
D Griffiths
-
5,800
271,110
-
-
-
-
-
95,000
-
-
(46,100)
-
43,114
(256,365)
-
-
172,999
111,000
35,000
398,333
25,357
Held at 1
January
2009
Purchases
Sales
Received on
exercise of
options
Held at 31
December
2009
1,300,000
250,000
-
1,610,500
-
(550,000)
1,613,360
186,640
N Montarello
17,253,192
151,373
Executives
N Barker
S McDonagh
M Radotic
G Varma
G Parry
172,999
51,000
35,000
398,333
25,357
-
60,000
-
-
-
-
-
-
-
-
-
-
-
-
1,550,000
1,060,500
1,800,000
17,404,565
172,999
111,000
35,000
398,333
25,357
-
-
-
-
-
-
-
n/a: Personnel have resigned before reporting date. The share movement only relates to the period up to their respective
resignation dates.
*
The following shares are subject to escrow as at 31 December 2010 (refer to note 20 (b)(ii):
Executive
A Baum
Parent
The parent entity of the Group is ThinkSmart Limited.
92
Held at
31 December 2010
350,000
30. 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.
31. EARNINGS PER SHARE
Basic earnings per share
From continuing operations
Diluted earnings per share
From continuing operations
Basic earnings per share
2010
Cents per share
2009
Cents per share
6.52
5.35
6.29
5.26
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
2010
$
6,773,013
6,773,013
2010
Number
2009
$
5,171,776
5,171,776
2009
Number
Weighted average number of ordinary shares for the purposes of basic
earnings per share
103,818,543
96,689,390
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:
2010
$
2009
$
Profit after tax from continuing operations
Earnings used in the calculation of diluted EPS from continuing operations
6,773,013
6,773,013
5,171,776
5,171,776
2010
Number
2009
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
103,818,543
96,689,390
Shares deemed to be issued for no consideration in respect of:
Employee options
3,925,035
1,693,407
Weighted average number of ordinary shares used in the calculation of diluted EPS
107,743,578
98,382,797
At 31 December 2010, 3,393,333 options (2009: 3,386,667) were excluded from the diluted weighted average number of
ordinary shares calculation as their effect would have been anti-dilutive.
93
ANNUAL REPORT 2011 NOTES TO THE FINANCIAL STATEMENTS
32 PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 31 December 2010, the parent entity of the Group was ThinkSmart Limited.
Result of parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Share based payment reserve
Retained earnings
Total equity
Parent entity contingencies
2010
$
2009
$
492,256
1,772,102
-
-
492,256
1,772,102
12,353,442
39,391,828
69,109
23,617,470
3,405,428
3,662,416
2,474,892
2,474,892
39,615,237
23,614,091
230,947
199,726
(4,116,772)
(2,671,239)
35,729,412
21,142,578
The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a
future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Contingent liabilities considered unlikely
Performance guarantees
Note
2010
$
2009
$
(a)
7,000,000
7,000,000
(a) A bank guarantee has been issued on behalf of the parent entity, to an unrelated party, in relation to the performance of
a subsidiary in the management of a portfolio of rental agreements. In the event of a default, the third party can call upon
the bank guarantee to offset losses it incurs as a result of the default.
The parent entity has provided a commitment to continue its financial support of RentSmart Unit Trust, ThinkSmart Europe
Ltd and RentSmart Ltd to enable the subsidiaries to pay their debts as and when they fall due. The Company will not call for
the repayment of its loan until RentSmart Unit Trust, ThinkSmart Europe Ltd and RentSmart Ltd are in a financial position to
make such a payment without affecting its operational capabilities.
94
INDEPENDENT AUDIT REPORT
Independent auditor’s report to the members of ThinkSmart Limited
We have audited the accompanying financial report of ThinkSmart Limited (the company), which comprises the consolidated
statement of financial position as at 31 December 2010, and consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 32
comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the
Group comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to
fraud or error. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation
of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance
with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating
to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement
of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with
the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding
of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
95
ANNUAL REPORT 2011 INDEPENDENT AUDIT REPORT
Auditor’s opinion
In our opinion:
(a)
the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 31 December 2010 and of its performance for the
year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2.
Report on the remuneration report
We have audited the Remuneration Report included in the directors’ report for the year ended 31 December 2010. The
directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with
Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on
our audit conducted in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of ThinkSmart Limited for the year ended 31 December 2010, complies with Section
300A of the Corporations Act 2001.
KPMG
Denise McComish
Partner
Perth
18 February 2011
96
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 31 March 2011.
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
Cogent Nominees Pty Ltd
JP Morgan Nominees Australia Ltd
HSBC Custody Nominees (Australia) Ltd
National Nominees Ltd
Voting rights
Ordinary shares
Refer to note 20 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
%
22,321,697
13,161,707
12,553,124
9,114,904
6,531,895
17.19
10.13
9.67
7.02
5.03
Number of equity security holders
Ordinary
Shares
Options
90
378
262
459
68
-
-
-
-
12
The number of shareholders holding less than a marketable parcel of ordinary shares is 21.
Unquoted equity securities
Options issued under the ESOP to take up ordinary shares
6,293,333
12
No. on issue
No. of holders
The Company has no other unquoted equity securities.
On-market buy-back
There is no current on-market buy-back.
97
ANNUAL REPORT 2011 No. of ordinary
shares held
Percentage of
capital held
(%)
22,321,697
13,161,707
12,553,124
9,114,904
6,531,895
5,189,473
4,802,001
4,692,184
3,960,000
3,925,046
3,600,000
2,500,000
1,756,032
1,274,000
1,150,000
1,119,248
1,017,850
916,800
800,000
790,000
17.19
10.13
9.67
7.02
5.03
4.00
3.70
3.61
3.05
3.02
2.77
1.92
1.35
0.98
0.89
0.86
0.78
0.71
0.62
0.61
SHAREHOLDER INFORMATION
Twenty largest shareholders
Name
UBS Wealth Management Australia Nominees Pty Ltd
Cogent Nominees Pty Ltd
JP Morgan Nominees Australia Ltd
HSBC Custody Nominees (Australia) Ltd
National Nominees Ltd
JAWP Pty Ltd
Wroxby Pty Ltd
JP Morgan Nominees Australia Limited
Kemast Investments Pty Ltd
Citicorp Nominees Pty Limited
Phoenix Properties International Pty Ltd
Aileendonan Investments Pty Ltd
Darju Pty Ltd
Osborne Properties Pty Ltd
Manfam Pty Ltd
Wulura Investments Pty Ltd
Wulura Investments Pty Ltd
Mrs Kelyna Margaret Penglis
Bradgale Nominees Pty Ltd
Equity Trustees Limited
98