A N N U A L R E P O R T 2 0 1 3
Contents
Highlights
Business Overview
Chairman and CEO Reports
Financial Report
Page
1
2
8
11
HIGHLIGHTS 2013
“Transformational year for shaping and executing Group strategy”
Statutory net profit after tax of $2.3 million for the 2013
year compares to a $1.4 million loss in 2012
Consistent strong results from UK operations with profit
contribution of $7.8 million before tax
Sale of Australian and New Zealand operations for $43
million cash completed on 31 January 2014
Cash assets immediately post sale of $49.4 million with
$48.1 million unrestricted and no corporate debt
Special fully franked dividend of 3.6 cents per share
paid on 19 February 2014 and buyback of up to 10%
initiated on 20 February 2014
1
THINKSMART ANNUAL REPORT 2013 BUSINESS OVERVIEW
We look to build long term, exclusive distribution agreements and entrenched
partnerships which deliver value for some of Europe’s largest retailers and their
customers. Our products are executable throughout today’s complex retail channel,
creating additional revenue and enhanced margin performance – on and offline.
For over 10 years, ThinkSmart has been an exclusive partner for Dixons Retail Plc,
during which we have developed compelling Business and Consumer lease finance
propositions, most recently introducing Infinity – a first to market offer which enables
consumers to upgrade to the very latest Computer or Tablet every 2 years.
“Unlocking shareholder value”
PERFORMANCE CHART (01 APR 13 - 31 MAR 14)
Volume (m)
Thinksmart
ASX ALL ORDINARIES
S&P/ASX 200 FINANCIALS
0.50
0.45
0.40
0.35
0.30
0.25
0.20
A
$
-
e
c
i
r
P
e
r
a
h
S
0.15
1-Apr
1 6-Apr
1-M ay
1 6-M ay
3 1-M ay
1 7-Jun
2-Jul
1 7-Jul
1-Aug
1 6-Aug
2-Sep
1 7-Sep
2-Oct
1 7-Oct
1-N ov
1 8-N ov
3-D ec
1 8-D ec
2-Jan
1 7-Jan
3-Feb
1 8-Feb
-M ar
5
2 0-M ar
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
)
m
(
e
m
u
o
V
l
Throughout 2013 the Board conducted a strategic review to determine a go forward strategy for ThinkSmart. A commitment to
focus on the UK market opportunity led to the sale of the Australian and New Zealand operations for $43 million cash with the sale
transaction completing on 31 January 2014. The announcement of the sale transaction on 12 December 2013 led to an uplift in
the Company’s share price from a 12 month low of 19.9 cents to a high of 32.7 cents immediately following the announcement.
Part of the proceeds from the sale is intended to return value to
•
A range of capital management strategies are currently
shareholders:
under consideration with the intention to optimise overall
•
Special fully franked dividend of 3.6 cents per share paid
returns to shareholders as well as providing sufficient
on 19 February 2014.
capital to meet the growth aspirations of the business in
•
On market buyback of issued shares. On 20 February 2014
the UK .
the Company announced its intention to buyback up to
The balance of the sale proceeds are intended to be used to
10% of issued shares. The initial tranche of shares under
fund expansion and growth in our chosen market in the UK.
the buyback were acquired on 18 March and up to 11 April
2014 the Company has acquired and cancelled 572,981
shares.
2
THINKSMART ANNUAL REPORT 2013
“Shaping and Executing the Group’s strategy”
Since 2003 ThinkSmart has built a strong UK business, with important retail
relationships already in place and a powerful platform to build on.
UK Operational Snapshot
A GROWTH MARKET
OPERATIONAL SNAPSHOT
• Large Market: 62m consumers
• Supportive to business:
• Lowest company tax in G7-
20% by 2015
• 2013 GDP growth of 1.9%,
fastest since 2007
• Significant Growth Potential in
resurgent market
$7.8m
NPBT FY’13
58,300
Active Customers
$25.9m
In Originations
$50.7m
Assets Under
Management
$4.8m
Cash Generation
$59.9m
Spare funding
capacity
GROWTH PATH IN 2014
• Organic Growth
• Product & market development
• Invest in synergistic growth opportunities
• Build capability to support growth
3
THINKSMART ANNUAL REPORT 2013
“The UK is the right environment to grow our business”
We plan to further develop our current propositions with our existing partner, Dixons. We are working with them to further develop the
successful Infinity proposition and broaden its appeal. This will be launched towards the end of H1 2014. ThinkSmart will continue
to refresh products aligned to our partners’ commercial objectives to assist them in creating a differentiated proposition in their
markets. We continue to work closely with Kingfisher and have a current trial underway providing a funding mechanism for purchase
and installation of boilers to residential landlords across UK.
There are further opportunities to introduce our existing in store and online point of sale solutions to other retailers with customers
who want all the benefits of the latest technology or product features with the flexibility to upgrade products as their need develops.
We do not see these opportunities as limited to computing related product sales.
Finally, the sale of the Australian and New Zealand operations has provided a significant cash reserve available to fund opportunities
that have the potential to accelerate synergistic growth. The evaluation of these opportunities is in its early phase however we believe
ThinkSmart’s strong balance sheet and market experience and singular market focus could unlock value in strategically aligned
businesses.
Ultimately we are positioning the Company for growth in a strengthening UK market place. Our people and their capabilities, along
side efficient processes and a unique IP capability have created significant added value and support for our retail partners. We plan
to continue to build this capability across an even wider range of innovative financial propositions to a broader base of retail partners.
4
THINKSMART ANNUAL REPORT 2013 “Consistent performance from the UK business”
The UK operations contributed $7.8 million net profit before tax for the 2013 year, a
consistent performance in a market showing indicators of an economic recovery.
UK Profit Contribution ($m)
5.0
4.0
3.0
2.0
1.0
H1 12
H2 12
H1 13
H2 13
Cash flow generation from UK operations increased to $4.8 million, up
from $3.8 million in 2012. New originations totalled $25.9 million, a
reduction of 8% on a constant currency basis. The 2012 new business
volumes were significantly increased by pre Olympics sales activity. In
addition, Infinity originations have in part been impacted by a changing
sales mix trending towards lower value tablets.
The automation of processes has delivered efficiency benefits with
operating costs as a percentage of revenue falling
from 29.6% to 28.6%.
5
THINKSMART ANNUAL REPORT 2013 “ThinkSmart is well positioned for future growth
through its focus on the UK market and capacity to
leverage a strong balance sheet”
ThinkSmart has once again extended its 10 year partnership with Dixons, the market leading technology retailer in the UK, for a
further period to 2017. The success of the important relationship is in part due to our ability to innovate and update the customer
proposition ensuring it remains relevant to more customers and more products. In August 2013 ThinkSmart announced it had
signed a Heads of Term with the UK’s leading DIY retailer, Kingfisher, opening up a partnership opportunity with significant potential
for growth. A trial product is in its early stages of development and the evolution of this partnership is expected to continue
throughout 2014.
The UK operations are funded through a financing arrangement with Secure Trust Bank. In 2013 the funding limit was increased
from GBP40 million to GBP60 million and the facility extended to 2016. There is a focus to move to a multi funder model to support
expected future growth and diversification with the stronger balance sheet creating improved opportunities with potential funders and
improved pricing.
“Prospects for 2014”
ThinkSmart is well positioned for future growth through its focus on
the UK market and capacity to leverage a strong balance sheet. The
opportunities for growth exists organically with current long term
partners, by extending our propositions to new sectors and retail
partners and also through investments which unlock synergies in
strategically aligned businesses.
6
THINKSMART ANNUAL REPORT 2013 “ThinkSmart has once again extended its
10 year partnership with Dixons”
7
THINKSMART ANNUAL REPORT 2013 CHAIRMAN AND CEO REPORTS
Executive Chairman’s Report
Dear Shareholder
“2013 was transformational in shaping and executing strategy”
Following a challenging period for shareholders, Directors and staff, improved financial performance together with the sale of the
Australian and New Zealand operations for $43 million cash has driven a significant uplift in the market value of ThinkSmart. The
Company’s share price closed the 2013 year at $0.36, up 89% from one year earlier.
The transformation plan executed in late 2012 delivered improved financial performance and returned the Group to profit in the
2013 year. In addition, the Board completed a comprehensive strategic review in 2013 which led to the acceptance of an offer for
the Australian operations which the Board considered to be a fully priced offer.
I am pleased that the sale allows your Board to distribute returns to shareholders in the form of a fully franked special dividend of
3.6 cents per share paid on 19 February 2014. In addition, the Company announced its intention to buyback up to 10% of issued
shares through an on market buyback. The initial tranche of shares under the buyback were acquired on 18 March and up to 11
April 2014 the Company has acquired and cancelled 572,981 shares.
On 3 April 2014, we released a market announcement that the company was reviewing its current position on capital management.
In response to shareholder feedback the Board is in the process of considering a range of strategies with the objective of optimising
returns to shareholders as well as providing sufficient capital to meet the growth aspirations of the business in the UK.
We strongly believe the UK is the place to be to grow our business. ThinkSmart has a strong long term relationship with Dixons, UK’s
leading electrical retailer and our leadership team has been strengthened by the appointment of Keith Jones, former Dixons Group
Retail Director, who joined our Board in May 2013 and commenced in the Chief Executive Officer role on 1 February 2014. I am
delighted to have secured Keith in this capacity and I can think of no better individual to take the reins of the business. I look forward
to supporting him in my capacity as Executive Chairman and working with him in this next exciting phase of ThinkSmart’s journey.
The UK market is three times the size of Australia with 62 million consumers and ThinkSmart has secured access to these
consumers through its strong relationship with Dixons. ThinkSmart’s sector leading intellectual property delivers capability for point
of sale financing solutions and facilitates rapid development of innovative products into other retail sectors allowing ThinkSmart to
create financing solutions with its chosen partners at relatively low cost and in rapid timeframes.
ThinkSmart now has significant cash reserves to invest in strategic growth initiatives. A stronger balance sheet also opens the way to
increased funding capacity and more favourable financing rates.
Finally, on behalf of the Board of Directors, I would like to thank all of ThinkSmart’s customers, partners, funders and shareholders
for their continuing support. I especially want to thank the entire team at ThinkSmart for their ongoing commitment and enthusiasm.
Ned Montarello, Executive Chairman
8
THINKSMART ANNUAL REPORT 2013
Chief Executive Officer’s Report
Dear Shareholders
As a Director and Chief Executive Officer of ThinkSmart, I continue to be excited by the opportunities for the Company in the UK
market. The Directors and Executives are actively evaluating the growth opportunities that will maximise long term shareholder value.
“Building long term shareholder value in the UK”
Our strategic focus is to build long term value in the UK through 3 Pillars of Growth:
1. Organic growth with existing partners
2. Product and market development extending the model with new partners
3. Synergistic opportunities
The current plan to refocus, realign and broaden the offer with our principal partner in the UK creates an opportunity to deliver our
most exciting product proposition yet to even more customers and product categories. Our partnership with Dixons has recently been
extended to 2017. We are working with them to deliver an enhanced Infinity proposition which will be relevant to more customers
across more products. It will provide added flexibility and allow customers to benefit from the very latest products in a fast changing
technology landscape. It will be great for customers, our partner, their suppliers and obviously for ThinkSmart and its shareholders.
We are already working towards replicating the successful partnership we have with retailers who do not directly compete with
Dixons. The relationship with Kingfisher announced in 2013 is in development phase as we trial a product in their Kingfisher Future
Homes operation. We are encouraged by the partner’s commitment to the evolving relationship. Our focus in the UK opens up the
opportunity to create and build additional partnerships and to work alongside retailers to develop innovative, fast and market winning
point of sale finance solutions.
Significant cash reserves are now available to fund investments in strategically aligned opportunities where we can unlock value
and deliver growth. We are actively evaluating a number of opportunities that compliment ThinkSmart’s key competencies and
shareholders will be appraised of developments as they arise.
Execution of the Group’s strategy occurs at a time of renewed optimism for the UK economy. The economic outlook has turned
positive with GDP growth the strongest since 2007 and both employment and inflation ahead of expectation.
Finally, I would like to acknowledge the hard work and commitment from the ThinkSmart team based in the UK. I look forward to
leading the team, building the capability and driving ahead with the planned growth initiatives for the benefit of all stakeholders.
Keith Jones, Chief Executive Officer
9
THINKSMART ANNUAL REPORT 2013 10 FINANCIAL
REPORT
Contents
Directors’ Report
Auditor’s Independence Declaration
Directors’ Declaration
Consolidated Statement of Profit and Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flow
Notes to the Financial Statements
Independent Auditor’s Report
Shareholder Information
Corporate Information
Page
12
37
38
39
40
41
42
43
44
104
106
108
ANNUAL REPORT 2013 11
DIRECTORS’ REPORT
Your Directors present their report on the consolidated
of Dixons Retail plc. At Dixons, Keith was a member of the
entity (referred to hereafter as the “Group”) consisting of
Group Executive Committee with responsibility for all UK and
ThinkSmart Limited (“the Company” or “ThinkSmart”) and
Ireland fascias including PC World and Currys. Previously
the entities it controlled at the end of, or during, the financial
he was Managing Director of PC World Stores Group with
year ended 31 December 2013.
responsibility for stores in the UK, Spain, France, Italy and
DIRECTORS
Nordics in addition to Group Service Operations. Keith has a
MBA from Manchester Business School.
The following persons were Directors of the Company during
David Griffiths
the financial year and until the date of this report.
B. Ec (Hons), M. Ec, D. Ec (Hon), FAICD
Non-Executive Director, Deputy Chairman
Names, qualifications, experience and special
responsibilities
Ned Montarello
Executive Chairman
David joined the Board on 28 November 2000 and was
appointed Deputy Chairman on 22 May 2010. David
has over 14 years experience in investment banking at
Macquarie Bank Limited and previously as Executive
Chairman of Porter Western Limited. Prior to that he held
Ned was appointed Executive Chairman on 22 May 2010
a number of senior financial positions across a wide range
and stepped down as Chief Executive Officer on 31 January
of industries. He holds an Honours Degree in Economics
2014. Ned has over 28 years experience in the finance
and an honorary Doctor of Economics from The University
industry. He founded ThinkSmart in 1996 and through this
of Western Australia, a Masters Degree in Economics
vehicle has been credited with elevating the Nano-Ticket
from Australian National University and is a Fellow of the
rental market sector in Australia, receiving the Telstra and
Australian Institute of Company Directors. David sits on
Australian Government’s Entrepreneur of the Year Award in
the Board of the Perth International Arts Festival and is
1998. Ned led the development of the Group’s Australian
currently Chairman of Automotive Holdings Group Limited.
distribution network by building partnerships with key
David is currently Chair of the Audit and Risk Committee of
retailers, including JB Hi-Fi and Dick Smith. Ned also steered
ThinkSmart.
the expansion of the business into Europe, establishing
agreements with DSG International and a joint venture with
Steven Penglis
HBOS to launch in the UK. In 2007 Ned successfully listed
B. Juris and B. Law
the business in Australia for $204m. In 2010 he developed
Non-Executive Director
the “Infinity” product with Dixons to move into the “Business
to Consumer” market for the first time in the UK. Ned
Steven joined the Board on 1 July 2000 and stepped down
continued to drive the business to maintain its sector leading
as Chairman on 6 May 2007. Until 30 September 2012,
IP in point of sale finance with the introduction of e-sign to
Steven was a partner of Freehills, having been appointed
its process ensuring that it maintained its relevance to the
to the partnership on 1 July 1987. Steven now practises
fast moving retail environment.
solely as a barrister, specialising in the area of Corporate and
Keith Jones
MBA Bus
Chief Executive Officer
Corporations Law litigation. He is a part time Senior Member
of the Commonwealth Administrative Appeals Tribunal, a
former elected member and Chairman of the Legal Practice
Board of Western Australia and a former elected member of
the Council of the Law Society of Western Australia (having
Keith joined the Board on 24 May 2013 and was appointed
served from 1 January 2002 to 31 December 2012). Steven
Chief Executive Officer on 1 February 2014. Keith has 30
is currently Chairman of the Nomination and Remuneration
years of retail experience in Europe including roles as Chief
Committee of ThinkSmart.
Executive Officer of JJB Sports plc and Group Retail Director
12 DIRECTORS’ REPORT
Fernando de Vicente
B. Econ, MBA Bus
Non-Executive Director
was employed with the NAB Group in senior finance roles
based in the UK and Australia.
Alistair Stevens
Fernando is a citizen of Spain who joined the Board on 7
BA (Hons), ACA
April 2010 and the Audit and Risk Committee on 18 August
Company Secretary and Chief Financial Officer
2013. Fernando has a Degree in Economics (International
Development) from the University Complutense in Madrid,
Alistair resigned as Company Secretary and Chief Financial
and an Executive MBA from IESE Business School in
Officer on 12 December 2013.
Madrid. Fernando spent nine years at DSG International,
one of Europe’s largest electrical retailers, where he most
PRINCIPAL ACTIVITIES
recently held the role of International Managing Director,
with responsibility for DSG’s Central & Southern European
The Group’s principal activity during the year was the
operations, a A$3 billion business with 350 stores across six
provision of lease and rental financing services in Australia
countries.
and the UK and the supply of interest free payment plans in
Australia.
Fernando started his career with DSG as Finance Director for
PC City Spain, and became the MD for Spain in 2003. In
OPERATING AND FINANCIAL REVIEW
2006 he was promoted to Regional Managing Director for
South-East Europe based in Greece, before assuming the
The Board presents its Operating and Financial Review for
role of International Managing Director in 2008. In March
the 2013 financial year. This information should be read in
2010, Fernando left DSG to become the Executive Chairman
conjunction with the financial statements and accompanying
of BodyBell Group, one of Spain’s largest speciality retailers.
notes.
On 15 February 2012, Fernando was appointed Non-
Executive Director of Levantina, a multinational company
Business model
dealing in natural stone products.
Nancy Fox
BA, JD (Law), FAICD
Non-Executive Director
ThinkSmart is a leading international finance company,
creating differentiation and competitive advantage in ‘point
of sale’ finance. It has an exclusive distribution agreement
and partnership with one of the UK’s leading electrical
retailers and their customers. ThinkSmart’s products
Nancy resigned as Non-Executive Director on 18 March
leverage its sector leading software and processing IP for
2013.
COMPANY SECRETARY
Neil Barker
B. Bus, FCPA
delivering fast finance solutions in today’s complex retail
environment and it offers a compelling and highly profitable
value proposition for retail partners, customers and funders.
During the year, a decision to sell the Australian and New
Zealand operations was taken after a full strategic review
by the Board. The sale agreement for the Australian and
Neil was appointed Company Secretary on 12 December
New Zealand operations for $43m was executed on 12
2013. Neil is a Certified Practicing Accountant (Fellow)
December 2013 and settled 31 January 2014. This will
with over 30 years experience in banking and finance. He
enable the Group to focus on the UK market with its 62
previously worked for ThinkSmart for 6 years until July 2011
million consumers and allow it to continue to build on the
in the roles of Chief Operating Officer, Chief Financial Officer
strong relationship it has with the UK’s dominant electrical
and Company Secretary. Prior to joining ThinkSmart in 2005,
retailer – Dixons, to further develop new products and
Neil was the Group Financial Controller of Alinta Limited, an
markets and invest in synergistic growth opportunities.
Australian public listed company. Prior to joining Alinta, he
ANNUAL REPORT 2013 13 DIRECTORS’ REPORT
Key financial data
Continuing operations Discontinued operations
Total
For year ended 31 December
2013
$000
2012
$000
2013
$000
2012
$000
2013
$000
2012
$000
Total revenue
18,933
19,043
18,758
20,680
37,691
39,723
Indirect customer acquisition costs
(4,943)
(4,992)
(1,361)
(3,147)
(6,304)
(8,139)
Operating expenses
(9,923)
(11,005)
(13,039)
(14,969)
(22,962)
(25,974)
Depreciation and amortisation
Impairment losses
Profit / (loss) before tax
Income tax (expense) / benefit
Profit / (loss) after tax
Summary of results
(463)
(255)
3,349
(752)
2,597
(450)
(182)
2,414
(569)
1,845
(2,399)
(2,338)
(379)
91
(288)
(2,786)
(2,862)
(3,236)
(4,098)
(2,593)
(4,280)
(4,320)
1,034
(3,286)
2,970
(661)
2,309
(1,906)
465
(1,441)
• Net profit after tax of $2.3m, inclusive of $0.35m after tax expenses in relation to transaction costs with respect to the
after balance date sale of the Australian and New Zealand businesses, compared to a loss in 2012 of $1.4m
•
•
•
•
•
Total revenue of $37.7m, down 5%
Total expenses of $34.7m, down 16%
Operating expenses of $23.0m, down 9%
Available cash assets of $7.4m, up 22%
Earnings per share of 1.45 cents, compared to a loss per share of 0.95 cents in 2012
• No dividend declared for 2013, however a fully franked special dividend of 3.6 cents per share declared on 31 January
2014 to be paid on 19 February 2014
Review of operations
Continuing operations – UK
A consistent set of results was delivered by the UK business with profit contribution of $7.8m before tax (2012: $7.7m).
Cash flow generation of $4.8m, is up 26.0% from $3.8m in 2012. New originations totalling $25.9m are down 8.0% on
a constant currency basis. This is partly as a result of growth in new business volumes having ‘normalised’ relative to the
spike experienced in 2012 driven by the London Olympics. In addition, Infinity volumes in the second half of 2013 were
below expectations due to a change in computer sales mix. This has reduced growth, particularly in Q4. The Group has now
agreed with Dixons to refocus and realign products to broaden categories within Dixons stores. Further, SmartPlan volumes
(predominantly computers) have declined by 10% in line with B2B computing volumes.
UK average transaction values (ATV’s) have increased from £541 to £663. This was driven by a re-pricing of the Infinity
product from May 2013 to include the full service cost within the invoice, increasing Infinity ATV from around £430 to £550.
2013 also saw an increase in repeat business for Infinity with 30% of customers are now upgrading after 2 years and ATV for
repeat business is 20% higher than the original contract.
Operating costs as a percentage of revenue have fallen to 28.6% from 29.6% as the business model becomes more efficient
and continues to leverage scalability.
14 DIRECTORS’ REPORT
Continuing operations – Corporate
Corporate costs fell by $0.5m to $4.4m from $4.9m in 2012. Excluding one off sale transaction costs incurred during 2013
of $0.5m, the underlying savings of $1.0m was driven by a cost reduction program implemented in H1 2013.
Discontinued operations – Australia and New Zealand
During 2013, the performance in the Australian operations improved from a loss of $4.3m in 2012 to a loss of $0.4m in the
current year. Total revenue was down $1.9m mainly due to the transition of its funding model from a brokerage model to a
securitisation model in 2012, causing the commencement of lease accounting for new originations from May 2012. However
total costs reduced by $5.8m following the restructure announcement in November 2012. Specifically, customer acquisition
costs reduced by $1.8m, credit loss performance improved by $1.8m, the interest charge reduced by $1.1m, other operating
costs were lower by $0.8m, and depreciation and amortisation reduced by $0.4m.
Key developments and significant changes in state of affairs
As set out in notes 8 and 12 of the Financial Report, on 12 December 2013 the Group announced the sale of its Australian
and New Zealand operations to FlexiGroup Limited for $43.0m. The settlement of the sale completed on 31 January 2014,
with the gain on the sale to be accounted for in FY 2014.
Financial position and cash flows
Summary financial position
As at 31 December
Cash and cash equivalents (unrestricted)
Cash and cash equivalents (restricted)
Loan and lease receivables
Other assets
Goodwill and intangibles
Assets held for sale
Total assets
Other interest bearing liabilities
Other liabilities
Liabilities held for sale
Total liabilities
Equity
Net cash from operating activities
2013
$000
2012
$000
7,375
194
-
16,605
16,613
66,617
6,008
12,560
62,414
16,256
17,707
-
107,404
114,945
-
12,677
41,108
54,363
12,561
-
53,785
66,924
53,619
48,021
1,538
690
ANNUAL REPORT 2013 15 DIRECTORS’ REPORT
Significant changes in the financial position in the table above reflect the accounting requirement to reclassify in FY 2013 the
Australian and New Zealand operation’s assets and liabilities as “held for sale” assets.
Cash at 31 December 2013 excludes $12.0m reclassified as “Assets held for Sale” and there are no corporate borrowings as
these were fully repaid in H2 2012. Total cash assets immediately after the sale of the Australian and New Zealand business
are $49.4m. Closing cash as at 31 December 2013 of $19.6m includes investments in funding arrangements of $12.0m
and available cash of $7.4m. Available cash of $7.4m at the end of December is up from $6.0m at 31 December 2012,
driven by operating cash generation.
Operating cash generation of $1.5m is up from $0.7m in 2012, with UK operations contributing $4.8m (2012: $3.8m) for
the year. Investment in infrastructure continues at reduced levels with $1.4m invested in the establishment of new funding
facilities and the development of online capability compared to $2.3m in 2012, due to projects nearing completion.
No dividend has been declared in respect of 2013. A special dividend of 3.6 cents, fully franked, was declared on 31 January
2014 for payment on 19 February 2014.
Business strategies and prospects for future financial years
Distribution network
ThinkSmart has a 10 year partnership with Dixons, now extended to 2017. During 2013, the Group also entered into a
new relationship with Kingfisher, which is in its trial phase. There is now a singular leadership focus on the UK, aimed at
establishing additional relationships.
Operational capability and efficiency
With the recent appointment of a UK based CEO with extensive retail experience, ThinkSmart will, through the use of its
market leading IP capability, further develop its multi-channel operating model at an efficient and scalable level.
Asset quality
Our continued focus on consistent improvements in loss history, which improves the cost of funding, will make ThinkSmart a
more attractive proposition to potential new funding partners.
Product diversification
There will be a renewed focus on the development of the Infinity product, which is anticipated to further broaden the
product’s reach in stores. The SmartPlan offering will be revitalised, targeting realignment to meet the changing retail
environment in 2014. In addition to existing products, our in-house development capability will be used to develop bespoke
products for new partners and markets.
Funding platform and cash resources
During FY 2013, funding limits with the Group’s UK funding partner have increased to GBP£60m. Further, the Group’s focus
will be to move to a multi-funder model enabled by increased group cash balances as it seeks to utilise cash available (in the
region of $20m post the sale of the Australian and New Zealand operations) for investment in growth initiatives.
16 DIRECTORS’ REPORT
Risks
ThinkSmart accepts that risk is an inherent part of doing business and actively identifies, monitors and manages material
risks.
Key material risks faced by the group are:
Credit risk
The credit quality of accepted customers and the Group’s policies and procedures to mitigate payment defaults has an
impact on the Group’s financial performance either directly through impairment losses or indirectly through funding cost.
Robust credit checking and collections processes combined with continual development of our market leading IP capability in
this area assist in managing and mitigating this risk.
Achievement of Volume Growth
The Group’s ability to achieve its growth targets is impacted by Retail partner’s own growth strategies, key relationships with
those partners, the ability to establish new partnerships or product lines, and the broader economic environment particularly
in the retail sector.
Funding
The availability and cost of funds impacts the Group’s product pricing decisions, its ability to accept volume growth delivered
by its partners and the ultimate profitability of its products. The historic credit quality of ThinkSmart’s lending, market
competition for debt and other macro-economic factors also impact this risk.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
On 12 December 2013, the Group entered into an agreement to sell its Australian and New Zealand business to FlexiGroup
for $43m. The sale was completed 31 January 2014.
Other than the matter described above, there has been no transaction or event of a material nature likely, in the opinion of
the Directors of the Company, to affect significantly the operations, results or state of affairs of the Group, in future financial
years.
DIVIDENDS
There were no dividends paid during the year (2012: nil) or since the year end.
Declared after year end
Subsequent to 31 December 2013, the following dividends were declared by the directors.
Special dividend
3.6 cents
$5,843,055
Fully franked
19 February 2014
Cents per share
Total amount
Franked/unfranked
Date to be paid
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 31
December 2013 and will be recognised in subsequent financial reports.
ANNUAL REPORT 2013 17 DIRECTORS’ REPORT
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
In December 2013 the Group entered into an agreement to sell its operations in Australia and New Zealand to FlexiGroup
Limited for $43 million. The transaction was completed on 31 January 2014.
The operations in Australia and New Zealand have been presented as discontinued operations in the financial statements for
the year ended 31 December 2013.
DIRECTORS’ MEETINGS
The following table sets out the number of Directors’ meetings held during the financial year.
Director
Board Meetings
Audit and Risk Committee
Meetings
Nomination and Remuneration
Committee Meetings
N Montarello
D Griffiths
S Penglis
F de Vicente
N Fox
K Jones
A
15
16
16
13
1
13
B
16
16
16
16
1
13
A
2*
2
2
0
1
-
B
2
2
2
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
DIRECTORS’ INTERESTS
A
-
2
2
2
-
-
B
-
2
2
2
-
-
The relevant interests of each Director in ThinkSmart Limited shares and options at the date of this report are as follows:
N Montarello
D Griffiths
S Penglis
F de Vicente
K Jones
Number of
ordinary shares
Options granted over
ordinary shares
30,559,356
2,592,001
1,272,600
426,000
-
-
-
-
-
-
Unissued Shares under Options
At the date of this report there were 1,050,000 unissued ordinary shares of the Company subject to option or performance
rights, comprising:
18 DIRECTORS’ REPORT
Number of shares
under option
300,000
750,000
Exercise price
of options
$0.19
$0.27
Expiry date
of options
09 August 2017
04 July 2018
All options expire on the earlier of their expiry date or the termination of the option holder’s employment. Further details are
included in the remuneration report on pages 19 to 30. These options do not entitle the holder to participate in any share
issue of the Company or any other body corporate.
REMUNERATION REPORT - Audited
This Report details the remuneration arrangements for Key Management Personnel. Key Management Personnel encompass
all Directors and those Executives that have specific responsibility for planning, directing and controlling material activities of
the Group. In this report, “Executives” refers to the Key Management Personnel excluding the Non-Executive Directors. The
information provided in this Remuneration Report has been audited as required by Section 308(3C) of the Corporations Act
2001. This Report contains the following sections:
A:
B:
C:
D:
E:
F:
Principles of remuneration
Key Management Personnel remuneration
Service agreements
Share-based compensation (loan-funded shares and options)
Share-based compensation (shares)
Bonus remuneration
A. Principles of Remuneration
Key Management Personnel have authority and responsibility for planning, directing and controlling the activities of the
Company and the Group and comprise for the year ended 31 December 2013:
Executive Chairman and Chief Executive Officer
N Montarello*
Non-Executive Directors
D Griffiths (Deputy Chairman)
S Penglis (Non-Executive Director)
F de Vicente (Non-Executive Director)
N Fox (Non-Executive Director) – until 18 March 2013
K Jones (Non-Executive Director)* – from 24 May 2013 until 1 February 2014
Executives
A Baum (Group Chief Operating Officer)
G Halton (Managing Director (acting) – UK)
A Stevens (Group Chief Financial Officer) – until 12 December 2013
G Varma (Group Chief Information Officer)
*On 1 February 2014 Mr K Jones became the Group’s Chief Executive Officer.
ANNUAL REPORT 2013 19 DIRECTORS’ REPORT
The Board recognises that the Company’s performance depends upon the quality of its staff. To achieve its financial and
operating objectives, the Company must attract, motivate and retain highly skilled Directors and Executives. To this end, the
remuneration structure seeks to:
• Provide competitive rewards to attract, retain and motivate talented Directors and Executives;
• Align incentive rewards with the Company’s short term and long term objectives by including a significant portion of
Executive remuneration “at risk” as short term and long term incentives;
• Set demanding performance hurdles which are clearly linked to an Executive’s remuneration; and
• Structure remuneration at a level that reflects the Executive’s duties and responsibilities and is competitive within
the sector.
The remuneration structures take into account:
•
•
•
the capability and experience of the individual;
the individual’s ability to control the relevant segment’s performance; and
the performance of the Group.
The Nomination and Remuneration Committee may obtain independent advice on the appropriateness of remuneration
packages, trends in comparative companies and markets, both locally and internationally, and the objectives of the
Company’s remuneration strategy.
Remuneration packages include a mix of fixed and variable remuneration with a blend of short-term and long-term
performance-based incentives. The variable remuneration components are directly linked to both the performance of the
Group and the performance of the Company’s share price. This ensures close alignment of remuneration of Key Management
Personnel and the creation of shareholder value.
Non-Executive Directors
Fees and payments to Non-Executive Directors reflect the demands which are made on and the responsibilities of the Non-
Executive Directors. Non-Executive Directors’ fees and payments are reviewed annually by the Board. Non-Executive Directors
do not receive share options or loan-funded shares.
Non-Executive Directors’ Fees
Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool of $600,000 and was approved by
shareholders at a previous general meeting. The total fees paid in the 2013 financial year were $252,409. In addition to
these fees, Directors also receive superannuation contributions as required under government legislation. The Company also
pays all reasonable expenses incurred by Directors attending meetings and carrying out their duties.
Executive Pay
The Group’s executive remuneration structure has four components which comprise the Executive’s total remuneration:
•
•
•
•
base pay and benefits;
short-term performance incentives (STIs);
long-term incentives through participation in the ThinkSmart Long Term Incentive Plan (LTIs); and
other remuneration such as superannuation.
20 DIRECTORS’ REPORT
Base Pay – Fixed Compensation
Executives are offered a competitive salary that comprises the components of base pay and benefits. Base pay for Executives
is reviewed annually by the Nomination and Remuneration Committee or the Executive Chairman to ensure the Executive’s
pay is competitive with the market and appropriate to the Executive’s experience, responsibilities and contribution. An
Executive’s pay is also reviewed on promotion. Base pay for the Executive Chairman is reviewed annually by the Nomination
and Remuneration Committee.
Short-Term Performance Incentive
Short-term performance incentives (STIs) vary according to individual contracts, however, for Executives they are broadly
based as follows:
•
a component of the STI is linked to the individual performance of the Executive (this is based on a number of factors,
including performance against budgets, achievement of key performance indicators (KPIs) and other personal
objectives); and
•
a component of the STI is linked to the financial performance of the Group determined at the beginning of each
financial year.
Using various performance targets and personal performance objectives the Group ensures variable reward is only paid when
value has been created for shareholders. The performance measures include financial, such as Profit Before Tax and the
value of new originations, and non-financial, including KPIs targeting high levels of customer service and new retail partner
acquisition. The STI bonus is delivered in the form of cash.
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 Nomination and Remuneration Committee or the Executive Chairman. The
STI targets are reviewed annually. Information on the STI is detailed in section F of the Remuneration Report.
Long-Term Performance Incentive
Long-term performance incentives are awarded to Key Management Personnel and other Executives. Prior to 2012,
incentives were awarded under the Company’s Executive Share Option Plan. In May 2012, shareholders approved a Long
Term Incentive Plan designed to increase the motivation of staff and to create a stronger link between increasing shareholder
value and employee award. The details of these schemes are set out on pages 22 to 25.
Consequences of Performance on Shareholder Wealth
In considering the Group’s performance and benefits for shareholder wealth, the Remuneration Committee have regard to the
following indices in respect of the current financial year and the previous four financial years.
Profit/(loss) attributable to owners
of the company ($000s)
Basic EPS
Dividends paid
Dividend paid per share
Share price at year end
Change in share price
2013
2012
2011
2010
2009
$2,309
($1,441)
$6,798
$6,773
$5,172
1.45 cents
(0.95) cents
5.23 cents
6.52 cents
5.35 cents
-
-
$0.36
$0.17
- $4,545,779 $1,937,788 $2,900,682
-
3.5 cents
2 cents
3 cents
$0.19
$0.41
$0.73
($0.22)
($0.32)
($0.17)
$0.90
$0.73
ANNUAL REPORT 2013 21 DIRECTORS’ REPORT
The table below sets out the details of the performance options issued to Executives in 2009, 2010 and 2011:
Instrument
Each option represents an entitlement to one ordinary share.
Exercise price
Performance Options Tranche 1 - $0.62
Performance Options Tranche 2 - $1.11
Performance Options Tranche 3 - $0.84
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 Group’s EPS growth will be measured relative to a target of more than 7.5% per annum
compound growth.
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.
Performance Options Tranche 3: 3 year period commencing 1 January 2011 with the base
year being the period ended 31 December 2010.
TSR performance target
The Group will be given a percentile ranking having regards to its performance relative to a
comparator group consisting of the S&P/ASX Small Ordinaries Index (ASX code: ASO). The
percentage of the TSR reward that vests will be determined by the Group’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%
TSR performance period
Performance Options Tranche 1: As at 1 January 2009
Performance Options Tranche 2: As at 1 January 2010
Performance Options Tranche 3: As at 1 January 2011
22 DIRECTORS’ REPORT
Why vesting conditions are
The vesting conditions (EPS and TSR) were chosen as performance conditions as they are
chosen
aligned to earnings growth and the creation of shareholder value.
Vesting date
Performance Options Tranche 1: 1 January 2012
Performance Options Tranche 2: 31 December 2012
Performance Options Tranche 3: 31 December 2013
Exercise period
Performance Options Tranche 1: From vesting date to expiry date
Performance Options Tranche 2: From vesting date to expiry date
Performance Options Tranche 3: From vesting date to expiry date
Expiry date
Performance Options Tranche 1: 31 December 2013
Performance Options Tranche 2: 31 December 2014
Performance Options Tranche 3: 31 December 2015
Disposal restriction
No disposal restriction imposed at the time of this grant.
33% of Tranche 1 options vested on 1 January 2012. None of these vested options were converted by the options holders
to shares by the expiry date of 31 December 2013. No options vested from Tranche 2 on 31 December 2012 due to not
meeting the performance criteria and thus have been cancelled. Tranche 3 options also did not meet the performance
criteria at vesting date of 31 December 2013 and have been cancelled.
During 2012, the Board implemented a new loan-funded share plan for Executives located in Australia, following shareholder
approval in May 2012. The limited recourse loans to acquire shares are issued to Executives and the ability to exercise the
shares is conditional on the Group achieving the pre-determined performance criteria. The table below sets out the details of
the loan-funded shares issued to Executives in 2012 and 2013:
Instrument
Each loan-funded share represents an entitlement to one ordinary share.
Limited recourse loan
The company is providing interest-free, limited recourse loans to Executives to acquire shares.
The limited recourse loan means that if the shares do not vest for any reason or the value of the
shares is less than the outstanding loan value when it is required to be repaid, the participant’s
liability is limited to the value of the shares.
Exercise price
2012 loan-funded share issue: $0.1923
2013 loan-funded share issue: $0.2652
ANNUAL REPORT 2013 23 DIRECTORS’ REPORT
Vesting conditions
Shares will vest at the end of the three years from the issue date if at any time during this period
the volume-weighted average price of the Company’s shares on ASX over any consecutive
30 trading days is, or is in excess of, the following performance conditions.
Loan-funded
share issue
Percentage of
VWAP target
shares vesting
2012
Tranche 1
Tranche 2
Tranche 3
2013
Tranche 1
Tranche 2
Tranche 3
$0.35
$0.55
$0.75
$0.3802
$0.4889
$0.5975
25%
25%
50%
25%
25%
50%
Why vesting conditions are
The vesting conditions were chosen to align the financial interests of participants with those of
Vesting is subject to the Executive remaining an employee of the Group.
chosen
shareholders.
Vesting date
2012 loan-funded share issue: 10 August 2015
2013 loan-funded share issue: 04 July 2016
Performance period
2012 loan-funded share issue: 10 August 2012 to 10 August 2015
2013 loan-funded share issue: 04 July 2013 to 04 July 2016
Exercise period
From vesting date until expiry date
Expiry date
2012 loan-funded share issue: 09 August 2017
2013 loan-funded share issue: 04 July 2018
For Executives located in the UK, the Group issued share options under a similar structure to the loan-funded share plan
outlined on pages 23 and 24. The table below sets out the details of the performance options issued to Executives in 2012
and 2013:
24
DIRECTORS’ REPORT
Instrument
Each option represents an entitlement to one ordinary share.
Exercise price
2012 performance option issue: $0.1923
2013 performance option issue: $0.2652
Vesting conditions
Options will vest at the end of the three years from the issue date if at any time during this
period the volume-weighted average price of the Company’s shares on ASX over any consecutive
30 trading days is, or is in excess of, the following performance conditions.
Performance
Percentage of
option issue
VWAP target
shares vesting
2012
Tranche 1
Tranche 2
Tranche 3
2013
Tranche 1
Tranche 2
Tranche 3
$0.35
$0.55
$0.75
$0.3802
$0.4889
$0.5975
25%
25%
50%
25%
25%
50%
Why vesting conditions are
The vesting conditions were chosen to align the financial interests of participants with those of
Vesting is subject to the Executive remaining an employee of the Group.
chosen
shareholders.
Vesting date
2012 performance option issue: 10 August 2015
2013 performance option issue: 04 July 2016
Performance period
2012 performance option issue: 10 August 2012 to 10 August 2015
2013 performance option issue: 04 July 2013 to 04 July 2016
Exercise period
From vesting date until expiry date
Expiry date
2012 performance option issue: 09 August 2017
2013 performance option issue: 04 July 2018
B. Key Management Personnel Remuneration
Services from Remuneration Consultants
No remuneration consultants were used in 2013.
Amount of Remuneration
Details of the remuneration of the Directors and the Key Management Personnel (as defined in AASB 124 Related Party
Disclosures) of the Group are set out in the following tables.
ANNUAL REPORT 2013 25 DIRECTORS’ REPORT
DIRECTORS’ REPORT
Short Term
Post employment
Other long
term
Share-based
payments
Salary
&
fees
STI
cash
bonus
Non-
monetary
benefits
Total
Super-
annuation
benefits
Termi-
nation
benefits
Long
service
entitlement
Options
& rights
#
Shares
Total
Proportion
of remun-
eration
perform-
ance
related
Value of
options as
proportion
of remun-
eration
$
$
$
$
$
$
$
$
$
$
%
%
Directors
Non-Executive Directors
D Griffiths
S Penglis
F de Vicente
N Fox*
K Jones*
Executive Director
N Montarello
Executives
A Baum
G Halton
A Stevens*
G Varma
A Deller†
J Ferreira†
S McDonagh†
G Parry†
Total
Total
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
64,125
66,375
60,325
62,442
62,205
65,400
13,500
59,000
39,674
-
622,305
675,264
413,479
412,157
210,381
176,355
343,924
240,766
236,152
276,601
-
230,773
-
124,439
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90,412
2,066,070
-
-
-
-
-
-
-
-
-
-
-
-
-
64,125
66,375
60,325
62,442
62,205
65,400
13,500
59,000
39,674
-
5,856
5,974
5,509
5,620
-
-
1,215
5,310
-
-
1,368
1,368
623,673
676,632
25,000
37,500
1,368
1,368
1,627
414,847
413,525
212,008
382
176,737
1,311
1,026
1,368
1,368
-
345,235
241,792
237,520
277,969
-
25,000
25,000
9,909
4,447
25,000
18,351
20,597
24,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,039
231,812
4,160 93,388
-
-
-
456
124,895
6,750
-
-
-
-
-
-
616
91,028
- 60,435
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,062 (27,037)
-
-
-
-
-
-
-
-
-
-
-
69,981
72,349
65,834
68,062
62,205
65,400
14,715
64,310
39,674
-
631,698
56,460 254,895
- 1,025,487
(8,170)
99,319
530,996
5,556
96,333
540,414
-
-
-
-
-
-
3,732
193
26,878
(8,333)
8,333
478
12,604
28,545
-
-
-
-
-
-
-
-
-
-
-
(39,595)
-
(19,253)
-
(73,749)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
222,110
208,062
361,902
268,476
262,327
343,868
-
329,360
-
-
249,229
-
77,714
-
-
-
-
-
-
-
-
-
-
(4%)
25%
(2%)
1%
-
13%
(2%)
3%
-
8%
-
-
-
-
-
-
-
-
-
-
-
-
-
(4%)
25%
(2%)
1%
-
13%
(2%)
3%
-
8%
-
-
-
-
2%
-
(95%)
(2%)
6%
-
8%
-
(95%)
(2%)
6%
221,257 25,000
1,254
247,511
20,971
2,701,241 25,000
8,877 2,735,118
158,833 153,823
69,064 191,610
96,333 3,404,781
7,042 2,073,112
118,086
-
13,794 (42,869)
99,319 2,261,442
92,050
(43%)
(43%)
The fair value of the options and loan-funded shares is calculated at the date of grant using the Binomial Tree and Monte-Carlo Simulation
option and pricing models and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is
the portion of the fair value of the options recognised in this reporting period.
* - During the year, the Key Management Personnel has either resigned or been appointed.
† - This information is provided for comparative purposes.
# - Includes loan-funded share rights.
26
DIRECTORS’ REPORT
C. Service Agreements
A service agreement can be used for the provision of short-term performance incentives, eligibility for the ThinkSmart LTI and
other benefits, including the use of a Company motor vehicle, tax advisory fees, payment of benefits forgone at a previous
employer and relocation expenses.
As announced to the market on 12 November 2013, Keith Jones was appointed Chief Executive Officer, effective 1 February
2014. Ned Montarello will remain Executive Chairman.
Remuneration and other terms of employment for the Chief Executive Officer are formalised in a service agreement. Keith
Jones’ employment agreement, signed on 11 November 2013, is a rolling agreement which is unlimited in term but capable
of termination with six months notice by either party. 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 26 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 (loan-funded shares and options)
Loan-Funded Shares and Options
Details of ordinary shares in the Company that were granted as part of the loan-funded share plan to Key Management
Personnel in July 2013, and the options over ordinary shares in the Company that were granted to Key Management
Personnel in July 2013 and details on options that vested during the reporting period are as follows:
Number of
options/
shares
granted
during 2013
Fair value per
share at grant
date
$
Exercise
price per
share
$
Expiry date
Grant date
Number of
options/
shares
vested
during 2013
1,000,000
04/07/2013
$0.098-$0.118
0.2652
04/07/2018
333,333
04/07/2013
$0.098-$0.118
0.2652
04/07/2018
500,000
04/07/2013
$0.098-$0.118
0.2652
04/07/2018
250,000
04/07/2013
$0.098-$0.118
0.2652
04/07/2018
200,000
04/07/2013
$0.098-$0.118
0.2652
04/07/2018
-
-
-
-
-
Directors
N Montarello
Executives
A Baum
A Stevens
G Halton
G Varma
All shares and options were granted during the financial year. The shares and options are subject to Performance Conditions
as set out on pages 22 to 25. The options are provided at no cost to the recipients. No shares have been granted since the
end of the financial year.
During the financial year, no shares were issued as a result of the exercise of options.
ANNUAL REPORT 2013 27 w
DIRECTORS’ REPORT
Details of vesting profiles of the options and loan-funded shares granted as remuneration to each Director of the Company
and other Key Management Personnel are detailed below:
Options and loan-funded
shares granted
Number
granted
Grant Date
% vested in
year
% forfeited,
lapsed or
expired in year
(a)
Financial year
in which grant
vests
Director
N Montarello
Executives
A Baum
G Halton
A Stevens
G Varma
1,000,000
30/06/2009
1,000,000
05/05/2010
1,000,000
11/04/2011
1,000,000
10/08/2012
1,000,000
04/07/2013
333,333
01/09/2010
333,333
11/04/2011
333,333
10/08/2012
333,333
04/07/2013
150,000
30/06/2009
100,000
05/05/2010
100,000
11/04/2011
100,000
10/08/2012
250,000
04/07/2013
500,000
10/08/2012
500,000
04/07/2013
150,000
30/06/2009
100,000
05/05/2010
100,000
11/04/2011
200,000
10/08/2012
200,000
04/07/2013
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
100%
100%
100%
-%
-%
100%
100%
-%
-%
100%
100%
100%
-%
-%
100%
100%
100%
100%
100%
-%
-%
2012
2012
2013
2015
2016
2012
2013
2015
2016
2012
2012
2013
2015
2016
2015
2016
2012
2012
2013
2015
2016
(a) The % forfeited, lapsed or expired in the year represents the reduction from the maximum number of loan-funded shares
or options available to vest due to either the performance conditions attached to the loan-funded shares or options not
being met or the departure of the Executive from the Group.
28 w
DIRECTORS’ REPORT
Analysis of Movement of Options and Loan-Funded Shares
The movement during the reporting period, by value, of options and loan-funded shares over ordinary shares in the Company
held by Directors and Key Management Personnel is detailed below:
Directors
N Montarello
Executives
A Baum
G Halton
A Stevens
G Varma
Granted in
year (a)
$
Exercised
in year (b)
$
Lapsed in
year (c)
$
105,750
35,250
26,438
52,875
21,150
241,463
-
-
-
-
-
-
448,271
134,667
44,191
70,375
44,191
741,695
(a) The value of loan-funded shares granted in the year is the fair value of the loan-funded shares calculated at grant date
using a monte-carlo option-pricing model. This total 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/loan-funded shares that lapsed during the year represents the benefit forgone and is calculated
at the date the option/loan-funded share lapsed or was forfeited using original fair value.
E. Share-Based Compensation (shares)
There were no shares granted to Key Management Personnel during the reporting period.
No shares were granted since the end of the financial year.
Analysis of Shares Granted as Remuneration
Details of vesting profiles of the shares granted as remuneration to the Director and Key Management Personnel of the
Company are detailed below:
Executives
A Baum
A Baum
A Baum
Shares granted
Number of
shares
Grant Date
% vested in
year
% forfeited in
year (a)
Financial
year in which
grant vest
350,000
01/09/2010
100%
125,000
01/09/2011
125,000
03/10/2012
-%
-%
-%
-%
-%
2013
2014
2015
(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.
ANNUAL REPORT 2013 29 DIRECTORS’ REPORT
Analysis of Movement of Shares
The movement during the reporting period, by value of shares in the Company held by the Directors and Key Management
Personnel is detailed below:
Executives
A Baum
Granted in
year (a)
$
Vested in
year (b)
$
Lapsed in
year (c)
$
-
124,250
-
(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 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.
F. Bonus Remuneration
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to the Director and Key
Management Personnel of the Company are detailed below:
Directors
N Montarello
Executives
A Baum
G Halton
A Stevens
G Varma
Short term incentive bonus
Included in
remuneration
(a)
$
Maximum
entitlement
$
% vested in
year
% forfeited in
year (b)
-
-
-
-
-
241,492
153,000
44,207
117,000
55,000
-%
-%
-%
-%
-%
100%
100%
100%
100%
100%
(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 pertaining to the 2012 financial year.
No amounts vest in future financial years.
(b) The amounts forfeited are due to the performance or service criteria not being met in relation to the current
financial year.
No bonuses were awarded to Key Management Personnel with respect to the 2013 financial year.
30 DIRECTORS’ REPORT
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of ThinkSmart Limited is responsible for and committed to ensuring that the Company complies with
the ASX Corporate Governance Council’s Guide “Corporate Governance Principles and Recommendations”.
Board of Directors
Composition of the Board
At the date of this statement, the Board comprises three Non-Executive Directors, all of whom are independent, an Executive
Chairman and a Chief Executive Officer. The names of the Directors, including details of their qualifications and experience,
at the date of this report are set out on page 12 and 13 of this report. The composition of the Board is determined using the
following principles:
•
The Board should comprise a majority of independent Non-Executive Directors and comprise Directors with a broad
range of skills, expertise and experience from a diverse range of backgrounds.
•
The Board considers the diversity of existing and potential Directors. The Board’s policy is to seek a diverse range of
Directors who have a range of ages, genders and ethnicity which mirrors the environment in which ThinkSmart operates.
•
The Board does not believe that it should establish a limit on the tenure of the Director. While tenure limits can help to
ensure that fresh ideas and viewpoints are available to the Board, they hold the disadvantage of losing the contribution
of Directors who have been able to develop, over a period of time, increasing insight in the Company and its operation.
The Board regularly reviews the independence of each Director in light of the interests disclosed to the Board.
A minimum of three Directors and a maximum of twelve.
•
•
Role of the Board
The Board’s primary role is the protection and enhancement of long-term shareholder value.
To fulfil this role, the Board has adopted a charter which establishes the relationship between the Board and management
and describes their functions and responsibilities. The Board’s charter can be viewed on the Company’s website (www.
thinksmartworld.com). The Board’s responsibilities, as set out in the Board Charter, include:
•
working with management to establish ThinkSmart’s strategic direction;
• monitoring management and financial performance;
• monitoring compliance and risk management;
•
reviewing procedures in place for appointment of senior management and monitoring of its performance and for
succession planning; and
•
ensuring effective disclosure policies and procedures.
Matters which are specifically reserved for the Board or its Committees under the Board Charter include:
•
•
•
•
appointment of the Chairman and Directors;
appointment and removal of the Chief Executive Officer;
development and review of corporate governance principles and policies; and
approval of strategic plan operational budgets, major capital expenditure, acquisitions and divestitures in excess of
authority levels delegated to management.
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.
ANNUAL REPORT 2013 31 DIRECTORS’ REPORT
Board Committees
To assist in the execution of its responsibilities, the Board may delegate responsibility to committees to consider certain
issues in further detail and then report back to and advise the Board. Committees established by the Board have adopted
charters setting out the authority, responsibilities, membership and operation of the committee. There are currently two
committees the Audit and Risk Committee and the Nomination and Remuneration Committee. Each committee has a
charter which can be viewed on the Company’s website.
Audit and Risk Committee
The Committee’s primary role is to assist the Board in carrying out its accounting, auditing and financial reporting
responsibilities, including oversight of:
•
•
•
•
•
the integrity of the Company’s external financial reporting and financial statements;
the Company’s ongoing risk management program which is designed to effectively identify all areas of potential risk;
policies and procedures designed and implemented to manage identified risks;
the effectiveness of the internal control framework within the Company; and
the appointment, independence and remuneration of the external auditor.
The Audit and Risk Committee has a documented charter, approved by the Board, which is available on the website (www.
thinksmartworld.com). The Committee must comprise at least three Directors, all of whom must be Non-Executive Directors.
The Chairman of the Committee may not be the Chairman of the Board. The members of the Audit and Risk Committee
during the year were Non-Executive Directors, and are D Griffiths (Chairman), F de Vicente and S Penglis.
The Company maintains a risk management policy which can be found on the Company’s website.
The Committee meets as often as the Committee members deem necessary in order to fulfil their role. The external auditors,
Chief Executive Officer and Chief Financial Officer, 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.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee assists and advises the Board on the effective composition, size and
capabilities to ensure the Board is prepared to discharge its responsibilities and duties expediently and in the best interests of
the Company as a whole. The current members of the Committee are S Penglis (Chairman), D Griffiths and F de Vicente.
The Nomination and Remuneration Committee reviews and makes recommendations to the Board on remuneration packages
and policies applicable to the Directors and Executives of the Company.
The Committee meets as often as the Committee members deem necessary in order to fulfil their role. The Committee
consists of a minimum of three members, with the majority being Non-Executive Directors and with an independent Director
as Chairman. The Nomination and Remuneration Committee has a documented charter, approved by the Board, which is
available on the website.
32 DIRECTORS’ REPORT
Diversity
The Board is committed to having an appropriate blend of diversity on the Board and in the Group’s senior executive
positions. The Board is developing a policy on diversity, to complement and enhance its Anti-Discrimination and Equal
Employment Opportunity Policy. The following represents the gender diversity in the Group as at 31 December 2013:
Male
Female
4
9
68
81
0
1
68
69
Total
4
10
136
150
Male
100%
90%
50%
54%
Female
0%
10%
50%
46%
Total
100%
100%
100%
100%
Board Directors
Executives
Other
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.
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 are required to keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with
those of the Company. Where the Board believes that a significant conflict exists, 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
The Company has developed a Code of Conduct which applies to all Directors, employees, contractors, consultants and
associates of the Company and sets out the ethical standards expected when conducting 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 is acknowledged by all employees.
ANNUAL REPORT 2013 33 DIRECTORS’ REPORT
Share Trading Policy
ThinkSmart’s Guidelines for Dealing in Securities explain and reinforce the Corporations Act 2001 requirements relating to
insider trading. The Guidelines apply to all Directors and employees of the 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 windows where Relevant
Persons (provided they are not in possession of inside information) may buy or sell the Company’s shares in the period from
31 days following:
•
•
•
the announcement of half-year results;
the announcement of annual results; or
the holding of the annual general meeting.
Outside the window period, Relevant Persons must receive clearance for any proposed dealing in ThinkSmart’s securities on
ASX as follows:
•
•
•
•
a Director must receive approval from the Chairman;
the Chairman must receive approval from the Board or the Deputy Chairman;
executives and senior management must receive approval from the Chief Executive Officer; and
all other Relevant Persons must receive approval from the Company Secretary.
The Guidelines for Dealing in Securities are available to view on the Company’s website.
Continuous Disclosure
The Company Secretary has been nominated as the person responsible for communication with the Australian Securities
Exchange (“ASX”). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in
the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders,
the media and the public. When analysts are briefed following half-year and full-year results announcements, the material
used in the presentations is released to the ASX prior to the commencement of the briefing. The Company ensures that if
any price sensitive information is inadvertently disclosed, this information is also immediately released to the market. The
Company is committed to ensuring that all stakeholders and the market are provided with relevant and accurate information
regarding its activities in a timely manner.
Communication with Shareholders
The Board provides shareholders with information following the Company’s Disclosure Policy which ensures compliance with
the continuous disclosure requirements of the ASX Listing Rules and overseeing and co-ordinating information disclosure to
shareholders, the market, media and the public.
34 DIRECTORS’ REPORT
The Disclosure Policy includes the following guidelines:
•
Information is communicated to shareholders through ASX announcements, the annual report, annual general meeting
and half-year and full-year results announcements.
•
Shareholders are able to access information, including media releases, key policies and the terms of reference of the
Board Committees through the Company’s website. All relevant ASX announcements will be posted on the website as
soon as they have been released to ASX.
•
The Company 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.
Financial Reporting
The Chief Executive Officer and Group Financial Controller have certified to the Board that the Company’s financial statements
are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the
Company and are in accordance with relevant accounting standards. The Board receives monthly reports from management
on the financial and operational performance of the Group.
Performance Assessment
The Board undertakes an annual self assessment of its collective performance, the performance of the Chairman, the
Directors and of its Committees.
Independent Professional Advice
Following consultation with the Deputy Chairman, Directors may seek independent professional advice at the Company’s
expense. Generally, this advice will be available to all Directors.
Indemnification and Insurance
During the year ended 31 December 2013, the Company paid insurance premiums in respect of a Directors’ and Officers’
Liability insurance contract. Disclosure of the total amount of the premium and the nature of the liabilities in respect of such
insurance is prohibited by the policy.
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.
ANNUAL REPORT 2013 35 DIRECTORS’ REPORT
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 and Risk Committee, is satisfied that the provision of those non-audit services
during the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act
2001 for the following reasons:
•
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
•
The non-audit services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or
jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its related practices for audit and non-audit services
provided during the year are set out in Note 27.
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration which forms part of this report is included in page 37 of the financial report.
ROUNDING
ThinkSmart is a Group of the kind referred to in ASIC Class Order 98/100 dated 10 July 1998, as varied by Class Order
05/641 dated 28 July 2005 and Class Order 06/51 dated 31 January 2006. In accordance with those class orders, amounts
in the financial statements and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise
indicated.
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
Chairman
Perth, 18 February 2014
36 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 2013
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
KPMG
KPMG
Matthew
Beevers
Matthew Beevers
Partner
Matthew
Beevers
Perth
18 February 2014
ANNUAL REPORT 2013 37
DIRECTORS’ DECLARATION
1.
In the opinion of the Directors of ThinkSmart Limited:
(a) The consolidated financial statements, notes and disclosures in the Remuneration Report in the Directors’ report,
are in accordance with the Corporations Act 2001, including:
i.
Giving a true and fair view of the Group’s financial position as at 31 December 2013 and of its 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(a); and
(c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2.
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 2013.
Signed in accordance with a resolution of the Directors:
______________________________
N Montarello
Chairman
Perth, 18 February 2014
38 CONSOLIDATED STATEMENT OF PROFIT AND LOSS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Continuing operations
Revenue
Other revenue
Total revenue
Indirect customer acquisition cost
Other operating expenses
Depreciation and amortisation
Impairment losses
Interest expense
Profit before tax
Income tax expense
Profit after tax from continuing operations
Loss from discontinued operation, net of tax
Profit/(loss) after tax
Earnings/(loss) per share
Basic (cents per share)
Diluted (cents per share)
Earnings per share – continuing operations
Basic (cents per share)
Diluted (cents per share)
The attached notes form an integral part of these consolidated financial statements
* Refer to Notes 8 and 12
Notes
6(a)
6(b)
6(d)
6(e)
6(f)
6(c)
7
8
33
33
33
33
2013
$000
2012
Restated*
$000
16,737
16,999
2,196
2,044
18,933
19,043
(4,943)
(4,992)
(9,923)
(10,765)
(463)
(255)
-
3,349
(752)
2,597
(288)
2,309
1.45
1.44
1.63
1.62
(450)
(182)
(240)
2,414
(569)
1,845
(3,286)
(1,441)
(0.95)
(0.95)
1.22
1.22
ANNUAL REPORT 2013 39 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Notes
2013
$000
2012
Restated*
$000
Profit/(loss) for the year
2,309
(1,441)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss,
net of income tax:
Foreign currency translation differences for foreign operations
Effective portion of changes in fair value of cash flow hedges, net of tax
8
Total items that may be reclassified subsequently to profit or loss net of
income tax
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period attributable to
owners of the Company
The attached notes form an integral part of these consolidated financial statements
* Refer to Notes 8 and 12
3,158
45
3,203
3,203
5,512
366
118
484
484
(957)
40 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
Current assets
Cash and cash equivalents
Trade receivables
Loan and lease receivables
Other current assets
Assets held for sale
Total current assets
Non-current assets
Loan and lease receivables
Plant and equipment
Intangible assets
Goodwill
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Deferred service income
Other interest bearing liabilities
Tax payable
Provisions
Liabilities held for sale
Total current liabilities
Non-current liabilities
Deferred service income
Other interest bearing liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated profits
Total equity
The attached notes form an integral part of these consolidated financial statements
Notes
24(a)
10
9
12
10
13
14
16
7
11
18
19
21
7
18
12
19
21
2013
$000
2012
$000
7,569
1,154
-
3,802
66,617
79,142
18,568
2,803
39,164
3,571
-
64,106
-
155
23,250
886
12,318
14,080
4,295
4,810
6,684
3,627
2,352
6,644
28,262
50,839
107,404
114,945
2,264
3,843
6,641
2,977
-
34,300
4,520
360
41,108
52,095
1,690
-
1,690
53,785
53,619
516
606
-
45,040
1,821
20,063
21,884
66,924
48,021
22(a)
23
48,091
188
5,340
48,073
(3,083)
3,031
53,619
48,021
ANNUAL REPORT 2013 41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Equity
settled
employee
benefits
reserve
$000
Foreign
currency
translation
reserve
$000
Fully paid
ordinary
shares
$000
Hedging
reserve
$000
Accumulated
Profit
$000
Attributable
to equity
holders of
the parent
$000
39,664
770
(4,432)
(208)
-
-
-
-
-
9,100
(714)
23
-
-
-
-
-
-
-
-
(23)
326
-
366
-
366
366
-
-
-
-
48,073
1,073
(4,066)
48,073
1,073
(4,066)
-
-
-
-
-
-
-
-
-
-
-
3,158
-
3,158
3,158
-
-
118
118
118
-
-
-
-
(90)
(90)
-
-
45
45
45
4,472
(1,441)
40,266
(1,441)
-
-
-
366
118
484
(1,441)
(957)
-
-
-
-
3,031
3,031
2,309
-
-
-
2,309
9,100
(714)
-
326
48,021
48,021
2,309
3,158
45
3,203
5,512
Consolidated
Balance at 1 January 2012
Loss for the period
Exchange differences arising on translation of foreign
operations, net of tax
Effective portion of changes in fair value of cash flow hedges,
net of tax
Total other comprehensive income
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
Capital raising costs
Share-based payments held in escrow
Recognition of share-based payments
Balance at 31 December 2012
Balance at 1 January 2013
Profit for the period
Exchange differences arising on translation of foreign
operations, net of tax
Effective portion of changes in fair value of cash flow hedges,
net of tax
Total other comprehensive income
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
Recognition of share-based payments
18
68
-
-
-
86
Balance at 31 December 2013
48,091
1,141
(908)
(45)
5,340
53,619
The attached notes form an integral part of these consolidated financial statements
42 CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Notes
2013
$000
2012
$000
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and finance charges
Payments for security guarantee
Income tax paid
Net cash from operating activities
24(b)
Cash Flows from Investing Activities
Payments for 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
Proceeds from share issue
Payment of capital raising costs
Proceeds from other interest bearing liabilities
Repayment of other interest bearing liabilities
Proceeds of borrowings
Repayment of borrowings
Net cash from financing activities
Net increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at beginning of the financial year
Cash and cash equivalents from discontinued operations
Total cash and cash equivalents at the end of the financial year
Restricted cash and cash equivalents at the end of the financial year
Net available cash and cash equivalents at the end of the financial year
12
24(a)
24(a)
The attached notes form an integral part of these consolidated financial statements
58,988
54,026
(53,759)
(44,127)
619
1,271
(3,483)
(4,735)
27
(2,542)
(854)
1,538
(3,203)
690
(215)
(603)
(588)
(418)
(919)
(965)
(1,406)
(2,302)
-
-
9,100
(1,020)
23,940
25,570
(24,020)
(15,596)
-
-
2,500
(5,004)
(80)
15,550
52
932
13,938
20
18,568
4,610
(11,983)
-
7,569
18,568
(194)
(12,560)
7,375
6,008
ANNUAL REPORT 2013 43 NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
ThinkSmart Limited (the “Company” or “ThinkSmart”) 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 2013 comprise of the
Company and its subsidiaries (the “Group”). The Group is a for profit entity and its principal activity during the year was the
provision of lease and rental financing services in Australia and the UK and the supply of interest free payment plan products
in Australia. The address of the Company’s registered office is 45 Ventnor Avenue, West Perth, WA 6005.
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 2014.
(b) Basis of measurement
The financial report has been prepared on the basis of historical cost, except for the derivative financial instruments
measured at fair value. 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) Assets held for sale and discontinued operations
(i) Assets held for sale
Non-current assets or disposal groups comprising assets and liabilities are classified as held for sale if it is highly probable
that they will be recovered primarily through sale rather than continued use.
Immediately before classification as held for sale, the assets, or components of a disposal group are remeasured in
accordance with the Group’s other accounting policies.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated.
(ii) Discontinued operations
Discontinued operations is a component of the Group’s business, the operations and cash flows of which can be clearly
distinguished from the rest of the Group and which:
- represent a separate major line of business or geographical area of operations;
- is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
- is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be
classified as held for sale.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-
presented as if the operation had been discontinued from the start of the comparative year.
44 NOTES TO THE FINANCIAL STATEMENTS
(d) Functional and presentation currency
These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency.
ThinkSmart is a Group of the kind referred to in ASIC Class Order 98/100 dated 10 July 1998, as varied by Class Order
05/641 dated 28 July 2005 and Class Order 06/51 dated 31 January 2006. In accordance with those class orders, amounts
in the financial statements and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise
indicated.
(e) Changes in accounting policies
Except for the changes below, the Group has consistently applied the accounting policies set out in Note 3 to all periods
presented in these consolidation financial statements.
The Group has adopted the following new standards and amendments to standards, including any consequential
amendments to other standards, with a date of initial application of 1 January 2013:
1. AASB 10 Consolidated Financial Statements
2. AASB 13 Fair Value Measurement
3. AASB 119 Employee Benefits
4. Changes to other standards and pronouncements
1. Subsidiaries
As a result of AASB 10 (2011), the Group has changed its accounting policy for determining whether it has control over
and consequently whether it consolidates its investees. AASB 10 (2011) introduces a new control model that focuses on
whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee
and ability to use its power to affect those returns. This change in accounting policy had no impact on the current treatment
of the consolidation of subsidiaries.
2. Fair value measurement
AASB 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements
when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs,
including IFRS 7. As a result the Group has included additional disclosures in this regard (see Note 30(b)). This change in
accounting policy has had no material impact on the current or comparative periods.
3. Employee benefits
The changes to AASB 119 seek to clarify the definition of short-term employee benefits. Short-term employee benefits are
now defined as those benefits expected to be settled wholly within one year after the end of the annual reporting period.
This has implications for the measurement of accrued annual leave liabilities. As accrued annual leave is generally not
required (or “expected”) to be wholly used (settled) within 12 months after the end of the period, annual leave benefits are
no longer classified as short-term employee benefits, rather as “other long-term employee benefits”.
“Other long-term employee benefit” measurement techniques specify an actuarial calculation per long service leave liability
measurement, with allowances for expected future salary levels, applicable on-costs and actuarial assumptions related to
staff turnover rates and leave drawdown rates.
The adoption of this standard has had no material impact on the Group’s consolidated financial statements.
ANNUAL REPORT 2013 45 4. Changes to other standards and pronouncements
The impact of these has been assessed and is not considered material.
(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 January 2014 and have
not been applied in preparing this financial report. Where an assessment has been completed, none of these are expected
to have a significant effect on the consolidated financial statements of the Group, except for IFRS 9 Financial Instruments,
which becomes mandatory for the Group’s 2015 consolidated financial statements and could change the classification and
measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not
been determined.
NOTES TO THE FINANCIAL STATEMENTS46 Reference Title
Summary
Application
date of
standard
Impact on
Group financial
report
Application
date for
Group
AASB 9
Financial
AASB 9 includes requirements for the
1-Jan-2015
The Group
1-Jan-2015
Instruments
classification and measurement of financial
assets resulting from the first part of Phase 1 of
the IASB’s project to replace IAS 39 Financial
Instruments: Recognition and Measurement
(AASB 139 Financial Instruments: Recognition
has not yet
determined the
extent of the
impacts of the
amendments,
and Measurement). These requirements improve
if any.
and simplify the approach for classification,
measurement and de-recognition of financial
assets compared with the requirements of AASB
139.
AASB
Amendments
(a) These amendments arise from the issuance
2009-11
to Australian
of AASB 9 Financial Instruments that set
Accounting
out requirements for the classification and
Standards arising
measurement of financial assets.
from AASB 9
(b) This Standard shall be applied when AASB 9
is applied.
AASB
Amendments
The requirements for classifying and measuring
2010-7
to Australian
financial liabilities were added to AASB 9. The
Accounting
existing requirements for the classification of
Standards arising
financial liabilities and the ability to use the fair
from changes to
value option have been retained. However, where
AASB 9
the fair value option is used for financial liabilities
the change in fair value is accounted for as
follows:
(a) The change attributable to changes in
credit risk are presented in other comprehensive
income (OCI).
(b) The remaining change is presented in profit
or loss if this approach creates or enlarges an
accounting mismatch in the profit or loss, the
effect of the changes in credit risk are also
presented in profit or loss.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 47 Reference Title
AASB 1053 Application of
Summary
This Standard establishes a differential financial
Tiers of Australian
reporting framework consisting of two Tiers of
Accounting
reporting requirements for preparing general
Standards
purpose financial statements.
AASB
Amendments
This Standard makes amendments to many
2010-2
to Australian
Australian Accounting Standards, reducing
Accounting
the disclosure requirements for Tier 2 entities,
Standards arising
identified in accordance with AASB 1053,
from reduced
preparing general purpose financial statements.
Application
date of
standard
1-Jul-2013
Impact on
Group financial
report
The Group has
Application
date for
Group
1-Jan-2014
determined
there is no
material impact
on the Group
Financial
Statements.
disclosure
requirements
Amendments
AASB
The amendment removes the requirement to
1-Jul-2013
The Group’s
1-Jan-2014
2011-4
to Australian
include individual key management personnel
Accounting
disclosures in the notes to the financial
Standards to
statement. These disclosures will still need to
remove individual
be provided in the Remuneration Report under
key management
s.300A of the Corporations Act 2001. Early
adoption is not permitted.
personnel
disclosure
requirements
financial
statements will
exclude these
disclosures in
the notes to
the financial
statements but
still disclose
these in the
Directors Report
– remuneration
report.
AASB
Amendments
The amendments to AASB 132 clarify when an
1-Jan-2014
The Group
1-Jan 2014
2012-3
to Australian
entity has a legally enforceable right to set-off
Accounting
financial assets and financial liabilities permitting
Standards arising
entities to present balances net on the balance
from changes to
sheet.
AASB 132
AASB
Amendments
The amendments to AASB 136 include the
1-Jan-2014
2013-3
to Australian
requirement to disclose additional information
Accounting
about the fair value measurement when the
Standards arising
recoverable amount of impaired assets is based
from changes to
on fair value less costs of disposal. In addition,
AASB 136
a further requirement has been included to
has not yet
determined the
extent of the
impacts of the
amendments,
if any.
The Group
has not yet
determined the
extent of the
impacts of the
amendments,
1-Jan 2014
disclose the discount rates that have been used
if any.
in the current and previous measurements if the
recoverable amount of impaired assets based on
fair value less costs of disposal was measured
using a present value technique.
NOTES TO THE FINANCIAL STATEMENTS48 Reference Title
AASB
Amendments
Summary
This Standard makes amendments to AASB 139
2013-4
to Australian
to permit the continuation of hedge accounting
Accounting
in circumstances where a derivative, which
Standards arising
has been designated as a hedging instrument,
from changes to
is novated from one counterparty to a central
AASB 139
counterparty as a consequence of laws or
regulations.
3. SIGNIFICANT ACCOUNTING POLICIES
Application
date of
standard
1-Jan-2014
Impact on
Group financial
report
The Group
Application
date for
Group
1-Jan 2014
has not yet
determined the
extent of the
impacts of the
amendments,
if any.
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.
(a) Basis of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the financial statements of the company and entities controlled by
the company (its subsidiaries). The Group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity. The results
of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit and loss
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.
(ii) Transactions eliminated on consolidation
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
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.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 49
(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 components 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 is 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.
The following estimated useful lives are used in the calculation of depreciation:
• Office furniture, fittings, equipment and computers
2.5 to 5 years
•
Leasehold improvements
• Self-funded rental assets
• Motor vehicles
the lease term
2.5 to 5 years
5 years
•
Leased computer equipment and software
2.5 to 5 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(e) Trade and other payables
Trade payables are recognised when the consolidated entity becomes obliged to make future payments resulting from the
purchase of goods and services.
(f) Financial instruments
(i) 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 recognised initially on the trade date at which the
Group becomes a party to the contractual provisions of the instrument.
NOTES TO THE FINANCIAL STATEMENTS50 The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or
retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only
when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and
settle the liability simultaneously.
Investments
Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a 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, net of accumulated impairment losses. 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.
Lease receivables
The Group has entered into financing transactions with customers and has classified its leases as finance leases for
accounting purposes. Under a finance lease, substantially all the risks and benefits incidental to the ownership of the leased
asset are transferred by the lessor to the lessee. The Group recognises at the beginning of the lease term an asset at an
amount equal to the aggregate of the present value (discounted at the interest rate implicit in the lease) of the minimum
lease payments and an estimate of the value of any unguaranteed residual value expected to accrue to the benefit of the
Group at the end of the lease term. This asset represents the Group’s net investment in the lease. Finance leases acquired
from other parties are recognised at fair value including direct and incremental costs and subsequently remeasured at
amortised cost using the effective interest rate method and are presented net of provisions for impairment.
Unearned interest
Unearned interest on leases and other receivables is brought to account over the life of the lease contract based on the
interest rate implicit in the lease using the effective interest rate method.
Initial direct transaction costs
Initial direct costs or directly attributable, incremental transaction costs incurred in the origination of leases are included
as part of receivables in the balance sheet and are amortised in the calculation of lease income and interest income.
Allowance for losses
The collectability of lease receivables is assessed on an ongoing basis. A provision is made for losses based on historical
rates of arrears and the current delinquency position of the portfolio.
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.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 51 Loan receivables
Loan 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.
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.
(ii) 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 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.
Capitalised borrowing costs consist of legal and other costs that are incurred in connection with the borrowing of funds. These
costs are capitalised and then amortised over the life of the loan.
Financial guarantee contracts
Financial guarantees issued by the Group are recognised as financial liabilities at the date the guarantee is issued. Liabilities
arising from financial guarantee contracts, including where applicable, guarantees of subsidiaries through deeds of cross
guarantee, are initially recognised at fair value and subsequently at the higher of the amount of projected future losses and
the amount initially recognised less cumulative amortisation.
The fair value of the financial guarantee is determined by way of calculating the present value of the difference in net cash
flows between the contractual payments under the debt instrument and the payments that would be required without the
guarantee, or the estimated amount that would be payable to a third party for assuming the obligation.
Any increase in the liability relating to financial guarantees is recognised in profit and loss. Any liability remaining is
derecognised in profit and loss when the guarantee is discharged, cancelled or expires.
(iii) Impairment of assets
Financial assets, including finance lease receivables and loan receivables
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.
In assessing collective impairment, the Group uses modelling of historical trends of the probability of defaults, timing of
recoveries and the amount of loss incurred. Impairment losses on assets carried at amortised cost are measured as the
difference between the carrying amount of the financial assets and the present value of the estimated future cash flows
discounted at the assets original effective interest rate.
NOTES TO THE FINANCIAL STATEMENTS52 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.
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.
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, the reversal is recognised in profit and loss.
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.
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.
(g)
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 Contracts
The Group recognises an intangible asset arising if it has an unconditional contractual right to receive income arising from
equipment and rights to the hiring agreement at the end of term. This inertia contract is measured at fair value at the
inception of the hiring agreement, and is based on discounted cash flows expected to be derived from the sale or hire of
the assets at the end of the term. Subsequent to initial recognition the intangible asset is measured at cost. Amortisation
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 53 is based on cost less estimated residual value. Individual intangible assets are assessed at each reporting period for
impairment. Impaired contracts are offset against any unamortised deferred service income with the remainder recognised in
profit and loss.
At the end of the hiring term the intangible asset is derecognised and the Group recognises the equipment as inventory at the
corresponding value.
Contract Rights
The contractual rights obtained by the Group under financing agreements entered into with its funding partners and operating
agreements with its 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 predominantly 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.
(h) 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.
NOTES TO THE FINANCIAL STATEMENTS54 (i) 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. The obligations are presented as current liabilities in the balance
sheet as the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting date,
regardless of when the actual settlement occurs.
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.
The Group pays defined contributions for post-employment benefit into a separate entity. Obligations for contributions to
defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the period during which
services are rendered by employees.
Termination benefits are recognised as an expense when the Group is committed, it is probable that settlement will be
required, and they are capable of being reliably measured. If benefits are payable more than 12 months after the reporting
date, then they are discounted to their present value.
Share-based payments
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense,
with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.
The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-
market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on
the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured
to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(j)
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.
(k) 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:
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 55 Finance lease income
Finance lease income is recognised on those leases originated or acquired by the Group where the Group, rather than a third
party financier, is the lessor. Finance lease income is recognised on the effective interest rate method at the constant rate of
return which amortises over its economic life, the lease asset down to the estimate of any unguaranteed residual value that is
expected to be accrued to the Group at the end of the lease.
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.
Residual interest in equipment (inertia income)
•
Secondary rental income
Rental income from extended rental assets is recognised when receivable 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
Proceeds from the sale of rental assets are brought to account at the time of the sale to the extent not already
recognised through Finance lease income.
Insurance income
Insurance income includes commissions received on insurance policies issued by third party insurers to cover theft and
damage of rental equipment. In the UK, insurance income is recognised at fair value of the future payments receivable as
substantially all of the services to earn that revenue are completed upfront. The revenue recognition policy for the Australian
insurance income is consistent with the treatment of commission income from funders.
Interest income and expense
Interest income and expense for all interest bearing financial instruments is recognised in the profit and loss account using
the effective interest rates of the financial assets or liabilities to which they relate.
The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the
expected life of the financial asset or financial liability. When calculating the effective interest rate the Group includes all
amounts paid or received by the Group which are considered to be an integral part of the effective interest rate, including
merchant fees received and rebates paid.
Deferred service income
Income arising on recognition of any intangible inertia asset at the commencement of the lease is deferred and recognised
over the lease term on a straight line basis as the services are rendered.
(l) Derivative financial instruments, including hedge accounting
The Group holds derivative financial instruments to hedge its interest rate risk exposures, predominately in the ThinkSmart
Trust.
On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the
hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge
transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging
relationship.
NOTES TO THE FINANCIAL STATEMENTS56
The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether
the hedging instruments are expected to be “highly effective” in offsetting the changes in cash flows of the respective hedged
items attributable to hedged risk, and whether the actual results of each hedge are within a range of 80 – 125 percent. For a
cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure
to variations in cash flows that could ultimately affect reported profit or loss.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred.
Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described
below. The fair values of derivates used for hedging purposes are disclosed in Note 30(b). Movements in the hedging reserve
in shareholder equity are shown in the Statement of Changes in Equity.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit
or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and
presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised
immediately in profit or loss.
When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of the asset
when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period
that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires
or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the
forecast transaction is no longer expected to occur, then the balance in equity is reclassified in profit or loss.
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.
(m) 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 payable for current and prior periods is recognised as a liability to the extent that it is unpaid.
Carried forward tax recoverable on tax losses is recognised as a deferred tax asset where it is probably that future taxable
profit will be available to offset in future periods.
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.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 57 Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint
ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only
recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the
asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences
that would follow from the manner in which the Consolidated Entity expects, at the reporting date, to recover or settle the
carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the
Company/Group 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 statement of profit and loss, 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 Limited.
(n) 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.
(o) Foreign currency transactions
Functional and presentation currency
Foreign currency gains and losses are reported on a net basis.
NOTES TO THE FINANCIAL STATEMENTS58 Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates
prevailing 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 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 not a 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.
(p) 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.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 59 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.
(q) 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.
(r) 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.
(s) 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 Chief Executive Officer to make decisions
about resources to be allocated to the segment and assess its performance, and for which discrete financial information is
available.
Segment results, assets and liabilities include items attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise 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.
(t) 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.
NOTES TO THE FINANCIAL STATEMENTS60 Intangible assets
The fair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual
sale of the assets (refer to Note 3(g)).
Intangible inertia asset
The fair value of inertia asset is measured at inception of the hiring agreement and is based on discounted cash flows
expected to be derived from the sale or hire of the assets at the end of the hire term.
Trade and other and loan receivables
The fair value of trade and other and loan 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 share options is measured using a binomial model and loan-funded shares are measured using
a monte-carlo simulation 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 remuneration is measured using the closing share price on the date the shares
are granted.
Cash flow hedges
The fair value of the interest rate swap is based on broker quotes. Those quotes are tested for reasonableness by discounting
estimated future cash flows based on the terms and maturity of the contract and using market interest rates for a similar
instrument at the measurement date. Fair values reflect the credit risk of the instrument and included adjustments to take
account of the credit risk of the Group entity and counterparty when appropriate.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the consolidated financial statements in conforming with IFRS requires management to make judgements,
estimates and assumptions that effect the application of accounting policies and the reported amount of assets, liabilities,
income and expenses.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the
circumstances.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 61 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:
• Note 7
- measurement and recognition of tax losses
• Note 10 -
loans and lease receivables, including estimation of unguaranteed residual value and credit losses
• Note 14 -
fair value at inception of inertia intangible assets and recoverable amount
• Note 16 - measurement of the recoverable amount of cash generating units containing goodwill
• Note 19 - measurement of deferred services income
• Note 22 - measurement of share-based payments
5. FINANCIAL RISK MANAGEMENT
Overview
The Group has exposure to the following risks from the use of financial instruments:
•
•
Credit risk
Liquidity risk
• Market risk
•
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 financial 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 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.
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. 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 Head of Treasury and Risk has day to day responsibility for managing credit risk within
the risk appetite of the Board. Appropriate oversight occurs via monthly credit performance reporting to management and the
Board.
The Group has minimal concentrations of credit risk in relation to debtors and lease receivables with the portfolio comprising
a large number of relatively low value receivables. In the case of the special purpose entity funded operations in Australia,
ThinkSmart’s exposure to credit risk is limited to the value of its notes in the relevant series of the special purpose entity
plus $1.0m. Losses in excess of that are borne by the senior financier’s notes. The notes in the various series of the special
NOTES TO THE FINANCIAL STATEMENTS62 purpose entity are structured such that on a probability weighted outcomes basis, ThinkSmart bears the credit risk (refer to
Note 30(c) for further information).
In the UK, the Group has an obligation to meet the cost of future bad debts incurred by its funders. The funder deposits
discussed below represent security for that credit exposure and are recorded net of the Group’s estimate of this credit risk.
Further information is provided in Note 28.
To manage credit risk in relation to its customers, the Group employs a sophisticated credit assessment and fraud
minimisation process delivered through its patented QuickSmart system. The credit underwriting system uses a combination
of credit scoring and credit bureau reports as well as electronic identity verification and a review of an applicant’s details
against a fraud database. The credit policy is developed and applied by the Group’s Head of Treasury and Risk who monitors
ongoing credit performance on different cohorts of customer contracts. The Group has a specialist collections function which
manages all delinquent accounts.
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.
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 and financing subordination
requirements. In addition, the Group maintains the operational facilities which are shown in Notes 20 and 21.
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, Sterling and Euro.
Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the
Group. 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 (2012: nil).
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 63 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 (refer to Note 30 for further information).
Interest rate risk
The Group has no current or non-current corporate borrowings as at 31 December 2013. Exposure to interest rate risk on any
future corporate 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.
The Group has interest rate risk exposure to the notes in ThinkSmart Trust that it has issued to the financiers of its lease
receivables. These notes are floating rate notes with the rate based on a fixed margin above a benchmark interest rate.
Interest rate risk results principally from changes in the benchmark interest rate and accordingly the Group mitigates some of
this risk by entering into an interest rate swap to hedge against the variability in the cash flows due to changes in the interest
rate (refer to Note 30(a) for further information).
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 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:
•
•
•
•
•
•
•
Requirements for appropriate segregation of duties, including the independent authorisation of transactions
Requirements for the reconciliation and monitoring of transactions
Compliance with regulatory and other legal requirements
Documentation of controls and procedures
Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to
address the risks identified
Ethical and business standards
Risk mitigation, including insurance where this is effective
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.
Under the terms of its financing arrangements in ThinkSmart Trust, the Group is required to subscribe to and hold a minimum
value of notes based on the value of receivables outstanding to ensure ongoing financing. ThinkSmart Trust is bankruptcy
remote in that ThinkSmart’s risk exposure is limited to the amount of capital that it holds within the relevant series of
ThinkSmart Trust plus $1.0m.
NOTES TO THE FINANCIAL STATEMENTS64 ThinkSmart Finance Limited holds an Australian Financial Services Licence (AFSL) in relation to its role as Trust Manager
of ThinkSmart Trust. Under the terms of its AFSL it must have assets that exceed its liabilities and there are also liquidity
conditions (measured on a Group basis).
The Group’s debt-to-adjusted capital ratio at the end of the reporting period was as follows:
Total liabilities
Less cash and cash equivalents
Net debt
Total equity
Debt-to-adjusted capital ratio at 31 December
2013
$000
2012
$000
53,785
66,924
(7,569)
(18,568)
46,216
48,356
53,619
48,021
0.9
1.0
Other than as described above in relation to ThinkSmart Trust, 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.
The Board assesses the Group’s ability to pay dividends from time to time. During 2013 no dividend was paid or declared.
Subsequent to year end, the Board has declared a special dividend of $5.843m equating to 3.6 cents per share (refer to
Note 32).
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 65 6. CONSOLIDATED STATEMENT OF PROFIT AND LOSS
Profit/(loss) is arrived at after crediting/(charging) the following items:
(a) Revenue
Interest revenue – other entities
Surplus unguaranteed residual income
Extended rental income
Other inertia income
Fee revenue – customers
Commission income
(b) Other revenue
Services revenue – insurance
Other revenue
(c) Interest expense
Notes
2013
$000
2012
Restated
$000
19
410
2,381
3,845
4,060
364
5,677
321
1,820
2,918
2,438
308
9,194
16,737
16,999
2,085
111
2,196
1,983
61
2,044
Interest expense – corporate banking facilities
-
240
(d) Other operating expenses
Employees benefits expense:
- Payments to employees
- Employee superannuation costs
- Share-based payment expense
- Provision for employee entitlements
Occupancy costs
Professional services
Finance charges
Other costs
(e) Depreciation and amortisation
Depreciation
Amortisation
(f) Impairment losses
6,270
329
82
77
6,758
390
1,434
184
1,157
9,923
188
275
463
6,456
296
294
-
7,046
407
1,787
129
1,396
10,765
214
236
450
Impairment losses on intangible assets (net)
255
182
NOTES TO THE FINANCIAL STATEMENTS66 7.
INCOME TAX
The major components of income tax expense/(benefit)
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
Income tax expense from continuing operations
Income tax benefit from discontinued operations
8
Total income tax expense/(benefit)
A reconciliation between tax expense and the product of accounting (loss)/profit
before income tax multiplied by the applicable income tax rate is as follows:
Accounting profit 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/(recognised)
Adjustments in respect of prior periods
Income tax expense from continuing operations
Income tax recognised directly in equity
Equity raising costs
Notes
2013
$000
2012
Restated
$000
775
(8)
(15)
-
752
(91)
661
3,349
1,005
(372)
10
81
3
25
752
617
(120)
69
3
569
(1,034)
(465)
2,414
724
(277)
17
245
(84)
(56)
569
-
306
Income tax recognised in other comprehensive income and equity
Cash flow hedges
(24)
(51)
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 67 7.
INCOME TAX (CONTINUED)
Deferred tax asset – continuing operations
Loan and lease receivables
Accrued expenses
Employee entitlements
Equity raising costs
Borrowing costs
Plant & equipment
Intangible assets
Tax losses
Investment in subsidiaries
Other
Total
Deferred tax liability – continuing operations
Derivatives
Intangible assets
Plant and equipment
Other
Total
Net deferred tax asset (i)
(i) Deferred tax assets and deferred tax liabilities that relate to the same taxable entity
have been netted off.
The deductible temporary differences and tax losses do not expire under current tax legislation.
Tax Payable
Current
2013
$000
-
33
108
260
23
64
738
-
4,437
-
2012
$000
1,192
67
181
433
18
330
-
723
-
82
5,663
3,026
-
853
-
-
853
4,810
51
380
241
2
674
2,352
4,520
4,520
516
516
The current tax liability is recognised for income tax payable in respect of all periods to date. The current tax liability for 31
December 2013 includes the estimated capital gains tax liability of $4.4m arising on the sale of the Australian business for
which a corresponding deferred tax asset has been recognised.
NOTES TO THE FINANCIAL STATEMENTS68
8. DISCONTINUED OPERATIONS
On 12 December 2013, the Group announced that it had entered into an agreement to sell its Australian and New Zealand
business to FlexiGroup. As set out in Note 12, settlement for the sale occurred on 31 January 2014.
The Australian and New Zealand business has not previously been classified as held for sale or as a discontinued operation.
The comparative consolidated statement of profit and loss has been restated to show the discontinued operation separately
from continuing operations. The balance sheet of the disposal group held for sale as at 31 December 2013 is presented in
Note 12.
(a) Results of discontinued operations
Total revenue
Expenses
Loss from operating activities
Income tax benefit
Loss from operating activities, net of tax
(b) Cash flows from/(used in) discontinued operations
Net cash used in operating activities
Net cash from investing activities
Net cash from financing activities
Net cash flow for the year
Earnings per share – discontinued operations
Basic (cents per share)
Diluted (cents per share)
Notes
2013
$000
2012
$000
18,758
20,680
(19,137)
(25,000)
(379)
(4,320)
91
1,034
(288)
(3,286)
325
(899)
(80)
(654)
738
(2,076)
9,974
8,636
33
33
(0.18)
(0.18)
(2.17)
(2.17)
Cumulative income or expense included in other comprehensive income
The cumulative income or expense included in other comprehensive income
relating to the disposal group is as follows:
Effective portion of changes in fair value of cash flow hedges, net of tax
45
118
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 69 9. OTHER CURRENT ASSETS
Prepayments
Inventories
Sundry debtors
10. LOAN AND LEASE RECEIVABLES
Current
Rental receivables (net of GST)
Unguaranteed residuals
Unearned finance income
Net lease receivables
Other lease receivable
Loan receivables
Allowance for losses
Non-current
Rental receivables (net of GST)
Unguaranteed residuals
Unearned finance income
Net lease receivables
Other lease receivable
Loan receivables
Gross investment in leases
Less than one year
One year to five years
Less: unearned income
Net investment in lease receivables
Less than one year
One year to five years
2013
$000
2,614
848
340
2012
$000
2,427
185
959
3,802
3,571
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,142
4,925
(5,561)
22,506
18,452
2,020
(3,814)
39,164
15,166
1,248
(5,961)
10,453
12,178
619
23,250
28,067
16,414
(11,522)
32,959
22,506
10,453
32,959
NOTES TO THE FINANCIAL STATEMENTS70 10. LOAN AND LEASE RECEIVABLES (CONTINUED)
‘Other lease receivables’ represents the rights to lease receivables assigned by Bendigo and Adelaide Bank (BEN) on 1
October 2011 and 28 June 2012 which were accounted for as a “pass through” arrangement under AASB 139 Financial
Instruments: Recognition and Measurement whereby the risks and rewards of the underlying finance lease receivables were
transferred to the Group. The liabilities relating to the acquired rights are set out in Note 21. On 31 January 2013, $5.9m
of finance lease receivables were acquired from the group of assets held under the “pass through” arrangement by the
ThinkSmart Trust.
The net carrying value of lease receivables includes the earned portion of any unguaranteed residual value expected to
accrue to the Group at the end of the lease, which by its nature introduces estimation uncertainty into the amortised cost
calculation. The Group continually assesses current unguaranteed residual value proceeds and includes these as the Group’s
best estimate of future unguaranteed residual value.
The calculation of the allowance for losses contains a number of elements of judgement. The Group makes judgements
as to how the current level of arrears of a loan or lease receivable relate to its probability of future default. The Group also
makes judgements as to the recoverable amount in circumstances of default. These estimates are based on historical loss
experience and objective experience of historical recoveries for assets with similar characteristics. The methodology and
assumptions used for estimating losses are reviewed regularly to reduce the difference between loss estimates and actual
loss experience. Further information about the allowance for losses is set out in Note 30(c).
Further information about the Group’s exposure to credit risk and interest rate risk in relation to the loan and lease
receivables are set out in Note 30.
All loan and lease receivables were part of the held for sale assets as at 31 December 2013 (refer to Note 12).
11. OTHER NON-CURRENT ASSETS
Insurance prepayments
Deposits held by funders (i)
2013
$000
1,747
4,937
6,684
2012
$000
1,564
5,080
6,644
(i) 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.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 71 12. DISPOSAL GROUP HELD FOR SALE
On 12 December 2013, the Group announced that it had entered into an agreement to sell its Australian and New Zealand
business to FlexiGroup as mentioned in Note 8. Accordingly, these are classified as held for sale. The sale was completed
on 31 January 2014 for consideration of $43.0m.
Assets and liabilities of disposal group held for sale
At 31 December 2013, the disposal group was stated at its carrying value and comprised the following assets and liabilities:
Cash and cash equivalents
Trade and other receivables
Loan and lease receivables
Plant and equipment
Intangible assets
Deferred tax assets
Tax receivable
Assets held for sale
Trade and other payables
Other interest bearing liabilities
Liabilities held for sale
$000
11,983
1,353
47,370
448
4,311
1,151
1
66,617
4,025
37,083
41,108
NOTES TO THE FINANCIAL STATEMENTS72 13. PLANT AND EQUIPMENT
Gross Carrying Amount
Cost or deemed cost
Balance at 1 January 2012
Effect of movement in exchange rate
Additions
Disposals
Balance at 31 December 2012
Effect of movement in exchange rate
Additions
Disposals
Transfer to held for sale
Balance at 31 December 2013
Accumulated Depreciation
Balance at 1 January 2012
Effect of movement in exchange rate
Depreciation expense
Balance at 31 December 2012
Effect of movement in exchange rate
Disposals
Depreciation expense
Transfer to held for sale
Balance at 31 December 2013
Net Book Value
At 31 December 2012
At 31 December 2013
Plant &
Equipment
$000
Lease
equipment
& software
$000
Notes
1,898
74
199
(2)
982
-
239
-
Total
$000
2,880
74
438
(2)
12
12
2,169
1,221
3,390
25
176
(37)
(465)
1,868
-
54
(10)
25
230
(47)
(1,192)
(1,657)
73
1,941
(1,453)
(553)
(2,006)
(70)
(326)
(1,849)
-
35
(246)
347
(1,713)
320
155
-
(102)
(655)
-
8
(288)
862
(73)
566
-
(70)
(428)
(2,504)
-
43
(534)
1,209
(1,786)
886
155
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 73 14. INTANGIBLE ASSETS
Contract
rights
$000
Software
$000
Distribution
network
$000
Intellectual
Property
$000
Inertia
Contracts
$000
Total
$000
Gross carrying amount
At cost
Balance at 1 January 2012
Additions
Disposals/transfer to inventory
Effect of movement in exchange rate
Transfers
5,531
1,000
-
(10)
(7)
Balance at 31 December 2012
6,514
Additions
Disposals/transfer to inventory
Effect of movement in exchange rate
Transfers
659
(6)
158
(52)
5,784
894
(17)
-
7
6,668
747
-
-
54
Transfer to assets held for sale
(5,694)
(7,421)
411
642
-
-
10
-
421
-
-
77
-
-
-
-
-
-
642
-
-
-
-
-
3,608
4,800
(225)
90
-
8,273
5,293
15,976
6,694
(242)
90
-
22,518
6,699
(2,007)
(2,013)
1,101
1,336
-
-
2
(13,115)
Balance at 31 December 2013
1,579
48
498
642
12,660
15,427
Accumulated amortisation
and impairment
Balance at 1 January 2012
Amortisation expense
Effect of movement in exchange rate
Impairment loss
Balance at 31 December 2012
Amortisation expense
Effect of movement in exchange rate
Impairment loss (i)
Transfers
Transfer to assets held for sale
Balance at 31 December 2013
Net book value
At 31 December 2012
At 31 December 2013
(2,254)
(1,489)
(2,253)
(1,287)
14
-
(3,729)
(1,243)
(148)
-
27
4,077
(1,016)
2,785
563
-
-
(3,540)
(1,208)
-
-
(27)
4,727
(48)
3,128
-
(410)
-
(10)
-
(420)
-
(77)
-
-
-
(369)
(32)
-
-
(401)
(32)
-
-
-
-
(1)
-
(6)
(341)
(348)
-
(138)
(629)
-
-
(5,287)
(2,808)
(2)
(341)
(8,438)
(2,483)
(363)
(629)
-
8,804
(497)
(433)
(1,115)
(3,109)
1
1
241
209
7,925
11,545
14,080
12,318
(i)
Impairment loss relates to the write off where the related contract has early terminated principally due to contract
default.
NOTES TO THE FINANCIAL STATEMENTS74 Inertia contract assets acquired are measured at fair value based on the discounted cash flows expected to be derived from
the sale or hire of the assets at the end of the term. This measurement inherently introduces estimation uncertainty. The
Group continually assesses current inertia proceeds and includes these in the estimation of inertia assets acquired. As such
the fair value measurement for inertia contract assets has been categorised as Level 3 fair value.
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.
Valuation technique
The Group recognises an intangible
Significant unobservable inputs
The fair value is based on current levels of
Inter-relationship between key
unobservable inputs and fair value
measurement
The estimated fair value would increase
asset arising if it has the unconditional
return (25%-30%) less an allowance for
(decrease) if:
·
·
·
·
·
Expected sale value was higher
(lower)
Expected secondary hire term was
longer (shorter)
Expected
cancellations/bad debts
were lower (higher)
Expected realization costs were lower
(higher)
Discount rate derived from group cost
of capital was lower (higher)
contractual
right
to
receive
income
cancellations (10%-30%) and expected
arising from equipment and rights to
costs (5%-10%) of realization.
the hiring agreement at the end of
term. This inertia asset is measured at
The discount rate applied to the fair value
fair value at the inception of the hiring
is 13.21%.
agreement, and is based on discounted
cash flows expected to be derived from
the sale or hire of the asset at the end
of the minimum term. Subsequent to
initial recognition the intangible asset is
measured at cost.
During the hiring term the valuation is
impaired for any assets that have been
written off.
At the end of the hiring term the intangible
asset is derecognised and the group
recognises the equipment as inventory at
the corresponding value.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 75 15. INTEREST IN SUBSIDIARIES
Interest in Subsidiaries
Country of Incorporation
2013
2012
% of Equity
RentSmart Limited
RentSmart Pty Ltd*
RentSmart (NZ) Pty Ltd*
RentSmart Servicing Pty Ltd*
RentSmart Unit Trust*
SmartCheck Finance Spain SL
SmartCheck Ltd
SmartCheck Pty Ltd*
SmartPlan Spain SL
ThinkSmart Employee Share Trust
ThinkSmart Europe Ltd
ThinkSmart Finance Ltd*
ThinkSmart Financial Services Ltd
ThinkSmart Inc
UK
Australia
New Zealand
Australia
Australia
Spain
UK
Australia
Spain
Australia
UK
Australia
UK
USA
ThinkSmart Insurance Services Administration Ltd
UK
ThinkSmart Italy Srl
ThinkSmart LTI Pty Limited
ThinkSmart Trust*
ThinkSmart UK Ltd
Italy
Australia
Australia
UK
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
100
100
100
100
100
100
* The Group has subsequent to 31 December 2013 disposed of these entities as disclosed in Note 32.
16. GOODWILL
Balance at beginning of financial year
Effect of movement in exchange rate
Balance at end of financial year
2013
$000
3,627
668
4,295
2012
$000
3,539
88
3,627
NOTES TO THE FINANCIAL STATEMENTS76 Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the UK segment as disclosed in Note 26, 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 UK cash-generating unit was based on its value in use using business plan assumptions and
a discount rate approximating the weighted average cost of capital of the group and hence includes inherent estimation
uncertainty. 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 2014 to 2016 and 2.5% year on year growth for
2017 and 2018, and estimated terminal growth of 2.0%.
•
A post tax discount rate of 8.5% (11.1% pre tax) was applied in determining the recoverable amount of the unit.
17. ASSETS PLEDGED AS SECURITY
As at 31 December 2013, within liabilities held for sale $1.0m of interest bearing liabilities were secured by pledges of the
present and future assets of ThinkSmart Limited and ThinkSmart Finance Limited to Westpac.
ThinkSmart Europe provide an equitable mortgage over the shares it holds in the main UK operating entity, RentSmart Limited
to provide security for ThinkSmart Limited’s Corporate facilities, all of which were un-drawn at 31 December 2013.
Both of the above pledges were released on 31 January 2014 in connection with the sale of the Australian and New Zealand
operations as set out in Note 32.
18. TRADE AND OTHER PAYABLES, AND PROVISIONS
Trade and other payables
Hedging derivative
Product plan
GST Payable
Other accrued expenses
Provisions
Annual leave
Long service leave (i)
Other
2013
$000
475
-
-
548
1,241
2,264
137
222
1
360
2012
$000
3,476
128
20
1,010
2,007
6,641
386
219
1
606
(i)
The pro rata entitlement of long service leave is provided for after 7 years of service.
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 30.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 77 19. DEFERRED SERVICE INCOME
Balance at 1 January
Effect of movement in exchange rate
Intangible inertia assets acquired
Reversal due to intangible asset impairment
Notes
14
2013
$000
4,798
(124)
5,293
(374)
2012
$000
2,572
22
4,800
(158)
Recognised in Consolidated Statement of Profit and Loss
6(a)
(4,060)
(2,438)
Deferred service income to be recognised within 12 months
Deferred service income to be recognised in greater than 12 months
20. FINANCING FACILITIES
Corporate financing facilities
Secured bank overdraft facility reviewed annually and payable at call:
- amount used
- amount unused
Committed cash advance facility/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
5,533
4,798
3,843
1,690
5,533
2,977
1,821
4,798
2013
$000
2012
$000
-
921
921
-
5,000
5,000
21
25
46
-
778
778
-
5,000
5,000
14
25
39
Total corporate financing facility
5,967
5,817
The total corporate facilities of $5.967m (2012: $5.817m) identified above are reviewed annually and secured over the
assets of the Group. The committed cash advance facility was terminated on 31 January 2014 in connection with the sale of
the Australian and New Zealand operations as set out in Note 32. New corporate facilities for business credit cards, payment
processing and foreign exchange derivatives were put into place simultaneously, secured by cash on deposit.
NOTES TO THE FINANCIAL STATEMENTS78 21. OTHER INTEREST BEARING LIABILITIES
Current
Loan advances – secured
Financial liability – secured
Non-current
Loan advances – secured
Financial liability – secured
Customer financing facilities
Secured financing facilities
- amount used – lease financing arrangement – series 2
- amount used – lease financing arrangement – series 3
- amount used – brokerage arrangement
- amount unused
Total facility
2013
$000
2012
$000
-
-
-
-
-
-
-
-
-
-
-
18,830
15,470
34,300
8,373
11,690
20,063
18,377
8,827
27,159
113,137
167,500
All interest bearing liabilities were part of the held for sale liabilities as at 31 December 2013 (refer to Note 12).
22. ISSUED CAPITAL
(a)
Issued and paid up capital
162,307,097 Ordinary Shares fully paid (2012: 159,163,764)
48,091
48,073
2013
$000
2012
$000
2013
Number
2013
$000
2012
Number
2012
$000
Fully Paid Ordinary Shares
Balance at beginning of the financial year
159,163,764
48,073 130,004,390
39,664
Issue of new shares for employee loan-funded share plan
3,043,333
Issue of new shares for employee share-based payment
100,000
Issue of new shares
Capital raising costs
-
-
-
18
-
-
3,033,333
125,000
26,001,041
-
-
23
9,100
(714)
Balance at end of the financial year
162,307,097
48,091 159,163,764
48,073
During the year no employee share options or loan-funded shares were exercised (2012: nil).
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 79 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 and loan-funded shares
The Company has an ownership-based remuneration 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. Each employee
loan-funded share converts to one ordinary share of ThinkSmart Limited on exercise and repayment of the loan. The options
carry neither rights or dividends nor voting rights. The loan-funded shares carry voting and rights to dividends.
Options issued in previous periods:
•
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 and 31 December 2014.
Vesting of the options was 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 conditions.
The performance conditions were not met, and no options vested on 31 December 2012.
•
2,133,333, 100,000 and 250,000 options over ordinary shares were issued 11 April 2011, 15 June 2011 and 25
July 2011 respectively. The options are exercisable at $0.84, with an exercise period between 1 January 2014 and
31 December 2015. 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 conditions.
The performance conditions were not met, and no options vested on 31 December 2013.
•
400,000 options over ordinary shares were issued 10 August 2012 and exercisable at $0.1923, vesting and
exercisable on 10 August 2015 until 09 August 2017. Vesting of the options is subject to achievement of the following
performance conditions:
•
Tranche 1: 25% of options will vest if the share price hurdle of $0.35 is met in accordance with the performance
conditions;
•
Tranche 2: 25% of options will vest if the share price hurdle of $0.55 is met in accordance with the performance
conditions; and
•
Tranche 3: 50% of options will vest if the share price hurdle of $0.75 is met in accordance with the performance
conditions.
NOTES TO THE FINANCIAL STATEMENTS80 •
3,033,333 loan-funded shares were issued 10 August 2012 and exercisable at $0.1923, vesting and exercisable on
10 August 2015 until 09 August 2017. Vesting of the loan-funded shares is subject to achievement of the following
performance conditions:
•
Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of $0.35 is met in accordance with the
performance conditions;
•
Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of $0.55 is met in accordance with the
performance conditions; and
•
Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of $0.75 is met in accordance with the
performance conditions.
Options and loan-funded shares issued in the current period:
•
750,000 options over ordinary shares were issued 04 July 2013 and exercisable at $0.2652, vesting and exercisable
on 04 July 2016 until 03 July 2018. Vesting of the options is subject to achievement of the following performance
conditions:
•
Tranche 1: 25% of options will vest if the share price hurdle of $0.3802 is met in accordance with the performance
conditions;
•
Tranche 2: 25% of options will vest if the share price hurdle of $0.4889 is met in accordance with the performance
conditions; and
•
Tranche 3: 50% of options will vest if the share price hurdle of $0.5975 is met in accordance with the performance
conditions.
•
3,243,333 loan-funded shares were issued 04 July 2013 and exercisable at $0.2652, vesting and exercisable on 04
July 2016 until 03 July 2018. Vesting of the loan-funded shares is subject to achievement of the following performance
conditions:
•
Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of $0.3802 is met in accordance with the
performance conditions;
•
Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of $0.4889 is met in accordance with the
performance conditions; and
•
Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of $0.5975 is met in accordance with the
performance conditions.
The value of these options and loan-funded shares will be expensed over the vesting period in accordance with AASB 2.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 81 Below are options and loan-funded shares issued in 2012 and 2013:
Loan-funded shares
issued in 2013
Number
Grant date
Exercise period
Exercise price
Fair value at
grant date
Employee loan-funded shares
3,243,333
04/07/2013
04 Jul 2016 to 03 Jul 2018
$0.2652
$0.098 - $0.118
Options series issued in 2013
Number
Grant date
Exercise period
Exercise price
Fair value at
grant date
Employee options
750,000
04/07/2013
04 Jul 2016 to 03 Jul 2018
$0.2652
$0.098 - $0.118
Loan-funded shares
issued in 2012
Number
Grant date
Exercise period
Exercise price
Fair value at
grant date
Employee loan-funded shares
3,033,333
10/08/2012
10 Aug 2015 to 09 Aug 2017
$0.1923
$0.02 - $0.06
Options series issued in 2012
Number
Grant date
Exercise period
Exercise price
Fair value at
grant date
Employee options
400,000
10/08/2012
10 Aug 2015 to 09 Aug 2017
$0.1923
$0.02 - $0.06
The weighted average fair value of the share options and loan-funded shares granted in 2013 is $0.106 (2012: $0.035).
Options issued before 2012 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. Options and loan-funded
shares issued in 2012 were priced using a monte-carlo pricing model. Expected volatility is based on the historic volatility of
the market price of the Company’s share and the mean reversion tendency of volatilities.
Below are the inputs used to measure the fair value of the options and loan-funded shares:
Grant date
Fair value at grant date
Grant date share price
Exercise price
Expected volatility
Option/loan share life
Dividend yield
Risk-free interest rate
Employee
options and
loan-funded
shares
Employee
options and
loan-funded
shares
2013
2012
04/07/2013
10/08/2012
$0.098-$0.118
$0.02-$0.06
$0.27
$0.19
$0.2652
$0.1923
55%
4 years
0%
2.99%
50%
4 years
2.14%
2.5%
The following reconciles the outstanding share options/loan-funded shares granted under the employee share option plan and
loan-funded shares at the beginning and end of the financial year:
NOTES TO THE FINANCIAL STATEMENTS82
2013
2012
Balance at beginning of the financial year
Granted during the financial year
Number of
options/loan
funded shares
Weighted
average
exercise price
$
9,200,000
3,993,333
$0.61
$0.27
Number of
options
7,166,667
3,433,333
Forfeited during the financial year*
(5,265,000)
$0.76
(1,400,000)
Exercised during the financial year
Expired during the financial year
Balance at the end of financial year
Exercisable at end of the financial year
-
(801,667)
7,126,666
-
-
$0.62
$0.23
-
-
-
9,200,000
-
Weighted
average
exercise price
$
$0.84
$0.19
$0.74
-
-
$0.61
-
*The weighted average exercise price is calculated including 1,000,000 loan-funded shares on issue previously allocated and
forfeited by Mr A Stevens. These remain in share capital at year end as unallocated shares.
The options and loan-funded shares outstanding at 31 December 2013 have an exercise price in the range of $0.1923 to
$0.2652 (2012: $0.1923 to $1.11) and a weighted average contractual life of 4.12 years (2012: 2.83 years).
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
Share options granted in 2011 – equity settled
Shares as remuneration granted in 2010, 2011 and 2012 – equity settled
Share options/loan-funded shares granted in 2012 – equity settled
Share options/loan-funded shares granted in 2013 – equity settled
Total expense recognised as employee costs
Less discontinued operations
Total expense recognised from continuing operations
2013
$000
2012
$000
-
-
-
(96)
99
21
62
86
4
82
(85)
(64)
111
212
98
54
-
326
32
294
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 83 (b)(ii) Share compensation – employee shares
Details on shares of the Company that were granted as remuneration to each Key Management Person and details of shares
vested during the reporting period are as follows:
Executives
A Baum
A Baum
A Baum
Number
of shares
granted
Grant date
Fair value
at grant
date ($)
Vesting
period
Number
of shares
vested
during 2013
Number
of shares
vested
during 2012
350,000
01/09/2010
125,000
01/09/2011
125,000
03/10/2012
0.64
0.52
0.18
3 years
3 years
3 years
100%
-
-
-
-
-
The shares are provided at no cost to the recipient as part of his employment contract and are held in escrow. No shares
have been granted since the end of the financial year.
These shares were issued to A Baum. The shares are ordinary shares in the Company and ordinarily would have vested upon
completion of a 3-year service period from the date of issue. As a result of Mr Baum’s role being made redundant during
2014, and under the terms of the grant, he is entitled to retain these shares and they are released from escrow at that point.
The fair value of these shares is recorded in the profit and loss on a straight line basis across their vesting term, with
$0.099m (2012: $0.098m) expensed during the year.
(c) Dividends
There were no dividends paid during the year (2012: nil) or since the year end.
After 31 December 2013, the following dividends were declared by the directors. The dividends have not been provided for.
Special dividend
Cents per
share
Total amount
Franked/
unfranked
Date to be paid
3.6 cents
$5,843,055
Fully franked 19 February 2014
The final effect of these dividends has not been brought to account in the financial statements for the year ended 31
December 2013 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% (2012: 30%)
Franking credits from the payment of income tax paid and payable as at the
end of the financial year
Franking credit account balance as at the end of the financial year at a
tax rate of 30% (2012: 30%)
2013
$000
2012
$000
3,063
1,190
3,900
1,873
6,963
3,063
NOTES TO THE FINANCIAL STATEMENTS84 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 2013, the subsidiaries have no franking credits for
the benefit of the Company (2012: nil). As noted in Note 22(c), the company will pay a special dividend of 3.6 cents per
share on 19 February 2014. This will result in a reduction of franking credits of $2.504m and a balance of $4.459m
remaining in the franking credit account. The $4.459m franking balance relates to tax estimated to become payable during
2014 from the 2013 results and the sale of the Australian and New Zealand operations.
23. RESERVES
Equity settled employee benefits reserve – options (i)
Equity settled employee benefits reserve – shares (i)
Foreign currency translation reserve (ii)
Hedge reserve (iii)
2013
$000
1,170
(29)
(908)
(45)
188
2012
$000
1,159
(86)
(4,066)
(90)
(3,083)
(i)
The share-based remuneration reserve arises on the grant of share options and shares to Executives under the
employee share option plan and loan-funded share 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 provided in Note 22(b) to the financial statements.
(ii) The translation reserve comprises all foreign currency differences arising from the translation of the financial statements
of foreign operations as well as from the translation of liabilities that hedge the Company’s net investment in a foreign
subsidiary.
(iii) The hedge reserve comprises the effective portion of the cumulative net change in fair value of the cash flow hedge
relating to hedged transactions that have not yet occurred.
24. NOTES TO THE CASH FLOW STATEMENT
(a) For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and
investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of
the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:
Reconciliation of cash and cash equivalents
Cash balance comprises:
- Available cash and cash equivalents
- Restricted cash
2013
$000
2012
$000
7,375
6,008
194
12,560
7,569
18,568
The Group’s exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in
Note 30.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 85 (b) Reconciliation of the profit/(loss) for the year to net cash flows from
operating activities:
Profit/(loss) after tax
Add back non-cash items:
Depreciation
Amortisation
Impairment losses on finance lease receivables
Foreign currency loss/(gain) unrealised
Provision for employee entitlements
Equity settled share-based payment
(Increase)/decrease in assets:
Trade receivables, deposits held with funders and other movements in lease assets
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 payables
Net cash from operating activities
2013
$000
2012
$000
2,309
(1,441)
380
2,482
2,323
(49)
244
57
428
2,808
4,098
358
95
326
(3,290)
(28)
1,198
811
(2,653)
(1,825)
27
(81)
444
(124)
(2,533)
(4,732)
4,039
(2,151)
(1,500)
(189)
1,538
493
(96)
690
25. LEASES AND HIRE PURCHASE OBLIGATIONS
Operating leases – leasing arrangements
Operating leases relate to office facilities with lease terms of up to 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.
2013
$000
2012
$000
448
383
831
871
-
871
NOTES TO THE FINANCIAL STATEMENTS86
26. SEGMENT INFORMATION
The Group has three reportable segments which comprise the Group’s two core business units (UK and its discontinued
segment, Australia), with the “other” segment presented composing low volume territories. The head office corporate
function composes the reconciliation between the two continuing reportable segments and the Group, given that there is
no inter-segment revenue. The business units offer predominantly similar products and services, however have separate
Executive structures and separate operational teams.
For each of the segments, the Board and the CEO review internal management reports on a monthly basis. The composition
of the reportable segments is as follows:
UK:
•
•
RentSmart Limited
ThinkSmart Insurance Services Administration Ltd
Other:
•
•
•
•
•
•
SmartCheck Finance Spain SL
ThinkSmart Europe Ltd
ThinkSmart France SARL
ThinkSmart Inc
ThinkSmart Inc (USA)
ThinkSmart Italy Srl
Corporate:
•
ThinkSmart Limited
Discontinued operations - Australia:
•
•
•
•
•
ThinkSmart Finance Ltd
ThinkSmart Trust
RentSmart Servicing Pty Ltd
RentSmart Pty Ltd
RentSmart (NZ) Pty Ltd
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 87 26. SEGMENT INFORMATION (CONTINUED)
Operating Segments
Information about reportable
segments
UK
Other
Territories
Corporate
Total
Discontinued
operations*
For the year ended 31 December
2013
2012
2013
Restated *
2012
2013
2012
2013
Restated *
2012
Restated
2012
2013
Revenue
Other revenue
Total revenue
16,574 16,812
141
2,196
2,044
-
18,770 18,856
141
Indirect customer acquisition costs
(4,935)
(4,962)
(2)
148
-
148
(8)
22
-
22
(6)
39 16,737
16,999
18,751
19,136
-
2,196
2,044
7
1,544
39 18,933
19,043
18,758
20,680
(22)
(4,943)
(4,992)
(1,361)
(3,147)
Operating expenses
(5,377)
(5,580)
(100)
(268)
(4,446)
(4,917)
(9,923)
(10,765)
(10,145)
(10,969)
Depreciation and amortisation
(418)
(394)
(45)
Impairment losses (Note 6(f))
(255)
(182)
Interest expense
-
-
-
-
(56)
-
(2)
-
-
-
-
-
(463)
(255)
(450)
(2,399)
(2,786)
(182)
(2,338)
(4,098)
(238)
-
(240)
(2,894)
(4,000)
Reportable segment profit/(loss)
before income tax
7,785
7,738
(6)
(186)
(4,430)
(5,138)
3,349
2,414
(379)
(4,320)
Reportable segment current assets
9,293
7,588
2,023
295
1,209
574 12,525
8,457
66,617
55,649
Reportable segment non-current assets 16,053 14,731
7,347
2,771
4,862
500 28,262
18,002
-
32,837
Reportable segment liabilities
7,031
8,103
1,537
(1,275)
4,109
345 12,677
7,173
41,108
59,751
Capital expenditure
570
235
-
-
-
-
570
235
1,066
2,097
* See Notes 8 and 12.
Major customer
Revenues from the Group’s funding partners represent $5.677m (2012: $12.038m) of the Group’s total revenue.
NOTES TO THE FINANCIAL STATEMENTS88 27. REMUNERATION OF AUDITORS
Audit and review services:
Auditors of the Company:
Audit and review of financial reports (Australia)
Audit and review of financial reports (Overseas)
Other regulatory services
Services other than statutory audit:
Tax compliance and advisory services
Accounting advice
Advisory services
2013
$
2012
$
234,500
344,481
100,111
77,707
9,500
9,500
344,111
431,688
138,081
-
33,000
31,481
16,500
-
171,081
47,981
The Group’s auditors were KPMG in 2013 and 2012.
28. COMMITMENTS AND CONTINGENT LIABILITIES
UK
Under the terms of its current UK funding agreement, the Group is obliged to purchase delinquent leases from the funder
at the funded amount plus any commission previously received. At 31 December 2013, the total funded amount of all
leases funded by the funder is $49.648m (31 December 2012: $42.455m). The Group has entered into a Credit Default
Swap (CDS) with STB for which it has provided a deposit of $8.252m (31 December 2012: $6.995m) as collateral for the
obligation under the funding agreement and CDS. The Group has provided for $3.197m (31 December 2012: $1.881m)
which includes some estimation uncertainty as it requires an estimate of the future amount potentially payable for those
leases that are likely to become delinquent in the future. The Group estimates this amount based on historical loss
experience for assets with similar characteristics.
The total balance of deposits recognised with funders, net of associated provisions and financial guarantee contracts,
is $4.937m (31 December 2012: $5.080m).
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 89 29. CONTINGENT INERTIA ASSETS
Under the Group’s accounting policy, inertia revenue for those assets funded under the brokerage model in the UK, where
the Group does not have an unconditional right to the asset and residual lease rights, 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. An estimate of the
realisable value of the future revenue streams of $0.112m (31 December 2012: $0.939m) has been made by estimating
expected proceeds through sales channels and public auction.
Where the Group does have an unconditional right to these future revenue streams it recognises an intangible asset.
30. FINANCIAL INSTRUMENTS
Financial instruments included in the below disclosures do not include financial assets and liabilities classified as held
for sale.
(a)
Interest rate risk
At the reporting date, the interest rate profile of the Group’s interest bearing financial instruments were:
Fixed rate instruments
Loan and lease receivables
Variable rate instruments
Cash and cash equivalents
Deposits held by funder (non-current)
Secured note facility
Net financial assets/(liability)
Sensitivity analysis
Carrying amount
2013
$000
2012
$000
-
-
62,414
62,414
7,569
4,937
18,568
5,080
-
(54,363)
12,506
(30,715)
A change in 1% in interest rates would have increased or decreased the Group’s profit for continuing operations by the
amounts shown below (2012: 1% increase $0.054m, 1% decrease $0.091m). This analysis assumes that all other factors
remain constant including foreign currency rates.
NOTES TO THE FINANCIAL STATEMENTS90 Variable rate instruments
Net profit sensitivity
(b) Fair value of financial instruments
Profit or Loss
Increase
1%
Decrease
1%
125
125
(125)
(125)
The carrying amounts of financial assets and financial liabilities recorded in the financial statements are not materially
different to their fair values. In the case of fixed rate loan and lease receivables, changes in market interest rates and other
factors influencing their fair value since inception have an immaterial impact on the effective interest rate.
Fair value hierarchy
The financial instruments carried at fair value have been classified by valuation method. The different levels have been
defined as follows:
•
•
Level 1:
Level 2:
quoted prices (unadjusted) in active markets for identical assets or liabilities
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e., as prices) or indirectly (i.e., derived from prices)
•
Level 3:
inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The only financial liability of the Group measured at fair value is comprised of interest rate swaps used for hedging, classified
as Level 2, which is included within liabilities held for sale (see Note 12).
Key assumptions in the valuation of the instruments are limited to interpolating interest rates for certain future periods where
there is no observable market data.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 91
30. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Credit risk management
The maximum credit risk exposure of the Group is the sum of the carrying amount of the Group’s financial assets. The
carrying amount of the Group’s financial assets that is exposed to credit risk at the reporting date is:
Cash and cash equivalents
Loan and lease receivables (current)
Loan and lease receivables (non-current)
Trade receivables
Prepayments (current)
Sundry debtors
Other non-current assets
Note
24(a)
10
10
9
11
2013
$000
7,569
-
-
1,191
2,107
340
6,684
2012
$000
18,568
39,164
23,250
2,890
1,858
959
6,644
17,891
93,333
The carrying amount of the Group’s financial assets that is exposed to credit risk at the reporting date by geographic
region is:
Australia
UK
Other
2013
$000
1,100
16,501
290
2012
$000
79,221
13,886
226
17,891
93,333
The carrying amount of the Group’s financial assets that is exposed to credit risk at the reporting date by types of
counterparty is:
Banks (i)
Funders
Insurance partners (ii)
Retail finance customers (iii)
Others (iii)
2013
$000
7,569
5,029
3,855
2012
$000
18,568
5,080
3,421
-
62,415
1,438
3,849
17,891
93,333
(i) Cash and cash equivalents are held with banks with S&P ratings of A- and AA-.
(ii)
In 2013, 88% (2012: 86%) of the total prepayment relates to RentSmart Limited’s upfront insurance premium
payments 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.
NOTES TO THE FINANCIAL STATEMENTS92 30. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Credit risk management (continued)
(iii) Included in Others is an amount of $nil (2012: $1.803m) relating to collections from lessee customers in relation to
the portfolio of leases acquired by the Group via a “pass through” arrangement from Bendigo and Adelaide Bank. The
credit risk exposure from retail customers also includes an amount of $nil (2012: $30.630m) which relates to the same
portfolio of leases. The bank account to which collections are deposited is held with Bendigo and Adelaide Bank and
accordingly the Group has a credit risk exposure to Bendigo and Adelaide Bank with respect to these amounts.
Loan and lease receivables
The ageing of the Group’s loan and lease receivables at the reporting date was:
Gross
2013
$000
Impairment
2013
$000
Gross
2012
$000
Impairment
2012
$000
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 121-365 days
More than 1 year
-
-
-
-
-
-
-
-
-
-
-
-
53,711
4,598
3,698
3,826
395
66,228
The movement in the allowance for impairment in respect of lease receivables during the year was as follows:
-
20
749
2,735
310
3,814
2012
$000
1,589
4,284
2013
$000
3,814
2,550
(1,800)
(2,059)
(4,564)
-
-
3,814
Balance at 1 January
Impairment loss recognised
Bad debt written off
Transfer to assets held for sale
Balance at 31 December
The management of credit risk in relation to its customers is described in Note 5.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 93 30. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Credit risk management (continued)
Trade receivables
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 121-365 days
Gross
2013
$000
Impairment
2013
$000
-
1,104
70
17
1,191
-
-
28
9
37
Gross
2012
$000
1,803
1,000
87
-
2,890
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 movement
Transfer to assets held for sale
Balance at 31 December
2013
$000
87
118
(147)
8
(29)
37
Impairment
2012
$000
-
-
87
-
87
2012
$000
85
217
(216)
1
-
87
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.
NOTES TO THE FINANCIAL STATEMENTS94 30. FINANCIAL INSTRUMENTS (CONTINUED)
(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:
Cash and cash equivalents
Trade receivables
Trade and other payables
Net exposure
Cash and cash equivalents
Trade receivables
Trade and other payables
Net exposure
The following significant exchange rates applied during the year:
AUD
EUR
GBP
USD
NZD
GBP
£000
3,407
746
(1,107)
3,046
GBP
£000
2,301
646
(1,903)
1,044
31 December 2013
EUR
€000
120
16
(37)
99
NZD
$000
-
-
-
-
31 December 2012
EUR
€000
60
16
(53)
23
NZD
$000
14
-
-
14
USD
$000
7
-
(3)
4
USD
$000
8
-
(3)
5
Average rate
Reporting date spot rate
2013
0.7293
0.6146
0.9679
1.1795
2012
0.8061
0.6536
1.0358
1.2787
2013
0.6485
0.5429
0.8948
1.0879
2012
0.7868
0.6428
1.0384
1.2608
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 95 30. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Currency risk management (continued)
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 2012:
31 December 2013
EUR
GBP
USD
NZD
31 December 2012
EUR
GBP
USD
NZD
Equity
$000
(16)
(2,570)
-
(2)
(10)
(1,820)
(1)
(2)
Profit or
loss
$000
(7)
(626)
(221)
4
3
(513)
(205)
4
A 10% weakening of the Australian dollar against the above currencies at 31 December would have had an equal but
opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
NOTES TO THE FINANCIAL STATEMENTS96 30. FINANCIAL INSTRUMENTS (CONTINUED)
(e) Liquidity risk management
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements:
Non-derivatives
31 December 2013
Trade and other payables
31 December 2012
Trade and other payables
Secured note facility
Carrying
Amount
Contractual
cash flow
Less than 1
year
1-2 years
2-5 years
$000
$000
$000
$000
$000
2,264
2,264
(2,264)
(2,264)
(2,264)
(2,264)
6,513
(6,513)
(6,513)
-
-
-
-
-
-
54,363
(57,967)
(37,009)
(16,634)
(4,323)
60,876
(64,480)
(43,522)
(16,634)
(4,323)
31. RELATED PARTY DISCLOSURES
The following were Key Management Personnel of the Group at any time during the reporting period and unless otherwise
indicated were Key Management Personnel for the entire period:
Non-Executive Directors
D Griffiths (Deputy Chairman)
S Penglis
F de Vicente
N Fox – until 18 March 2013
K Jones – appointed 24 May 2013
Executive Directors
N Montarello (Executive Chairman and Chief Executive Officer)
Executives
A Baum (Group Chief Operating Officer)
G Halton (Managing Director (acting) – UK)
A Stevens (Group Chief Financial Officer) – until 12 December 2013
G Varma (Group Chief Information Officer)
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 97 The Key Management Personnel remuneration included in ‘employee benefits expense’ in Note 6(d) is as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
2013
$
2012
$
2,073,112
2,735,118
118,086
312,656
13,794
69,064
56,450
287,943
2,261,442
3,404,781
The Key Management Personnel receive no remuneration in relation to management of the Company (2012: nil).
Individual Directors and Executives Remuneration Disclosures
Information regarding individual Directors and Executives remuneration and some equity instruments disclosures as permitted
by Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report.
Apart from the details disclosed in this note, no Director has entered into a material contract with the Group since the end of
the previous financial year and there were no material contracts involving Directors’ interests existing at year-end.
Loans to Key Management Personnel and their related parties
There have been no loans provided to Key Management Personnel and their related parties as at 31 December 2013 (2012:
nil), with the exception of the limited recourse loans in relation to the loan-funded share scheme (refer to Note 22(b)(i) and
the Remuneration Report section of the Directors’ Report).
Other Key Management Personnel transactions
During the year and previous year, there has been no transaction with entities in which the Key Management Personnel 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 Limited held, directly,
indirectly or beneficially, by each Key Management Person, including their related parties, is as follows:
NOTES TO THE FINANCIAL STATEMENTS98 31. RELATED PARTY DISCLOSURES (CONTINUED)
Employee options
Held at
date
of new
appoint-
ment
Held at 1
January
2013
2013
Directors
Granted as
compen-
sation
Other
movement
Lapsed,
forfeited
or expired
Held at 31
December
2013
Vested
during the
year
Vested and
exercisable
at 31
December
2013
N Montarello
3,000,000
D Griffiths
S Penglis
F de Vicente
N Fox
K Jones
Executives
A Baum
G Halton
A Stevens
G Varma
2012
Directors
-
-
-
-
-
666,666
450,000
-
350,000
Held at 1
January
2012
N Montarello
3,000,000
D Griffiths
S Penglis
F de Vicente
N Fox
Executives
A Baum
G Halton
A Stevens
G Varma
J Ferreira
S McDonagh
G Parry
-
-
-
-
666,666
-
-
350,000
400,000
250,000
700,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250,000
-
-
-
-
-
-
-
-
-
-
-
-
(3,000,000)
-
-
-
-
-
(666,666)
-
-
-
-
n/a
-
-
(350,000)
350,000
-
(350,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Granted as
compen-
sation
Other
movement
Lapsed,
forfeited
or expired
Held at 31
December
2012
Vested
during the
year
Vested and
exercisable
at 31
December
2012
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(400,000)
(250,000)
-
-
(700,000)
3,000,000
1,000,000
1,000,000
-
-
-
-
666,666
-
-
-
-
-
-
-
-
-
-
450,000
150,000
150,000
-
350,000
-
-
-
-
-
-
-
-
-
-
-
-
-
350,000
100,000
-
-
-
-
-
-
-
-
-
-
Held at
date
of new
appoint-
ment
-
-
-
-
-
-
Movements in loan-funded shares granted as compensation are set out in the following movements in shares table.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 99 NOTES TO THE FINANCIAL STATEMENTS
31. RELATED PARTY DISCLOSURES (CONTINUED)
Movement in shares
The movement during the reporting period in the number of ordinary shares in ThinkSmart Limited held, directly, indirectly or
beneficially, by each Key Management Person, including their related parties, is as follows:
Held at 1
January
2013
2013
Directors
Purchases Rights issue
Sales
Received on
exercise
of options
Loan-
funded
share issue
Loan funded
share issue
lapsed,
forfeited or
expired
Granted as
compensation
Held at 31
December
2013
N Montarello 29,559,356
D Griffiths
2,592,001
S Penglis
1,272,600
-
-
-
F de Vicente
356,500
69,500
N Fox
K Jones
81,600
-
Executives
A Baum
1,459,465
A Stevens
G Varma
500,000
200,000
Held at 1
January
2012
2012
Directors
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
-
-
-
-
-
333,333
-
-
-
-
-
-
-
500,000
(1,000,000)
200,000
-
- 30,559,356
-
-
-
-
-
-
-
-
2,592,001
1,272,600
426,000
n/a
-
1,792,798
n/a
400,000
-
-
-
-
-
Purchases Rights issue
Sales
Received on
exercise
of options
Loan-
funded
share issue
Loan funded
share issue
lapsed,
forfeited or
expired
Granted as
compensation
Held at 31
December
2012
N Montarello 22,520,297
1,535,000
4,504,059
D Griffiths
2,160,000
S Penglis
1,272,600
-
-
F de Vicente
-
356,500
432,001
-
-
N Fox
68,000
-
13,600
Executives
A Baum
A Stevens
G Varma
S McDonagh
G Parry
751,910
100,000
149,222
-
-
11,000
25,357
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
-
-
-
-
333,333
500,000
200,000
200,000
-
-
-
-
-
-
-
-
-
-
-
- 29,559,356
-
-
-
-
2,592,001
1,272,600
356,500
81,600
125,000
1,459,465
-
-
-
-
500,000
200,000
n/a
n/a
n/a: Where personnel are no longer employed on the report date, the share movement only relates to the period up to their
respective resignation dates.
NOTES TO THE FINANCIAL STATEMENTS100 NOTES TO THE FINANCIAL STATEMENTS
31. RELATED PARTY DISCLOSURES (CONTINUED)
The following shares are subject to escrow as at 31 December 2013 (refer to Note 22(b)(ii)):
Executive
A Baum
32. SUBSEQUENT EVENTS
Held at
31 December
2013
Held at
31 December
2012
250,000
600,000
In December 2013 the Group entered into an agreement to sell its operations in Australia and New Zealand to FlexiGroup
Limited for $43 million. The transaction was completed on 31 January 2014.
The operations in Australia and New Zealand have been presented as discontinued operations in the financial statements for
the year ended 31 December 2013.
As a result of the transaction, the Group re-negotiated some of its security pledges and financing facilities. Details are set out
in Note 17 and 20 respectively.
On 31 January 2014 the Group declared a special dividend as set out in Note 22(c).
ANNUAL REPORT 2013 101 NOTES TO THE FINANCIAL STATEMENTS
33. EARNINGS PER SHARE
Profit/(loss) after tax attributable to ordinary
shareholders (basic and diluted)
Weighted average number of ordinary shares (basic)
Weighted average number of ordinary shares (diluted)
Earnings per share
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
Earnings per share from continuing operations:
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
Earnings per share from discontinued operations:
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
2013
$000
2012
$000
Continuing
operations
Discon-
tinued
operations
Continuing
operations
Restated
Discontinued
operations
Restated
Total
Total
2,597
(288)
2,309
1,845
(3,286)
(1,441)
2013
2012
Number
Number
159,259,106 151,546,324
159,919,271 151,546,324
2013
2012
1.45
1.44
1.63
1.62
(0.95)
(0.95)
1.22
1.22
(0.18)
(0.18)
(2.17)
(2.17)
At 31 December 2013 there were no options or loan-funded shares (2012: 6,366,667) that were excluded from the diluted
weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.
102 NOTES TO THE FINANCIAL STATEMENTS
34. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 31 December 2013, the parent entity of the Group was ThinkSmart Limited.
Result of parent entity
(Loss)/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
2013
$000
2012
$000
1,164
(186)
-
-
1,164
(186)
1,209
574
53,101
41,878
4,109
4,109
337
345
48,091
48,289
1,118
(217)
526
(7,282)
48,992
41,533
The parent entity has provided a commitment to continue its financial support of ThinkSmart Europe Ltd to enable the
subsidiary to pay its debts as and when they fall due. The Company will not call for the repayment of its loan until ThinkSmart
Europe Ltd is in a financial position to make such a payment without affecting its operational capabilities.
The parent entity has issued an unlimited parental guarantee in favour of its UK clearing bank to guarantee the obligations of
RentSmart Limited with respect to its Direct Debit and corporate credit card facilities.
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.
ANNUAL REPORT 2013 103 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THINKSMART LIMITED
Report on the financial report
We have audited the accompanying financial report of ThinkSmart Limited (the company), which comprises the consolidated
statement of financial position as at 31 December 2013, consolidated statement of profit and loss, 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 34 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 Satements, 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 performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
104 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THINKSMART LIMITED
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of ThinkSmart Limited 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 2013 and 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 pages 19 to 30 of the directors’ report for the year ended 31
December 2013. 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 2013, complies with Section
300A of the Corporations Act 2001.
KPMG
KPMG
KPMG
Matthew
Beevers
Matthew Beevers
Partner
Perth
Matthew
Beevers
18 February 2014
ANNUAL REPORT 2013 105
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 31 March 2014.
Distribution of Equity Security
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
There were 172 holders of less than a marketable parcel of ordinary shares.
Equity Security Holders
Twenty largest quoted equity security holders
The names of the 20 largest holders of quoted equity securities are listed below:
Name
Mainwest Pty Ltd
National Nominees Limited
Mr Natale Ronald Montarello
JAWP Pty Ltd
Mr Natale Ronald Montarello
ThinkSmart LTI Pty Ltd
Kemast Investments Pty Ltd
J P Morgan Nominees Australia Limited
Bond Street Custodians Limited
Phoenix Properties International Pty Ltd
HSBC Custody Nominees (Australia) Limited
Longfellow Nominees Pty Ltd
Darju Pty Ltd
Wroxby Pty Ltd
Mr Noel D’Souza
Wulura Investments Pty Ltd
Mr Michael McPherson Stewart & Mrs Judith Stewart
Wulura Investments Pty Ltd
JP Morgan Nominees Australia Limited
Mr Natale Ronald Montarello & Mrs Kimberly Montarello
Number of equity
security holders
Ordinary
Shares
Options
112
686
475
1,057
165
-
-
-
-
3
Ordinary Shares
Number held
11,691,278
9,717,337
9,563,606
5,800,000
5,767,072
4,999,259
4,752,000
4,289,656
3,658,329
3,600,000
3,306,519
3,303,167
2,107,239
1,838,754
1,719,170
1,636,118
1,601,139
1,566,948
1,552,308
1,535,000
Percentage of
issued shares
(%)
7.20
5.99
5.89
3.57
3.55
3.08
2.93
2.64
2.25
2.22
2.04
2.04
1.30
1.13
1.06
1.01
0.99
0.97
0.96
0.95
Total
84,004,899
51.76
106 SHAREHOLDER INFORMATION
Unquoted Equity Securities
Options issued under the ESOP to take up ordinary shares
The Company has no other unquoted equity securities.
Substantial Holders
Substantial holders in the Company are set out below:
Include those above 5%
Mainwest Pty Ltd
National Nominees Limited
Mr Natale Ronald Montarello
Voting Rights
The voting rights attaching to equity securities are set out below:
Number on
issue
Number of
holders
1,050,000
3
Number of
ordinary
shares
11,691,278
9,717,337
9,563,606
Percentage
%
7.20
5.99
5.89
(a) Ordinary shares
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.
(b) Loan-Funded Ordinary Shares issued under the Long-Term Incentive Plan
Shares under the plan rank equally in all respects with Ordinary Shares, including voting rights.
(c) Options
There are no voting rights attached to the options.
NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 107 CORPORATE INFORMATION
ABN 24 092 319 698
Directors
N R Montarello (Executive Chairman)
D Griffiths (Deputy Chairman)
S Penglis
F de Vicente
K Jones (Chief Executive Officer)
Company Secretary
N Barker
Registered and Principal Office
45 Ventnor Avenue
West Perth WA 6005
Australia
Phone: +61 8 9389 4403
Share Register
Computershare Investor Services Pty Limited
Level 2, 45 St Georges Terrace
Perth WA 6000
Australia
Phone: 1300 850 505
ThinkSmart Limited shares are listed on the Australian Securities Exchange (ASX code: TSM)
Solicitors
Herbert Smith Freehills
250 St Georges Terrace
Perth WA 6000
Australia
Auditors
KPMG
235 St Georges Terrace
Perth WA 6000
Australia
Bankers
Westpac Banking Corporation
109 St Georges Terrace
Perth WA 6000
Australia
108 NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2013 109 45 Ventnor Avenue
West Perth WA 6005
Australia